us internal revenue service: irb96-03
TRANSCRIPT
-
8/14/2019 US Internal Revenue Service: irb96-03
1/56
3
Bulletin No. 1996January 16, 199
HIGHLIGHTSOF THIS ISSUE
These synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 964, page 16.
Section 1274A inflation-adjusted numbers for 1996. Thisruling provides the dollar amounts, increased by the1996 inflation-adjustment, for section 1274A of theCode. Rev. Rul. 9510 supplemented and superseded.
Rev. Rul. 965, page 29.
CPI adjustment for below-market loans1996. Theamount that section 7872(g) of the Code permits ataxpayer to lend to a qualified continuing care facilitywithout incurring imputed interest is published andadjusted for inflation for years 19871996. Rev. Rul.9511 supplemented and superseded.
T.D. 8631, page 7.
EE3495, page 49.
Temporary and proposed regulations under section 411
of the Code relating to the requirements of section204(h) of the Employee Retirement Income SecurityAct of 1974, as amended, relating to defined benefitplans and to individual account plans that are subjectto the funding standards of section 302 of ERISA.
T.D. 8635, page 5.
Final and temporary regulations under sections 401and 408 that provide guidance to nonbank trusteeswith respect to the adequacy of net worth requirementsthat must be satisfied in order to be or remain anapproved nonbank trustee.
EMPLOYEE PLANS
Rev. Rul. 967, page 12.
Disability mortality tables. This ruling provides mortalitytables for use under section 412(1) for plan years after1995 to calculate current liability for individuals entitledto benefits on account of disability.
Announcement 964, page 50.
An announcement discusses the publication of mortatables for use under section 412(1) for individuaentitled to benefits on account of disability. Tannouncement requests comments on the tables pulished in Rev. Rul. 967.
EMPLOYMENT TAX
T.D. 8634, page 17.
Final regulations relating to the income tax withholdirequirement on distribution of profits from certagaming activities made to members of Indian tribunder section 3402(r) of the Code.
ADMINISTRATIVE
Notice 961, page 30.
Notice of intention to issue regulations under secti1396 of the Code. The Service will clarify the relevaperiod under section 1396(d)(1)(A) during which sustantially all of the services performed by an employfor his or her employer must be performed within empowerment zone in a trade or business of temployer.
Rev. Proc. 9612, page 30.
Life insurance partnerships. The Service will not rule certain issues raised in connection with the transfer oflife insurance policy to an unincorporated organizatio
Rev. Proc. 963 amplified.
Rev. Proc. 9613, page 31.
Updated competent authority procedure. This procedusets forth the procedures concerning requests taxpayers for assistance of the U.S. competent author
(Continued on page
Finding Lists begin on page 52.
-
8/14/2019 US Internal Revenue Service: irb96-03
2/562
Mission of the ServiceThe purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the leastcost; serve the public by continually improving the
quality of our products and services; and perform in
manner warranting the highest degree of pubconfidence in our integrity, efficiency and fairness.
Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy
for raising revenue is determined by Congress.
With this in mind, it is the duty of the Service tocarry out that policy by correctly applying the laws
enacted by Congress; to determine the reasonablemeaning of various Code provisions in light of the
Congressional purpose in enacting them; and to
perform this work in a fair and impartial manner,with neither a government nor a taxpayer point of
view.
At the heart of administration is interpretation of theCode. It is the responsibility of each person in the
Service, charged with the duty of interpreting the
law, to try to find the true meaning of the statutoryprovision and not to adopt a strained construction in
the belief that he or she is protecting the revenue.
The revenue is properly protected only when we as-
certain and apply the true meaning of the statute.
The Service also has the responsibility of applyi
and administering the law in a reasonab
practical manner. Issues should only be raised examining officers when they have merit, nev
arbitrarily or for trading purposes. At the sam
time, the examining officer should never hesitato raise a meritorious issue. It is also importa
that care be exercised not to raise an issue or ask a court to adopt a position inconsistent w
an established Service position.
Administration should be both reasonable a
vigorous. It should be conducted with as litdelay as possible and with great courtesy a
considerateness. It should never try to overreac
and should be reasonable within the bounds of laand sound administration. It should, however,
vigorous in requiring compliance with law and
should be relentless in its attack on unreal t
devices and fraud.
-
8/14/2019 US Internal Revenue Service: irb96-03
3/563
Introduction
The Internal Revenue Bulletin is the authoritative
instrument of the Commissioner of Internal Revenue forannouncing official rulings and procedures of the
Internal Revenue Service and for publishing TreasuryDecisions, Executive Orders, Tax Conventions, legisla-
tion, court decisions, and other items of general
interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscrip-
tion basis. Bulletin contents of a permanent nature areconsolidated semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletinall substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings thatsupersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published
rulings apply retroactively unless otherwise indicated.
Procedures relating solely to matters of internalmanagement are not published; however, statements ofinternal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of theService on the application of the law to the pivotal facts
stated in the revenue ruling. In those based onpositions taken in rulings to taxpayers or technical
advice to Service field offices, identifying details and
information of a confidential nature are deleted toprevent unwarranted invasions of privacy and to comply
with statutory requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition ofother cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must beconsidered, and Service personnel and others con-
cerned are cautioned against reaching the sameconclusions in other cases unless the facts and
circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I. 19 86 Code.
This part includes rulings and decisions based provisions of the Internal Revenue Code of 1986.
Part II. Treaties and Tax Legislation.
This part is divided into two subparts as followSubpart A, Tax Conventions, and Subpart B, Legislatiand Related Committee Reports.
Part III. Administrative, Procedural, and Miscell anous
To the extent practicable, pertinent cross references these subjects are contained in the other Parts aSubparts. Also included in this part are Bank SecreAct Administrative Rulings. Bank Secrecy Act Admistrative Rulings are issued by the Department of tTreasurys Office of the Assistant Secreta(Enforcement).
Part IV. Items of General I nterest.
With the exception of the Notice of Proposed Rulemaing and the disbarment and suspension list included this part, none of these announcements are consodated in the Cumulative Bulletins.
The first Bulletin for each month includes an index fthe matters published during the preceding montThese monthly indexes are cumulated on a quarteand semiannual basis, and are published in the fiBulletin of the succeeding quarterly and semi-annu
period, respectively.
The Bulletin Index-Digest System, a research areference service supplementing the Bulletin, may obtained from the Superintendent of Documents onsubscription basis. It consists of four Services: ServiNo. 1, Income Tax; Service No. 2, Estate and GTaxes; Service No. 3, Employment Taxes; Service N4, Excise Taxes. Each Service consists of a basvolume and a cumulative supplement that provides (finding lists of items published in the Bulletin, (digests of revenue rulings, revenue procedures, aother published items, and (3) indexes of Public LawTreasury Decisions, and Tax Conventions.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.
-
8/14/2019 US Internal Revenue Service: irb96-03
4/56
4
HIGHLIGHTSOF THIS ISSUE Continued
ADMINISTRATIVE Continued
under the provisions of an income, estate or gift taxtreaty to which the United States is a party. Rev. Procs.9123 and 9126 superseded; Rev. Proc. 9122amplified; Rev. Rul. 72437 modified; Rev. Rul 9275
clarified.
Rev. Proc. 9614, page 41.
Obtaining relief. This procedure prescribes additionalconditions associated with obtaining relief otherwiseavailable under Rev. Proc. 6517, 19651 C.B. 833.Rev. Rul. 8280 and Rev. Proc. 6517 modified; Rev.Proc. 9124 superseded.
Rev. Proc. 9615, page 41.Advance valuation of art. Donors of art appraised $50,000 or more and executors or administrators estates including art appraised at $50,000 or momay request that the Service issue a statement of valfor the art. Rev. Proc. 6649 modified.
Rev. Proc. 9616, page 45.Letter rulings; tax-exempt obligations. Revised procedurare provided for obtaining a letter ruling under sectio103, 141150, 1394, and 7871(c) of the Code. ReProcs. 8832 and 8833 obsoleted.
T.D. 8630, page 19.Final income, estate, and gift regulations relating actuarial tables exceptions.
-
8/14/2019 US Internal Revenue Service: irb96-03
5/565
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 1 01 . Certain Death Benefits
The Service will not rule on certain issuesraised in connection with the transfer of a lifeinsurance policy to an unincorporated organiza-tion. See Rev. Proc. 9612, page 30.
Section 10 3. Interest on State and
Local Bonds
A revenue procedure sets forth procedures forrequesting a ruling under 103, 141150, 1395,and 7871(c) of the Code. See Rev. Proc. 9616,page 45.
Section 170 . Charitable, etc.,Contributions and Gifts
26 CFR 1.170A13: Recordkeeping and returnrequirements for deductions for charitablecontributions.
The contributor of art appraised at $50,000 ormore may request that the Service issue aStatement of Value for the art. See Rev. Proc.9615, page 41.
Section 4 01 . Qualified Pension,Profit-sharing, and Stock BonusPlans
26 CFR 1.401(f)1: Certain custodial accountson annuity contracts.
T.D. 8635
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Nonbank Trustee Net WorthRequirements
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Final and temporaryregulations.
SUMMARY: This document containsregulations that provide guidance tononbank trustees with respect to theadequacy of net worth requirementsthat must be satisfied in order to be orremain an approved nonbank trustee.These regulations affect nonbanktrustees and custodians of individualretirement accounts, and nonbankcustodians of qualified plans and tax-
sheltered annuities.
EFFECTIVE DATE: These regulationsare effective December 20, 1995.
FOR FURTHER INFORMATIONCONTACT: Marjorie Hoffman, (202)622-6030 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On December 6, 1994, temporaryregulations (TD 8570 [19942 C.B.49]) under section 401 were publishedin the Federal Register (59 FR 62570).A notice of proposed rulemaking (EE3894 [19942 C.B. 49]), cross-referencing the temporary regulations,was published in the Federal Register(59 FR 62644) on the same day. Thetemporary regulations provide guidance
on the adequacy of net worth require-ments for nonbank trustees and custo-dians of individual retirement plans,and for nonbank custodians of custodialaccounts of qualified plans and tax-sheltered annuities.
After consideration of all of thecomments, the temporary regulationsare replaced and the proposed regula-tions are adopted as revised by thisTreasury decision. Because section401(d)(1), under which 1.40112 wasoriginally issued, was repealed by
section 237(a) of the Tax Equity andFiscal Responsibility Act of 1982,Public Law 97248 (1982), these finalregulations also move all the rules fornonbank trustees and custodians thatwere previously in 1.40112(n) to 1.4082.
Explanation of Provisions
The fiduciary conduct rules for non-bank trustees and custodians under
longstanding Treasury regulations re-quire nonbank trustees and custodiansto maintain a minimum amount of networth in order to qualify as anapproved nonbank trustee or custodian.Under this requirement, the nonbanktrustee or custodians net worth mustexceed the greater of a specified dollaramount or a percentage of the value ofall assets held in fiduciary accounts ofretirement plans. A primary objectiveof this adequacy-of-net-worth require-ment has been to ensure that nonbank
trustees and custodians maintain a level
of solvency commensurate with thfinancial and fiduciary responsibiliti
Under the general net worth requiment, nonbank trustees and custodiamay not accept new accounts unletheir net worth exceeds the greater $100,000 or four percent of the valof all assets held in fiduciary accoun
Additionally, nonbank trustees acustodians must take whatever steps anecessary (including the relinquishmeof fiduciary accounts) to ensure ththeir net worth exceeds the greater $50,000 or two percent of the value all assets held by them in fiduciaaccounts.
For passive nonbank trustees acustodians (qualified nonbank entitthat have no discretion to direct tinvestment of assets), the percentarequirements are lower. Specifical
passive nonbank trustees and custdians may not accept new accoununless their net worth exceeds tgreater of $100,000 or two percent the value of all assets held in fiduciaaccounts. Additionally, they must taappropriate action (including the reliquishment of fiduciary accounts) ensure that their net worth exceeds tgreater of $50,000 or one percent the value of assets held in thfiduciary accounts.
The proposed and temporary regu
tions provide a special rule for passinonbank trustees and custodians thare broker-dealers and members of tSecurities Investor Protection Corpotion (SIPC). The proposed and temprary regulations provide that, to textent that assets held in any fiduciaaccounts are insured by SIPC in tevent of the members liquidati($500,000 per account, $100,000 which may be cash), the assets will disregarded in determining the value assets held in fiduciary accounts by ttrustee or custodian for purposes of tpercentage part of the net worrequirement.
The final regulations adopt the provsions of the proposed and temporaregulations. In addition, in response comments, the final regulations extethe SIPC-related relief to all nonbatrustees and custodians that are brokedealers and members of SIPC raththan limiting the relief to passinonbank trustees and custodians. T
final regulations provide that t
-
8/14/2019 US Internal Revenue Service: irb96-03
6/566
amount of the minimum net worthrequirement for nonbank trustees andcustodians that are SIPC members isreduced by either two percent of assetsinsured by SIPC (in the case of theminimum net worth requirement thatapplies to a trustee or custodian accept-ing additional accounts) or one percentof assets insured by SIPC (in the caseof the minimum net worth requirementthat must be satisfied to avoid a
mandatory relinquishment of accounts).An example in the regulations illus-trates this rule.
The final regulations also retain therule in the proposed and temporaryregulations that increased the initial networth requirement for all nonbanktrustees and custodians. The purpose ofthe rule is to better assure that theenterprises are sound and well-fundedduring their start-up period. This initialnet worth requirement requires all newentities applying for nonbank trustee or
custodian status to have a net worth ofnot less than $250,000 for the mostrecent taxable year preceding the appli-cants initial application.
This new initial net worth require-ment applies only to applications re-ceived after January 5, 1995. Pre-viously approved nonbank trustees andcustodians need only satisfy the ongo-ing net worth requirement.
Special Analyses
It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these regulations, and, there-fore, a Regulatory Flexibility Analysisis not required. Pursuant to section7805(f) of the Internal Revenue Code,the notice of proposed rulemakingpreceding these regulations was submit-ted to the Small Business Administra-tion for comment on its impact onsmall business.
Drafting Information
The principal author of these regula-tions is Marjorie Hoffman, Office ofthe Associate Chief Counsel ,(Employee Benefits and Exempt Orga-
nizations) IRS. However, other person-
nel from the IRS and Treasury Depart-ment participated in their development.
* * * * * *
Adoption of Amendments to theRegulations
Accordingly, 26 CFR part 1 isamended as follows:
PART 1INCOME TAXES
Paragraph 1. The authority citationfor part 1 is amended by adding anentry in numerical order to read asfollows:
Authority: 26 U.S.C. 7805. * * *
1.40112 also issued under 26U.S.C. 401(d)(1). * * *
1.40112 and 1.4082 [Amended]
Par. 2. Paragraph (n) of 1.40112
is redesignated as paragraph (e) of 1.4082 and the authority citationimmediately following 1.40112 isremoved.
1.40112T [Removed]
Par. 3. Section 1.40112T isremoved.
1.401(f)1 [Amended]
Par. 4. Section 1.401(f)1 is
amended by:1. Removing the language section
401(d)(1) and the regulations there-under and adding 1.4082(e) inits place in the last sentence ofparagraph (b)(1)(ii).
2. Removing the language 401(d)-(1) and adding 408(n) in its place inparagraph (d)(1).
Par. 5. Section 1.4082 is amendedby:
1. Removing the language 401(d)-
(1) and adding 408(n) in its placein paragraph (b)(2)(i).
2. Removing the language (b)(2)-(ii) and adding (e) in its place inparagraph (b)(2)(i).
3. Removing paragraph (b)(2)(ii).
4. Redesignating (b)(2)(iii) as (b)(2)-(ii)
5. Removing newly redesignatedparagraphs (e)(1) and (e)(9).
6. Further redesignating paragraphs(e)(2) through (e)(8) as paragraphs
(e)(1) through (e)(7), respectively.
7. Removing the language For tplan years to which this paragraapplies, the and adding The in place, and removing the language ((1)(i) and adding (b) in its placin the first sentence of newly desinated paragraph (e)(1).
8. Removing the language 40and adding 408 in its place, aremoving the language (n)(3) (n)(7) and adding (e)(2) to (e)(6
in its place, in the second sentence newly designated paragraph (e)(1).
9. Removing the language Comissioner of Internal Revenue, Attetion: E:EP, Internal Revenue ServiWashington, D.C. 20224 and addithe address prescribed by the Commissioner in revenue rulings, noticand other guidance published in tInternal Revenue Bulletin (s 601.601(d)(2)(ii)(b) of this chapterin its place in the third sentence newly designated paragraph (e)(1),
the last sentence of newly designat(e)(6)(9)(iv), and in the first sentenof newly designated (e)(6)(v)(B).
10. Removing the language (n)(8and adding (e)(7) in its place in tlast sentence of newly designated pagraph (e)(1).
11. Removing the language (n)(6and adding (e)(5) in its place newly designated paragraph (e)(2)(i
12. Redesignating newly designatparagraph (e)(5)(ii)(A) as paragra
(e)(5)(ii)(E).13. Removing the language (n)(7(i)(A) and adding (e)(6)(i)(A) its place in newly designated paragra(e)(5)(ii)(B)(2) and in newly designatparagraph (e)(5)(ii)(C)(2).
14. Removing the language (n)(6(iii)(A) and adding (e)(5)(iii)(A)its place in newly designated paragra(e)(5)(iii)(B).
15. Removing the language (n)(6(vi) and adding (e)(5)(vi) in place in newly designated paragra
(e)(5)(v)(A).16. Removing the language (n)(6
(viii)(C) and adding (e)(5)(viii)(Cin its place in newly designated pargraph (e)(5)(vi).
17. Removing the language (n)(3(v) and adding (e)(2)(v) in place, and removing the langua(n)(8) and adding (e)(7) in place, in newly designated paragra(e)(5)(viii).
18. Removing the language (n)(6
(i)(A)(3) and adding (e)(5)(i)(A
-
8/14/2019 US Internal Revenue Service: irb96-03
7/567
(3) in its place, and removing thelanguage (n)(5)(ii)(E) and adding(e)(4)(ii)(E) in its place, in the thirdsentence of newly designated paragraph(e)(6)(i)(A).
19. Removing the language (n)(7)-(iii)(A)(3) and adding (e)(6)(iii)(A)-(3) in its place in newly designatedparagraph (e)(6)(iii)(C).
20. Revising newly redesignatedparagraphs (e)(5)(ii)(A) and adding
(e)(5)(ii)(D).21. The revisions and addition read
as follows:
1.4082 Individual retirementaccounts
* * * * * *
(e) * * *
* * * * * *
(5) * * *
(ii) Adequacy of net worth(A) Ini-tial net worth requirement. In the caseof applications received after January5, 1995, no initial application will beaccepted by the Commissioner unlessthe applicant has a net worth of notless than $250,000 (determined as ofthe end of the most recent taxableyear). Thereafter, the applicant mustsatisfy the adequacy of net worthrequirements of paragraph (e)(6)(ii)(B)and (C) of this section.
* * * * * *
(D) Assets held by members ofSIPC1) For purposes of satisfyingthe adequacy-of-net worth requirementof this paragraph, a special rule isprovided for nonbank trustees that aremembers of the Securities InvestorProtection Corporation (SIPC) createdunder the Securities Investor ProtectionAct of 1970 (SIPA)(15 U.S.C. 78aaaet seq, as amended). The amount thatthe net worth of a nonbank trustee that
is a member of SIPC must exceed isreduced by two percent for purposes ofparagraph (e)(5)(ii)(B)(2), and one per-cent for purposes of paragraph (e)(5)-(ii)(C)(2), of the value of assets (deter-mined on an account-by-account basis)held for the benefit of customers (asdefined in 15 U.S.C. 78fff2(e)(4)) infiduciary accounts by the nonbanktrustee to the extent of the portion ofeach account that does not exceed thedollar limit on advances described in15 U.S.C. 78fff3(a), as amended,
that would apply to the assets in that
account in the event of a liquidationproceeding under the SIPA.
(2) The provisions of this specialrule for assets held in fiduciary ac-counts by members of SIPC are illus-trated in the following example.
Example(a) Trustee X is a broker-dealer andis a member of the Securities InvestmentProtection Corporation. Trustee X also has been
approved as a nonbank trustee for individualretirement accounts (IRAs) by the Commissionerbut not as a passive nonbank trustee. Trustee Xis the trustee for four IRAs. The total assets ofeach IRA (for which Trustee X is the trustee) asof the most recent valuation date before the lastday of Trustee Xs taxable year ending in 1995are as follows: the total assets for IRA1 is$3,000,000 (all of which is invested in se-curities); the value of the total assets for IRA2is $500,000 ($200,000 of which is cash and$300,000 of which is invested in securities), thevalue of the total assets for IRA3 is $400,000(all of which is invested in securities); and thevalue of the total assets of IRA4 is $200,000(all of which is cash). The value of all assets
held in fiduciary accounts, as defined in 1.4082(e)(6)(viii)(A), is $4,100,000.
(b) The dollar limit on advances described in15 U.S.C. 78fff3(a) that would apply to theassets in each account in the event of aliquidation proceeding under the Securities In-vestor Protection Act of 1970 in effect as of thelast day of Trustee Xs taxable year ending in1995 is $500,000 per account (no more that$100,000 of which is permitted to be cash).Thus, the dollar limit that would apply to IRA1is $500,000; the dollar limit for IRA2 is$400,000 ($100,000 of the cash and the $300,000of the value of the securities); the dollar limit forIRA3 is $400,000 (the full value of the accountbecause the value of the account is less than$500,000 and no portion of the account is cash);and the dollar limit for IRA4 is $100,000 (theentire account is cash and the dollar limit peraccount for cash is $100,000). The aggregatedollar limits of the four IRAs is $1,400,000.
(c) For 1996, the amount determined under 1.4082(e)(6)(ii)(B) is determined as followsfor Trustee X: (1) four percent of $4,100,000equals $164,000; (2) two percent of $1,400,000equals $28,000; and (3) $164,000 minus $28,000equals $136,000. Thus, because $136,000 ex-ceeds $100,000, the minimum net worth neces-sary for Trustee X to accept new accounts for1996 is $136,000.
(d) For 1996, the amount determined under 1.4082(e)(6)(ii)(C) for Trustee X is deter-mined as follows: (1) two percent of $4,100,000equals $82,000; (2) one percent of $1,400,000equals $14,000; and (3) $82,000 minus $14,000equals $68,000. Thus, because $68,000 exceeds$50,000, the minimum net worth necessary forTrustee X to avoid a mandatory relinquishmentof accounts for 1996 is $68,000.
* * * * * *
Margaret Milner Richardson,Commissioner of
Internal Revenue.
Approved December 12, 1995.
Leslie Samuels, Assistant Secretary of
the Treasu
(Filed by the Office of the Federal Register December 19, 1995, 8:45 a.m., and publishin the issue of the Federal Register December 20, 1995, 60 F.R. 65547)
Section 41 1. Mi nimum Vesting
Standards
26 CFR 1.411(d)6T: Section 204(h) notice.
T.D. 8631
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Notice of Significant Reduction inthe Rate of Future Benefit Accrual
AGENCY: Internal Revenue Servi(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contaitemporary regulations that proviguidance concerning the requiremenof section 204(h) of the EmployRetirement Income Security Act 1974, as amended (ERISA), relating defined benefit plans and to individu
account plans that are subject to tfunding standards of section 302 ERISA. It requires the plan administtor to give notice of certain plamendments to participants in the pland certain other parties. The text these temporary regulations also servas the text of the proposed regulatioset forth in the notice of proposrulemaking on this subject published *** [EE3495, page 49, thBulletin.]
EFFECTIVE DATE: December 11995.
FOR FURTHER INFORMATIOCONTACT: Betty J. Clary, (20622-6070 (not a toll-free number).
SUPPLEMENTARY INFORMATIO
Paperwork Reduction Act
These regulations are being issu
without prior notice and public proc
-
8/14/2019 US Internal Revenue Service: irb96-03
8/568
dure pursuant to the AdministrativeProcedure Act (5 U.S.C. 553). For thisreason, the collection of informationcontained in these regulations has beenreviewed and, pending receipt andevaluation of public comments, ap-proved by the Office of Managementand Budget under control number15451477. Responses to this collec-tion of information are required undersection 204(h) of ERISA upon the
adoption of certain amendments topension plans.
An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless the collection of informationdisplays a valid control number.
For further information concerningthis collection of information, andwhere to submit comments on thecollection of information and the ac-curacy of the estimated burden andsuggestions for reducing this burden,
please refer to the preamble to thecross-referencing notice of proposedrulemaking published in * * * [EE3495, page 00, this Bulletin].
The regulations do not involve anyissue of confidentiality.
Background
This document contains temporaryregulations that provide guidance onsection 204(h) of the Employee Retire-ment Income Security Act of 1974, asamended (ERISA), 29 U.S.C. 1054(h).Section 204(h) of ERISA was added bysection 11006(a) of the Single-Employer Pension Plan AmendmentsAct of 1986 (Title XI of Public Law99272), and was amended by section1879(u)(1) of the Tax Reform Act of1986, Public Law 99514. Pursuant tosection 101(a) of the ReorganizationPlan No. 4 of 1978, 29 U.S.C. 1001nt,the Secretary of the Treasury hasauthority to issue regulations underparts 2 and 3 of subtitle B of title I ofERISA (including section 204 ofERISA). Under section 104 of Re-organization Plan No. 4, the Secretaryof Labor retains enforcement authoritywith respect to parts 2 and 3 of subtitleB of title I of ERISA, but, inexercising such authority, is bound bythe regulations issued by the Secretaryof the Treasury.
Prior guidance relating to the re-quirements of section 204(h) has beenprovided in Rev. Proc. 8965 (19892
C.B. 786) and Rev. Proc. 9413 (1994
1 C.B. 566), and under Notice 8721(19871 C.B. 458), Notice 88131(19882 C.B. 546), Notice 8992(19892 C.B. 410), and Notice 9073(19902 C.B. 353). These temporaryregulations provide further guidance, inthe form of Questions and Answers.
The provisions in this TreasuryDecision are needed immediately toprovide guidance to the public withrespect to the notice requirements of
section 204(h) of ERISA. Issues relatedto section 204(h) arise in connectionwith a broad range of plan amend-ments, including amendments promptedby recent changes in the law. There-fore, it is found impracticable andcontrary to the public interest to issuethis Treasury decision with prior noticeunder 5 U.S.C. 553(b).
Explanation of Provisions
Section 204(h) of ERISA applies if adefined benefit plan or an individualaccount plan that is subject to thefunding standards of section 302 ofERISA is amended to provide for asignificant reduction in the rate offuture benefit accrual. It requires theplan administrator to give writtennotice of the amendment to participantsin the plan, alternate payees, andemployee organizations representingparticipants in the plan (or to a persondesignated, in writing, to receive thenotice on behalf of a participant,alternate payee, or employee organiza-tion). The notice must set forth the planamendment and its effective date andmust be provided after adoption of theamendment and not less than 15 daysbefore the effective date of theamendment.
A plan amendment that is subject tothe notice requirements of section204(h) of ERISA may also be subjectto additional reporting and disclosurerequirements under title I of ERISA,
such as the requirement to provide asummary of material modifications. Seesections 102(a) and 104(a) of ERISA,29 U.S.C. 1022 and 1024, and theregulations thereunder for guidance onwhen a summary of material modifica-tions must be provided. Section 204(h)notice must be provided at least 15days in advance of the effective date ofan amendment significantly reducingthe future rate of benefit accrual, eventhough a summary of material modi-fications describing the amendment is
provided at a later date.
Section 204(h) of ERISA does napply to an amendment that does naffect the rate of future benefit accruThese regulations clarify that amendment to a defined benefit plthat does not affect the annual benecommencing at normal retirement adoes not affect the rate of futubenefit accrual for purposes of secti204(h). Accordingly, the regulatioprovide that the plan administrator of
defined benefit plan is not required provide section 204(h) notice wrespect to an amendment that does naffect the future annual benefit payabat normal retirement age, even if tamendment affects other forms of pament (such as a single sum distribtion) or benefits commencing at a daother than normal retirement age (suas an early retirement benefit).
The regulations also clarify that amendment to an individual accouplan that does not change the amou
of future allocations to participanaccounts does not affect the rate future benefit accrual for purposes section 204(h) of ERISA. Accordingsection 204(h) notice is not requirwith respect to any such amendme
Even if an amendment affects trate of future benefit accrual, secti204(h) notice is required only if tamendment significantly reduces trate of future benefit accrual. Under tregulations, whether an amendmesignificantly reduces the rate of futu
benefit accrual is to be determinbased on reasonable expectations takiinto account all relevant facts acircumstances.
The regulations delegate to the Commissioner of Internal Revenue tauthority to provide that section 204(notice need not be provided wrespect to plan amendments that tCommissioner determines are necessaor appropriate, as a result of a chanin federal law, to maintain complianwith the law. The Commissioner mexercise this authority only through tpublication of revenue rulings, noticand other guidance in the InternRevenue Bulletin.
In situations in which section 204(notice is required with respect to amendment, the regulations proviguidance on the participants, alternapayees, and employee organizations whom the notice must be provideSpecifically, the regulations provithat the plan administrator is n
required to provide notice to a parti
-
8/14/2019 US Internal Revenue Service: irb96-03
9/569
pant or alternate payee whose rate offuture benefit accrual is reasonablyexpected not to be reduced by theamendment. For example, notice neednot be provided to participants (such asformer employees with a vested benefitunder the plan) who, prior to theamendment, were not entitled to accruefuture benefits under the plan. More-over, under the regulations, section204(h) notice is not required to be
provided to an employee organizationunless it represents one or more partici-pants to whom section 204(h) notice isrequired to be provided. Finally, theregulations clarify that employees whohave not yet become participants in theplan are not taken into account for anypurpose under section 204(h) ofERISA.1 Thus, the plan administrator isnot required to provide section 204(h)notice to such employees.
The regulations provide that a planthat is terminated in accordance with
title IV of ERISA is deemed to satisfysection 204(h) not later than the date oftermination established under section4048 of ERISA. Accordingly, section204(h) does not require that any furtherbenefits accrue under the plan after thatdate. However, if that date of termina-tion is deferred, benefits continue toaccrue until the deferred date oftermination absent an effective cessa-tion of accruals as of an earlierspecified date.
If the plan is not amended to
significantly reduce the rate of futurebenefit accrual prior to the termination,section 204(h) notice is not required.However, the regulations also affirmthat section 204(h) applies to anamendment that is effective prior to thetermination date and clarify that, ifsection 204(h) notice is required, it canbe provided either with or as part ofthe notice of intent to terminate orseparately.
The regulations also provide tworules applicable in situations in which aplan administrator was required toprovide section 204(h) notice withrespect to an amendment but failed toprovide timely notice to some of theparties to whom notice was required tobe provided. The first rule applieswhen the plan administrator fails toprovide timely notice with respect tomore than a de minimis percentage ofthe parties to whom section 204(h)
1This is not intended to affect the rights ofemployees under other provisions of ERISA.
notice was required. In such a situation,the amendment becomes effective inaccordance with its terms with respectto a participant to whom notice wasrequired if the participant was providedwith timely notice and any employeeorganization representing the partici-pant was also provided with timelynotice. The amendment also becomeseffective in accordance with its termswith respect to an alternate payee to
whom notice was required if thealternate payee was provided withtimely notice.
The second rule applies in a situationin which the plan administrator made agood faith effort to comply withsection 204(h) of ERISA with respectto an amendment, failed to providetimely section 204(h) notice to no morethan a de minimis percentage of theparties to whom notice was required,and provided timely notice to allemployee organizations with respect to
whom section 204(h) notice was re-quired. In such a situation, if the planadministrator, promptly upon discoveryof the omission, provides section204(h) notice to all parties who wererequired to be provided such notice butwere omitted, the plan amendmentbecomes effective in accordance withits terms with respect to all parties towhom section 204(h) notice was re-quired, including those who did notreceive notice prior to discovery of theomission.
Effective Dates
These temporary regulations areeffective for amendments adopted on orafter December 15, 1995, and amend-ments effective by their terms on orafter December 30, 1995.
Special Analyses
It has been determined that this
Treasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these regulations, and, there-fore, a Regulatory Flexibility Analysisis not required. Pursuant to section7805(f) of the Internal Revenue Code,these temporary regulations will be
submitted to the Chief Counsel for
Advocacy of the Small Business Aministration for comment on thimpact on small business.
Drafting Information
The principal author of these regutions is Betty J. Clary, Office of tAssociate Chief Counsel (EmployBenefits and Exempt OrganizationIRS. However, other personnel fro
the IRS and Treasury Departmeparticipated in their development.
* * * * * *
Adoption of Amendments to theRegulations
Accordingly, 26 CFR parts 1 a602 are amended as follows:
PART 1INCOME TAXES
Paragraph 1. The authority citatifor part 1 is amended by adding entry for section 1.411(d)6T to read follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.411(d)6T also issued undReorganization Plan No. 4 of 1978, U.S.C. 1001nt. * * *
Par. 2. 1.411(d)6T is added to reas follows:
1.411(d)6T Section 204(h) notice.
Q1: What are the requirements section 204(h) of the Employee Retiment Income Security Act of 1974, amended (ERISA)?
A1: (a) Requirements of sec204(h). Section 204(h) of ERISA geerally requires written notice of amendment to certain plans that proides for a significant reduction in trate of future benefit accrual. Secti204(h) generally requires the notice be provided to plan participants, altnate payees, and employee organiztions. The plan administrator muprovide the notice after adoption of tplan amendment and not less than days before the effective date of tplan amendment.
(b) Other notice requirements. Othprovisions of law may require that cetain parties be notified of a plan amenment. See, for example, sections 1and 104 of ERISA, and the regulatiothereunder, for the requirements relatito summary plan descriptions and su
maries of material modifications.
-
8/14/2019 US Internal Revenue Service: irb96-03
10/5610
Q2: To which plans does section204(h) of ERISA apply?
A2: Section 204(h) of ERISA ap-plies to defined benefit plans subject topart 2 of subtitle B of title I of ERISAand to individual account plans subjectto such part 2 and to the fundingstandards of section 302 of ERISA.Accordingly, individual account plansthat are not subject to the fundingstandards of section 302, such as
profit-sharing and stock bonus plans,are not subject to section 204(h).
Q3: What is section 204(h) notice?
A3: Section 204(h) notice is noticethat complies with section 204(h) ofERISA and the rules in this section.
Q4: For which amendments issection 204(h) notice required?
A4: (a) In general. Section 204(h)notice is required for an amendment toa plan described in Q&A2 of thissection that provides for a significant
reduction in the rate of future benefitaccrual.
(b) Delegation of authority to Com-missioner. The Commissioner of Inter-nal Revenue may provide throughpublication in the Internal RevenueBulletin of revenue rulings, notices, orother documents (see 601.601(d)(2) ofthis chapter) that section 204(h) noticeneed not be provided for plan amend-ments otherwise described in paragraph(a) of this Q&A4 that the Commis-sioner determines to be necessary or
appropriate, as a result of changes inthe law, to maintain compliance withthe requirements of the Internal Reve-nue Code of 1986, as amended (Code)(including requirements for taxqualification), ERISA, or other applica-ble federal law.
Q5: What is an amendment thataffects the rate of future benefit accrualfor purposes of section 204(h) ofERISA?
A5: (a) In general(1) Definedbenefit plans. For purposes of section204(h) of ERISA, an amendment to adefined benefit plan affects the rate offuture benefit accrual only if it isreasonably expected to change theamount of the future annual benefitcommencing at normal retirement age.
(2) Individual account plans. Forpurposes of section 204(h), an amend-ment to an individual account planaffects the rate of future benefit accrualonly if it is reasonably expected tochange the amounts allocated in the
future to participants accounts.
Changes in the investments or invest-ment options under an individual ac-count plan are not taken into accountfor this purpose.
(b) Determination of rate of futurebenefit accrual. In accordance withparagraph (a) of this Q&A5, the rateof future benefit accrual is determinedwithout regard to optional forms ofbenefit (other than the annual benefitdescribed in paragraph (a) of this
Q&A5), early retirement benefits, orretirement-type subsidies, within themeaning of such terms as used insection 411(d)(6) of the Code (section204(g) of ERISA). The rate of futurebenefit accrual is also determined with-out regard to ancillary benefits andother rights or features as defined in1.401(a)(4)4(e).
(c) Examples. These examples illus-trate the rules in this Q&A5:
Example 1. A plan is amended with respect to
future benefit accruals to eliminate a right tocommencement of a benefit prior to normalretirement age. Because the amendment does notaffect the annual benefit commencing at normalretirement age, it does not reduce the rate offuture benefit accrual for purposes of section204(h).
Example 2. A plan is amended to modify theassumptions used in converting an annuity formof distribution to a single sum form of distribu-tion. The use of these modified assumptionsresults in a lower single sum. Because theamendment does not affect the annual benefitcommencing at normal retirement age, it doesnot reduce the rate of future benefit accrual forpurposes of section 204(h).
Q6: What plan provisions are takeninto account in determining whetherthere has been a reduction in the rateof future benefit accrual?
A6: (a) Plan provisions taken intoaccount. All plan provisions that mayaffect the rate of future benefit accrualof participants or alternate payees mustbe taken into account in determiningwhether an amendment provides for asignificant reduction in the rate of
future benefit accrual. Such provisionsinclude, for example, the dollar amountor percentage of compensation onwhich benefit accruals are based; in thecase of a plan using the permitteddisparity under section 401(l) of theCode, the amount of disparity betweenthe excess benefit percentage or excesscontribution percentage and the basebenefit percentage or base contributionpercentage (all as defined in section401(l)); the definition of service orcompensation taken into account in
determining an employees benefit ac-
crual; the method of determining aveage compensation for calculating benfit accruals; the definition of normretirement age in a defined beneplan; the exclusion of current partipants from future participation; beneoffset provisions; minimum beneprovisions; the formula for determinithe amount of contributions and forftures allocated to participants accounin an individual account plan; and t
actuarial assumptions used to determicontributions under a target beneplan (as defined in 1.401(a)(48(b)(3)(i)).
(b) Plan provisions not taken inaccount. Plan provisions that do naffect the rate of future benefit accruof participants or alternate payees anot taken into account in determiniwhether there has been a reduction the rate of future benefit accrual. Fexample, provisions such as vestischedules or optional forms of bene
(other than the annual benefit describin Q&A5(a) of this section) are ntaken into account.
(c) Examples. The following exaple illustrates the rules in this Q&A
Example. A defined benefit plan providenormal retirement benefit equal to 50% of fiaverage compensation times a fraction (notexcess of one), the numerator of which equthe number of years of participation in the pand the denominator of which equals 20. A pamendment that changes the numerator denominator of that fraction must be taken iaccount in determining whether there has bee
reduction in the rate of future benefit accru
Q7: What is the basic principused in determining whether an amenment provides for a significant redution in the rate of future benefit accrufor purposes of section 204(h) ERISA?
A7: Whether an amendment prvides for a significant reduction in trate of future benefit accrual fpurposes of section 204(h) of ERISAdetermined based on reasonable expe
tations taking into account the relevafacts and circumstances at the time tamendment is adopted.
Q8: Are employees who have nyet become participants in a plan at ttime an amendment to the plan adopted taken into account for apurpose in applying section 204(h) ERISA with respect to the amendmen
A8: No. Employees who have nyet become participants in a plan at ttime an amendment to the plan
adopted are not taken into account f
-
8/14/2019 US Internal Revenue Service: irb96-03
11/5611
adopted taken into account for anypurpose in applying section 204(h) ofERISA with respect to the amendment?
A8: No. Employees who have notyet become participants in a plan at thetime an amendment to the plan isadopted are not taken into account forany purpose in applying section 204(h)of ERISA with respect to the amend-ment. Thus, if section 204(h) notice isrequired with respect to an amendment,
the plan administrator need not providesection 204(h) notice to suchemployees.
Q9: If section 204(h) notice isrequired with respect to an amendment,must such notice be provided to partici-pants or alternate payees whose rate offuture benefit accrual is not reduced bythe amendment?
A9: (a) In general. A plan admin-istrator need not provide section 204(h)notice to any participant whose rate offuture benefit accrual is reasonably
expected not to be reduced by theamendment, nor to any alternate payeeunder an applicable qualified domesticrelations order whose rate of futurebenefit accrual is reasonably expectednot to be reduced by the amendment. Aplan administrator need not providesection 204(h) notice to an employeeorganization unless the employee orga-nization represents a participant towhom section 204(h) notice is requiredto be provided.
(b) Facts and circumstances test.Whether a participant or alternatepayee is described in paragraph (a) ofthis Q&A9 is determined based on allrelevant facts and circumstances at thetime the amendment is adopted.
(c) Examples. The following exam-ples illustrate the rules in this Q&A9:
Example 1. Plan A is amended to reducesignificantly the rate of future benefit accrual ofall current employees who are participants in theplan. It is reasonable to expect based on the factsand circumstances that the amendment will notreduce the rate of future benefit accrual of
former employees who are currently receivingbenefits or that of former employees who areentitled to vested benefits. Accordingly, the planadministrator is not required to provide section204(h) notice to such former employees.
Example 2. Assume in Example 1 that Plan Aalso covers two groups of alternate payees. Thealternate payees in the first group are entitled toa certain percentage or portion of the formerspouses accrued benefit, and for this purpose theaccrued benefit is determined at the time theformer spouse begins receiving retirement bene-fits under the plan. The alternate payees in thesecond group are entitled to a certain percentageor portion of the former spouses accrued
benefit, and for this purpose the accrued benefit
was determined at the time the qualifieddomestic relations order was issued by the court.It is reasonable to expect that the benefits to bereceived by the second group of alternate payeeswill not be affected by any reduction in a formerspouses rate of future benefit accrual. Accord-ingly, the plan administrator is not required toprovide section 204(h) notice to the alternatepayees in the second group.
Example 3. Plan B covers hourly employeesand salaried employees. Plan B provides thesame rate of benefit accrual for both groups. Theemployer amends Plan B to reduce significantlythe rate of future benefit accrual of the salariedemployees only. At that time, it is reasonable toexpect that only a small percentage of hourlyemployees will become salaried in the future.Accordingly, the plan administrator is not re-quired to provide section 204(h) notice to theparticipants who are currently hourly employees.
Example 4. Plan C covers employees inDivision M and employees in Division N. Plan Cprovides the same rate of benefit accrual for bothgroups. The employer amends Plan C to reducesignificantly the rate of future benefit accrual ofemployees in Division M. At that time, it isreasonable to expect that in the future only asmall percentage of employees in Division Nwill be transferred to Division M. Accordingly,
the plan administrator is not required to providesection 204(h) notice to the participants who areemployees in Division N.
Example 5. Assume the same facts as in Example 4, except that at the time the amend-ment is adopted, it is expected that soonthereafter Division N will be merged intoDivision M in connection with a corporatereorganization (and the employees in Division Nwill become subject to the plans amendedbenefit formula applicable to the employees inDivision M). In this instance, the plan admin-istrator must provide section 204(h) notice to theparticipants who are employees in Division Mand to the participants who are employees inDivision N.
Q10: Does a notice fail to complywith section 204(h) of ERISA if itcontains a summary of the amendmentand the effective date, without the textof the amendment itself?
A10: No, the notice does not fail tocomply with section 204(h) of ERISAmerely because the notice contains asummary of the amendment, rather thanthe text of the amendment, if thesummary is written in a manner calcu-
lated to be understood by the averageplan participant and contains the effec-tive date. The summary need notexplain how the individual benefit ofeach participant or alternate payee willbe affected by the amendment.
Q11: How may section 204(h)notice be provided?
A11: A plan administrator may useany method reasonably calculated toensure actual receipt of the section204(h) notice. First class mail to the
last known address of the party is an
acceptable delivery method. Likewihand delivery is acceptable. Secti204(h) notice may be enclosed alowith other notice provided by temployer or plan administrator.
Q12: If a plan administrator fails provide section 204(h) notice to mothan a de minimis percentage of partipants and alternate payees to whosection 204(h) notice is required to provided, will the plan administrator
considered to have complied wsection 204(h) of ERISA with respeto participants and alternate payewho were provided with timely secti204(h) notice?
A12: The plan administrator will considered to have complied wsection 204(h) of ERISA with respeto a participant to whom section 204(
notice is required to be provided if tparticipant and any employee organiztion representing the participant we
provided with timely section 204(notice. The plan administrator will considered to have complied wsection 204(h) with respect to alternate payee to whom section 204(notice is required to be provided if talternate payee was provided w
timely section 204(h) notice. Accoringly, the amendment will becomeffective in accordance with its termwith respect to those participants aalternate payees.
Q13: Will a plan be considered have complied with section 204(h) ERISA if the plan administratprovides section 204(h) notice to
but a de minimis percentage of partipants and alternate payees to whosection 204(h) notice must provided?
A13: The plan will be consideredhave complied with section 204(h) ERISA and the amendment will bcome effective in accordance with
terms with respect to all parties
whom section 204(h) notice was quired to be provided (including thowho did not receive notice prior discovery of the omission), if the pladministrator
(a) Has made a good faith effort comply with the requirements of se
tion 204(h);
(b) Has provided section 204(notice to each employee organizatithat represents any participant to whosection 204(h) notice is required to
provided;
-
8/14/2019 US Internal Revenue Service: irb96-03
12/5612
(c) Has failed to provide section204(h) notice to no more than a deminimis percentage of participants andalternate payees to whom section204(h) notice is required to beprovided; and
(d) Provides section 204(h) notice tothose participants and alternate payeespromptly upon discovering the
oversight.
Q14: How does section 204(h) of
ERISA apply to a plan that is termi-nated in accordance with title IV ofERISA?
A14: (a) On and after terminationdate. Notwithstanding paragraph (b) ofthis Q&A14 or any other provisionsof this section, a plan that is terminatedin accordance with title IV of ERISA isdeemed to have satisfied section 204(h)of ERISA not later than the terminationdate (or date of termination, as applica-ble) established under section 4048 of
ERISA. Accordingly, section 204(h)would not require that any additionalbenefits accrue after such date.
(b) Amendment effective before ter-mination date. An amendment that iseffective before the termination date (ordate of termination, as applicable)established under section 4048 ofERISA is subject to section 204(h).Accordingly, if such amendment pro-vides for a significant reduction in therate of future benefit accrual, the plan
administrator must provide section204(h) notice (either separately or withor as part of the notice of intent toterminate) with respect to the amend-ment. However, if a plan is notamended to reduce significantly therate of future benefit accrual before thetermination date (for example, the plancontinues existing benefit accruals untilthe termination date), section 204(h)notice is not required.
Q15: When does section 204(h) ofERISA become effective?
A15: (a) Statutory effective date.With respect to defined benefit plans,section 204(h) of ERISA generallyapplies to plan amendments adopted onor after January 1, 1986. With respectto individual account plans, section204(h) applies to plan amendmentsadopted on or after October 22, 1986.
(b) Regulatory effective date. Thissection applies to amendments adoptedon or after December 15, 1995, andamendments effective by their terms on
or after December 30, 1995.
PART 602OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT
Par. 6. The authority citation for part602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 7. In 602.101, paragraph (c) isamended by adding to the table innumerical order the entry 1.411(d)6T . . . 15451477.
Margaret Milner Richardson,Commissioner of Internal Revenue.
Approved December 5, 1995.
Leslie Samuels, Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register onDecember 12, 1995, 1:23 p.m., and published
in the issue of the Federal Register forDecember 15, 1995, 60 F.R. 64401)
Section 41 2. Minimum FundingStandards
Disability mortality tables. This rul-ing provides mortality tables for useunder section 412(1) for plan yearsafter 1995 to calculate current liabilityfor individuals entitled to benefits onaccount of disability.
Rev. Rul. 967
ISSUE
What alternative mortality tablesmay be used to calculate a planscurrent liability under 412(l) of theInternal Revenue Code for individualswho are entitled to benefits under theplan on account of disability?
LAW AND ANALYSIS
Section 412(l) provides additionalfunding requirements for certain under-funded defined benefit pension plansthat have more than 100 participantsand that are not multiemployer plans.In general, the additional funding re-quirements are determined based on aplans unfunded current liability.
Section 751(a) of the RetirementProtection Act of 1994 added 412(l)-(7)(C)(ii) to the Code, effective forplan years beginning after December
31, 1994. Section 412(l)(7)(C)(ii)
provides that, for purposes of determiing current liability, the mortality tabused shall be the table prescribed the Secretary, and sets forth the bafor establishing a table. For plan yeabeginning before the effective date the first tables prescribed und 412(l)(7)(C)(ii)(II), the table must based on the prevailing commissionestandard table (described in 807((5)(A)) used to determine reserves f
group annuity contracts issued on Janary 1, 1993. Rev. Rul. 9528, 1995C.B. 74, sets forth this mortality tab
Section 412(l)(7)(C)(iii)(I) providthat, for plan years beginning afDecember 31, 1995, the Secretary shestablish mortality tables that may used, in lieu of the tables und 412(l)(7)(C)(ii), to determine curreliability under 412(l) for individuwho are entitled to benefits under tplan on account of disability. TSecretary must establish separate tabl
for individuals whose disabilities ocurred in plan years beginning befoJanuary 1, 1995, and for individuwhose disabilities occur in plan yeabeginning after December 31, 199Under 412(l)(7)(C)(iii)(II), the mtality table for individuals whose dabilities occur in plan years beginniafter December 31, 1994, applies onwith respect to individuals who adisabled within the meaning of titleof the Social Security Act and tregulations thereunder.
The alternative mortality tablprovided for under 412(l)(7)(C)(are permitted to be used in tspecified circumstances, but are nrequired to be used. For any individufor whom these alternative mortaltables are not used, the mortality tabprescribed under 412(l)(7)(C)(ii) mube used.
The alternative mortality tablprovided under 412(l)(7)(C)(iii) mbe used only for individuals who aentitled to benefits under the plan
account of disability. For this purpoan individual is entitled to benefunder a plan on account of disability because of the occurrence of a dability, the individual is entitled receive a benefit to which the indiviual would not be entitled in tabsence of the disability. For exampan individual is entitled to benefunder a plan on account of disability upon the occurrence of a disability atime before the individual would habeen entitled to receive an unreduc
normal retirement benefit upon reti
-
8/14/2019 US Internal Revenue Service: irb96-03
13/5613
ment, the individual is entitled toreceive the same annuity that wouldhave been payable to the individualupon retirement at normal retirementage. As a further example, an individ-ual is entitled to benefits under a planon account of disability if the individ-ual, who would not otherwise beearning service credits, is credited withyears of service for the period ofdisability. On the other hand, an
individual is not entitled to benefits onaccount of disability if the individualseparates from the service of theemployer because of a disability, butmerely receives the same benefit thatwould have been payable if the individ-ual had separated from service withoutthe occurrence of the disability.
For purposes of 412(l)(7)(C)(iii),any individual who has become entitledto benefits under a plan on account ofdisability continues to be consideredentitled to benefits under the plan on
account of disability until the individ-ual recovers from disability and be-comes entitled to different benefitsunder the plan than the individualwould have been entitled to if theindividual had not recovered.
Under 412(l), nothing prohibits theuse of an additional actuarial assump-tion that meets the requirements of 412(c) regarding the probability ofrecovery from disability.
HOLDING
The mortality tables provided below,as applicable, may be used for planyears beginning after December 31,1995, in lieu of the mortality tablerequired to be used under 412(l)(7)-(C)(ii), for purposes of determiningcurrent liability. The first mortalitytable provided below may be used forplan years beginning after December31, 1995, in lieu of the mortality tablerequired to be used under 412(l)(7)-
(C)(ii), for purposes of determiningcurrent liability for individuals entitledto benefits under the plan on accountof disability, whose disabilities oc-curred in plan years beginning beforeJanuary 1, 1995. The second mortalitytable provided below may be used forplan years beginning after December31, 1995, in lieu of the mortality tablerequired to be used under 412(l)(7)-(C)(ii), for purposes of determiningcurrent liability for individuals entitledto benefits under the plan on account
of disability, whose disabilities occur in
plan years beginning after December31, 1994. This second mortality tablemay be used only for individuals whoare disabled within the meaning of titleII of the Social Security Act and theregulations thereunder. The mortalitytable required to be used under 412(l)(7)(C)(ii) must be used forindividuals whose disabilities occur inplan years beginning after December31, 1994, but who are not disabled
within the meaning of title II of theSocial Security Act and the regulationsthereunder.
MORTALITY TABLE FORDISABILITIES OCCURRING INPLAN YEARS BEGINNINGBEFORE JANUARY 1, 1995
The following mortality table is themortality table that is permitted to beused for individuals entitled to benefits
under the plan on account of disability,whose disabilities occurred in planyears beginning before January 1,1995. The table sets forth the numberliving based upon a starting populationof one million lives at age 15 (l
x), and
the annual rate of mortality (qx), to be
used for each age and each gender.
Age lx
male qx
male
15 1,000,000.00 0.00624516 993,755.00 0.00649317 987,302.55 0.00674918 980,639.24 0.00701819 973,757.12 0.00729720 966,651.61 0.00758621 959,318.59 0.00788722 951,752.45 0.00820123 943,947.13 0.00852624 935,899.03 0.00886425 927,603.22 0.00921626 919,054.43 0.00958127 910,248.97 0.00996428 901,179.25 0.01035829 891,844.84 0.010768
30 882,241.45 0.01119031 872,369.17 0.01162432 862,228.75 0.01207133 851,820.79 0.01253134 841,146.62 0.01302235 830,193.21 0.01342136 819,051.19 0.01389237 807,672.93 0.01438038 796,058.59 0.01488939 784,206.07 0.01542040 772,113.62 0.01597641 759,778.33 0.01656242 747,194.88 0.017179
43 734,358.82 0.017831
Age lx
male qx
male
44 721,264.47 0.01852145 707,905.93 0.01925146 694,278.03 0.02002547 680,375.11 0.02084648 666,192.01 0.02171649 651,724.99 0.02263950 636,970.59 0.02362451 621,922.79 0.02461752 606,612.92 0.02586553 590,922.88 0.02707654 574,923.05 0.02826355 558,674.00 0.02945156 542,220.49 0.03066757 525,592.21 0.03193758 508,806.38 0.03328159 491,872.79 0.03470060 474,804.81 0.03618561 457,623.99 0.03772962 440,358.30 0.03932563 423,041.21 0.04097664 405,706.67 0.04272065 388,374.88 0.04460766 371,050.64 0.04668467 353,728.52 0.04900068 336,395.82 0.05159469 319,039.81 0.05446870 301,662.35 0.05761271 284,282.98 0.06101972 266,936.32 0.06467973 249,671.14 0.06860474 232,542.70 0.07288175 215,594.76 0.07696576 199,001.51 0.08102777 182,877.01 0.08522278 167,291.87 0.08959279 152,303.86 0.09418280 137,959.57 0.09903481 124,296.89 0.10419482 111,345.90 0.10970583 99,130.69 0.11560984 87,670.29 0.12195285 76,978.73 0.12877786 67,065.64 0.13612887 57,936.13 0.14404888 49,590.54 0.15258189 42,023.97 0.16177190 35,225.71 0.17166291 29,178.79 0.182297
92 23,859.59 0.19372093 19,237.51 0.20597594 15,275.06 0.21910695 11,928.20 0.23408696 9,135.98 0.24843697 6,866.27 0.26395498 5,053.89 0.28080399 3,634.74 0.299154100 2,547.40 0.319185101 1,734.31 0.341086102 1,142.76 0.365052103 725.59 0.393102104 440.36 0.427255
105 252.21 0.469531
-
8/14/2019 US Internal Revenue Service: irb96-03
14/5614
Age lx
male qx
male
106 133.79 0.521945107 63.96 0.586518108 26.45 0.665268109 8.85 0.760215110 2.12 1.000000
Age lx
female qx
female
15 1,000,000.00 0.00466716 995,333.00 0.00487317 990,482.74 0.00508618 985,445.15 0.00531219 980,210.46 0.00554620 974,774.22 0.00579021 969,130.27 0.00604622 963,270.91 0.00631323 957,189.78 0.00659124 950,880.94 0.00688125 944,337.93 0.00718526 937,552.86 0.00750227 930,519.34 0.00783428 923,229.65 0.00817929 915,678.56 0.00853730 907,861.41 0.00890531 899,776.90 0.00928232 891,425.18 0.00966633 882,808.66 0.01006134 873,926.72 0.01048935 864,760.10 0.01088536 855,347.19 0.01124637 845,727.96 0.01159938 835,918.36 0.01194739 825,931.64 0.01229240 815,779.29 0.01263641 805,471.10 0.01298142 795,015.28 0.01333043 784,417.73 0.01368444 773,683.76 0.01404545 762,817.37 0.01441746 751,819.83 0.01480047 740,692.90 0.01519748 729,436.59 0.01561149 718,049.35 0.01604350 706,529.69 0.01649551 694,875.48 0.01697052 683,083.44 0.01747053 671,149.97 0.01799754 659,071.29 0.018553
55 646,843.54 0.01914056 634,462.95 0.01976157 621,925.33 0.02041758 609,227.48 0.02111159 596,366.08 0.02184560 583,338.46 0.02262161 570,142.76 0.02344162 556,778.05 0.02430763 543,244.44 0.02522264 529,542.73 0.02618765 515,675.60 0.02720566 501,646.64 0.02827867 487,461.08 0.029408
68 473,125.82 0.030598
Age lx
female qx
female
69 458,649.12 0.03184870 444,042.06 0.03312371 429,334.06 0.03491672 414,343.43 0.03698673 399,018.52 0.03935274 383,316.35 0.04203375 367,204.41 0.04454076 350,849.13 0.04710477 334,322.73 0.04984078 317,660.08 0.052794
79 300,889.54 0.05601780 284,034.61 0.05955681 267,118.64 0.06346082 250,167.29 0.06777783 233,211.70 0.07255684 216,290.80 0.07784585 199,453.64 0.08369386 182,760.77 0.09014887 166,285.25 0.09726088 150,112.35 0.10507589 134,339.29 0.11364390 119,072.57 0.12301291 104,425.22 0.133216
92 90,514.11 0.14363493 77,513.20 0.15558194 65,453.62 0.16918195 54,380.11 0.18453796 44,344.97 0.20175797 35,398.06 0.22204398 27,538.17 0.24389999 20,821.64 0.268185100 15,237.59 0.295187101 10,739.65 0.325225102 7,246.85 0.358897103 4,645.98 0.395842104 2,806.90 0.438360
105 1,576.47 0.487816106 807.44 0.545886107 366.67 0.614309108 141.42 0.694884109 43.15 0.789474110 9.08 1.000000
MORTALITY TABLE FORDISABILITIES OCCURRING INPLAN YEARS BEGINNING AFTERDECEMBER 31, 1994
The following mortality table is the
mortality table that is permitted to beused for individuals entitled to benefitsunder the plan on account of disability,whose disabilities occur in plan yearsbeginning after December 31, 1994.This mortality table may be used onlyfor individuals who are disabled withinthe meaning of title II of the SocialSecurity Act and the regulations there-under. The table sets forth the numberliving based upon a starting populationof one million lives at age 15 (l
x), and
the annual rate of mortality (qx), to be
used for each age and each gender.
Age lx
male qx
male
15 1,000,000.00 0.02201016 977,990.00 0.02250217 955,983.27 0.02300118 933,994.70 0.02351919 912,028.08 0.02404520 890,098.36 0.02458321 868,217.07 0.02513322 846,396.17 0.02569723 824,646.33 0.02626924 802,983.70 0.02685725 781,417.96 0.02745726 759,962.57 0.02807127 738,629.66 0.02870428 717,428.04 0.02934529 696,375.11 0.02999930 675,484.55 0.03066131 654,773.52 0.03133132 634,258.81 0.03200633 613,958.72 0.03268934 593,889.03 0.03340535 574,050.16 0.03418436 554,426.83 0.03498137 535,032.43 0.03579638 515,880.41 0.03663439 496,981.64 0.03749340 478,348.31 0.03837341 459,992.65 0.03927242 441,927.82 0.04018943 424,167.18 0.04112244 406,724.58 0.04207145 389,613.27 0.04303346 372,847.04 0.04400747 356,439.16 0.04499348 340,401.90 0.04598949 324,747.15 0.04699350 309,486.31 0.04800451 294,629.73 0.04902152 280,186.69 0.05004253 266,165.58 0.05106754 252,573.31 0.05209355 239,416.00 0.05312056 226,698.23 0.05414457 214,423.88 0.05508958 202,611.48 0.05606859 191,251.46 0.05708060 180,334.83 0.05811861 169,854.13 0.05917262 159,803.52 0.060232
63 150,178.23 0.06130364 140,971.86 0.06242965 132,171.12 0.06366966 123,755.92 0.06508267 115,701.64 0.06672468 107,981.56 0.06864269 100,569.49 0.07083470 93,445.75 0.07328471 86,597.67 0.07597972 80,018.07 0.07890373 73,704.40 0.08207074 67,655.48 0.08560675 61,863.77 0.088918
76 56,362.97 0.092208
-
8/14/2019 US Internal Revenue Service: irb96-03
15/5615
Age lx
male qx
male
77 51,165.85 0.095625
78 46,273.11 0.099216
79 41,682.08 0.103030
80 37,387.58 0.107113
81 33,382.88 0.111515
82 29,660.19 0.116283
83 26,211.21 0.121464
84 23,027.49 0.127108
85 20,100.52 0.133262
86 17,421.88 0.139974
87 14,983.27 0.147292
88 12,776.35 0.155265
89 10,792.63 0.163939
90 9,023.30 0.173363
91 7,458.99 0.183585
92 6,089.63 0.194653
93 4,904.27 0.206615
94 3,890.97 0.219519
95 3,036.83 0.234086
96 2,325.95 0.248436
97 1,748.10 0.263954
98 1,286.68 0.280803
99 925.38 0.299154
100 648.55 0.319185
101 441.54 0.341086
102 290.94 0.365052
103 184.73 0.393102
104 112.11 0.427255
105 64.21 0.469531
106 34.06 0.521945
107 16.28 0.586518
108 6.73 0.665268
109 2.25 0.760215110 0.54 1.000000
Age lx
female qx
female
15 1,000,000.00 0.007777
16 992,223.00 0.008120
17 984,166.15 0.008476
18 975,824.36 0.008852
19 967,186.36 0.009243
20 958,246.66 0.009650
21 948,999.58 0.010076
22 939,437.46 0.010521
23 929,553.63 0.010984
24 919,343.42 0.011468
25 908,800.39 0.011974
26 897,918.41 0.012502
27 886,692.64 0.013057
28 875,115.09 0.013632
29 863,185.52 0.014229
30 850,903.25 0.014843
31 838,273.30 0.015473
32 825,302.69 0.016103
33 812,012.85 0.016604
34 798,530.18 0.017121
Age lx
female qx
female
35 784,858.55 0.017654
36 771,002.66 0.018204
37 756,967.32 0.018770
38 742,759.05 0.019355
39 728,382.95 0.019957
40 713,846.61 0.020579
41 699,156.36 0.021219
42 684,320.96 0.021880
43 669,348.02 0.022561
44 654,246.86 0.02326345 639,027.11 0.023988
46 623,698.13 0.024734
47 608,271.58 0.025504
48 592,758.22 0.026298
49 577,169.87 0.027117
50 561,518.75 0.027961
51 545,818.12 0.028832
52 530,081.10 0.029730
53 514,321.79 0.030655
54 498,555.25 0.031609
55 482,796.42 0.032594
56 467,060.15 0.033608
57 451,363.19 0.034655
58 435,721.20 0.035733
59 420,151.58 0.036846
60 404,670.67 0.037993
61 389,296.02 0.039176
62 374,044.96 0.040395
63 358,935.41 0.041653
64 343,984.68 0.042950
65 329,210.53 0.044287
66 314,630.79 0.045666
67 300,262.86 0.046828
68 286,202.15 0.048070
69 272,444.41 0.049584
70 258,935.53 0.051331
71 245,644.11 0.053268
72 232,559.14 0.055356
73 219,685.59 0.057573
74 207,037.63 0.059979
75 194,619.72 0.062574
76 182,441.59 0.065480
77 170,495.31 0.068690
78 158,783.99 0.072237
79 147,313.91 0.076156
80 136,095.07 0.080480
81 125,142.14 0.085243
82 114,474.65 0.090480
83 104,116.98 0.096224
84 94,098.43 0.102508
85 84,452.59 0.109368
86 75,216.18 0.116837
87 66,428.15 0.124948
88 58,128.08 0.133736
89 50,354.26 0.143234
90 43,141.82 0.153477
91 36,520.54 0.164498
Age lx
female qx
female
92 30,512.99 0.176332
93 25,132.57 0.189011
94 20,382.24 0.202571
95 16,253.39 0.217045
96 12,725.67 0.232467
97 9,767.37 0.248870
98 7,336.57 0.266289
99 5,382.92 0.284758
100 3,850.09 0.303433
101 2,681.85 0.327385
102 1,803.85 0.359020
103 1,156.23 0.395842
104 698.55 0.438360
105 392.33 0.487816
106 200.95 0.545886
107 91.25 0.614309
108 35.20 0.694884
109 10.74 0.789474
110 2.26 1.000000
EFFECTIVE DATE
This revenue ruling is effective f
plan years beginning after Decemb
31, 1995.
DRAFTING INFORMATION
The principal author of this reven
ruling is Edward Sypher of t
Employee Plans Division. For furth
information regarding this revenue ru
ing, please contact the Employee Pla
Divisions taxpayer assistance te
phone service at (202) 622-6076 b
tween 2:30 and 4:00 Eastern time (n
a toll-free number) Monday throu
Thursday. Mr. Syphers number
(202) 622-6245 (also not a toll-fr
number).
Section 483. Interest on CertainDeferred Payments
26 CFR 1.4831: Computation of interest oncertain deferred payments.
As defined by section 1274A, the definitifor both qualified debt instruments and cmethod debt instruments have dollar ceilingsthe stated principal amount. The limits to stated principal amount are adjusted for inflatfor sales or exchanges occurring in the 19calendar year. See Rev. Rul. 964, page 16.
Section 76 1. Definitions
The Service will not rule on certain issuraised in connection with the transfer of a
-
8/14/2019 US Internal Revenue Service: irb96-03
16/5616
insurance policy to an unincorporated organiza-tion. See Rev. Proc. 9612, page 30.
Section 1274. Determination of IssuePrice in the Case of Certain DebtInstruments Issued for Property
26 CFR 1.1274A1: Special rules for certaintransactions where stated principal amount doesnot exceed $2,800,000.
As defined by section 1274A, the definitionsfor both qualified debt instruments and cashmethod debt instruments have dollar ceilings onthe stated principal amount. The limits to thestated principal amount are adjusted for inflationfor sales or exchanges occurring in the 1996calendar year. See Rev. Rul. 964, this page.
Section 12 74 A. Special Rules forCertain Transactions Where StatedPrincipal Amount Does Not Exceed$2 ,800 ,000
(Also 1274, 483; 1.4831, 1.1274A1.)
Section 1274A inflation-adjusted num-bers for 1996. This ruling provides thedollar amounts, increased by the 1996inflation-adjustment, for section 1274Aof the Code. Rev. Rul. 9510 supple-mented and superseded.
Rev. Rul. 964
This revenue ruling provides thedollar amounts, increased by the 1996
inflation adjustment, for 1274A ofthe Internal Revenue Code.
BACKGROUND
In general, 483 and 1274 of theCode determine the principal amount of
a debt instrument given in considera-tion for the sale or exchange ofnonpublicly traded property. In addi-tion, any interest on a debt instrumentsubject to 1274 is taken into accountunder the original issue discount provi-sions of the Code. Section 1274A,however, modifies the rules under 483 and 1274 for certain types ofdebt instruments.
In the case of a qualified debt
instrument, the discount rate used forpurposes of 483 and 1274 of theCode may not exceed 9 percent,compounded semiannually. Section1274A(b) defines a qualified debtinstrument as any debt instrumentgiven in consideration for the sale orexchange of property (other than new 38 property within the meaning of 48(b), as in effect on the day beforethe date of enactment of the RevenueReconciliation Act of 1990) if thestated principal amount of the instru-
ment does not exceed the amountspecified in 1274A(b). For debt in-struments arising out of sales orexchanges before January 1, 1990, thisamount is $2,800,000.
In the case of a cash method debtinstrument, as defined in 1274A(c)of the Code, the borrower and lendermay elect to use the cash receipts anddisbursements method of accounting. Inparticular, for any cash method debtinstrument, 1274 does not apply, andinterest on the instrument is accounted
for by both the borrower and the lenderunder the cash method of accounting.A cash method debt instrument is aqualified debt instrument that meets thefollowing additional requirements: (A)In the case of instruments arising outof sales or exchanges before January 1,
1990, the stated principal amount donot exceed $2,000,000, (B) The lenddoes not use an accrual method accounting and is not a dealer wrespect to the property sold or echanged, (C) Section 1274 would haapplied to the debt instrument but fan election under 1274A(c); and (An election under 1274A(c) is joinmade with respect to the debt instrment by the borrower and lend
Section 1.1274A1(c)(1) of the IncomTax Regulations provides rules cocerning the time for, and manner making this election.
Section 1274A(d)(2) of the Coprovides that, for any debt instrumearising out of a sale or exchange duriany calendar year after 1989, the dolamounts stated in 1274A(b) a 1274A(c)(2)(A) are increased by tinflation adjustment for the calendyear. Any increase due to the inflatiadjustment is rounded to the neare
multiple of $100 (or, if the increasea multiple of $50 and not of $100, tincrease is increased to the nearmultiple of $100). The inflation adjument for any calendar year is tpercentage (if any) by which the Cfor the preceding calendar year exceethe CPI for calendar year 1988. Secti1274A(d)(2)(B) defines the CPI for acalendar year as the average of tConsumer Price Index as of the cloof the 12-month period ending September 30 of that calendar year.
INFLATION-ADJUSTEDAMOUNTS
For debt instruments arising out sales or exchanges after December 31989, the inflation-adjusted amoununder 1274A are shown in Table
-
8/14/2019 US Internal Revenue Service: irb96-03
17/5617
TABLE 1
REV. RUL. 964
Inflation-Adjusted Amounts Under 1274A
Calendar Year
of Sale
or Exchange
1274A(b) Amount
(qualified debt
instrument
1274A(c) (2) (A) Amount
(cash method debt
instrument)
1990 $2,933,200 $2,095,100
1991 $3,079,600 $2,199,700
1992 $3,234,900 $2,310,600
1993 $3,332,400 $2,380,300
1994 $3,433,500 $2,452,500
1995 $3,523,600 $2,516,900
1996 $3,622,500 $2,587,500
Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982-1984 base,
published by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 9510, 19951 C.B. 168,
is supplemented and superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is David B. Silber of the Office
of the Assistant Chief Counsel (Finan-
cial Institutions and Products). For
further information regarding this reve-
nue ruling contact Mr. Silber on (202)622-3930 (not a toll-free call).
Section 2 03 1 . Definition of GrossEstate
26 CFR 20.20316: Valuation of householdand personal effects.
Executors and administrators of estates includ-ing art appraised at $50,000 or more may request
that the Service issue a Statement of Value forthe art. See Rev. Proc. 9615, page 41.
Section 25 12 . Valuation of Gifts
26 CFR 25.25121: Valuation of property, ingeneral.
The donor of a gift of art appraised at $50,000or more may request that the Service issue aStatement of Value for the art. See Rev. Proc.9615, page 41.
Section 34 02 . Income Tax Collectedat Source
26 CFR 31.3402(r)1: Withholding ondistributions of Indian gaming profits to tribalmembers.
T.D. 8634
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
Withholding on Distributions of IndianGaming Profits to Tribal Members
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document containsfinal regulations relating to the incometax withholding requirement on dis-tributions of profits from certain gam-ing activities made to members ofIndian tribes under section 3402(r) ofthe Internal Revenue Code of 1986.Those affected by the regulations arepersons, including Indian tribes, mak-ing payments to members of Indiantribes from net revenues of certaingaming activities conducted or licensedby the tribes. Also affected are mem-bers of Indian tribes who receive thepayments.
DATES: These regulations are effectiveDecember 19, 1995. For the date of
applicability, see 31.3402(r)1(b).
FOR FURTHER INFORMATIOCONTACT: Rebecca Wilson (20622-6040 (not a toll-free number).
SUPPLEMENTARY INFORMATIO
Background
This document contains amendmento the Employment Tax Regulatio(26 CFR part 31) under secti3402(r). Section 3402(r) was added section 701 of the Uruguay RouAgreements Act, which approved t
trade agreements resulting from tUruguay Round of multilateral tranegotiations under the auspices of tGeneral Agreement on Tariffs aTrade (GATT) and the Statement Administrative Action to implement tAgreements.
On December 22, 1994, temporaregulations (TD 8574 [19951 C194]) relating to withholding on dtributions of Indian gaming profits tribal members under section 3402were published in the Federal Regis(59 FR 65939). A notice of proposrulemaking (EE6094 [19951 C857]) cross-referencing the temporaregulations was published in the Feeral Register for the same day (59 F65982). No public hearing was rquested or held.
Also on December 22, 1994, the IRmailed a copy of Notice 1026, proviing withholding tables for use in 199to Indian tribes and gaming establisments listed with the National Indi
Gaming Commission. For 1996 a
-
8/14/2019 US Internal Revenue Service: irb96-03
18/5618
subsequent years, tables will be printedin a supplement to Circular E.
The IRS received written commentsresponding to the notice of proposedrulemaking. After consideration of thecomments, the regulations proposed byEE6094 are adopted as revised bythis Treasury decision, and the corre-sponding temporary regulations arewithdrawn. The regulations contain nosubstantive changes.
Explanation of Provisions
1. Indian Gaming Regulatory Act.Net revenue from certain gaming ac-tivities conducted or licensed by anIndian tribe may be used to maketaxable distributions to members of theIndian tribe. The tribe must notify itsmembers of the tax liability at the timethe payments are made. 25 U.S.C.2710(b)(3) and (d)(1).
2. Prior law. Prior to the addition ofsection 3402(r) in 1994, a tribe was notrequired to withhold on these distribu-tions to tribal members except to theextent backup withholding rules appliedunder section 3406.
3. Code section 3402(r). Section3402(r) generally requires that, forpayments made after December 31,1994, persons, including Indian tribes,making payments to members of Indiantribes from the net revenues of certaingaming activities conducted or licensedby the tribes deduct and withholdincome taxes from those payments.Section 3402(r) provides that the with-holding amount be calculated assumingthat the taxpayer is single and has oneexemption.
4. Legislative history. The legislativehistory of section 3402(r) indicates thatthe goal of the new withholding re-quirement was to make it easier fortribal members who receive gamingdistributions to meet their taxresponsibilities:
Distributions of net revenues from
gaming activity by an Indian tribe mayresult in significant tax liability to thetribes members. Establishing withhold-ing on such payments will more closelymatch estimated tax payments to ulti-mate tax liability. For some tribalmembers, this change may eliminatethe need to make quarterly estimatedtax payments. For others, it will reducethe likelihood that they will facepenalties for underpayment of tax atthe time of tax filing.
H.R. Rep. No. 826, 103d Cong., 2d
Sess., pt.1, at 170171 (1994).
5. Proposed regulations. The pro-posed regulations implement the with-holding method prescribed by section3402(r). They also permit additionalwithholding by agreement between thetribal member and the tribe.
6. Comments and final regulations.The IRS received only two writtencomments on the proposed regulations.After consideration of both comments,the proposed regulations are adopted
with no substantive changes.No comments were received from
the Chief Counsel for Advocacy of theSmall Business Administration.
Special Analyses
It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these regulations, and, there-fore, a Regulatory Flexibility Analysisis