I'm handling a plan that has already terminated and has payed out the assets to the participants as required. There ended up being excess assets and the company is going to take them back. I understand there is a 20% or 50% excise tax penalty under 4980 but the company is a tax-exempt org so the excise tax does not apply. It seems like they don't have to file a 5330 since the won't be paying the tax... is that correct? Are there any other things the company needs to do besides the possible 5330?
Thanks!
Full Version: Reversion of Excess Assets
You are correct, the reversion does not apply to a tax-exempt organization.
No form 5330 is required.
As for other reporting, I am not sure but I'd guess it is probably reported somewhere on their 990 though you might want to ask their CPA.
No form 5330 is required.
As for other reporting, I am not sure but I'd guess it is probably reported somewhere on their 990 though you might want to ask their CPA.
QUOTE (Lou S. @ Dec 19 2008, 01:36 PM) 
You are correct, the reversion does not apply to a tax-exempt organization.
Not so fast. Read IRC 4980(c)(1)(A) carefully. The sponsor must have been, at all times, exempt from taxation under Title A. That is not exactly the same as "I'm a non-profit."
It's my understanding that the IRS is very strict on this point. For example, from the 1999 Gray Book:
QUOTE
Q&A 99-28
If a tax-exempt employer had a de minimus amount of unrelated business income tax (UBTI) in a prior year, will the asset reversion penalty under IRC section 4980 apply? If so, would it be assessed in full or on some type of prorata basis?
Response
The penalty would apply in full; legislation would be required to achieve a prorata result.
If a tax-exempt employer had a de minimus amount of unrelated business income tax (UBTI) in a prior year, will the asset reversion penalty under IRC section 4980 apply? If so, would it be assessed in full or on some type of prorata basis?
Response
The penalty would apply in full; legislation would be required to achieve a prorata result.
Of course, the sponsor will want an opinion from legal counsel.
I understand that they have to have been exempt from tax at all times, not just non-profit. Bad wording on my part.
What is the "gray book?"
What is the "gray book?"
The Gray Book is a creation of the Enrolled Actuaries Meeting.
- Each year, a few months prior to the meeting, questions are gathered and presented to IRS actuaries and attorneys. Generally, these questions focus on situations that are ambiguous (at least to the questioner).
- The IRS responds, verbally never in writing, and the answers are paraphrased by an EA committee. These Q&A's are assembled, printed, and distributed to those who attend the EA meeting each spring.
It’s been issued every year since 1990, and is called “Gray Book” merely because the cover page is gray stock. I spell it "gray", but some people use "grey".
As far as I know, no edition is in the public domain. The recent editions carry a copyright notice like this:
Copyright © 2008, Enrolled Actuaries Meeting
All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.
Most of the recent editions also include this important footnote on every page:
The above response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.
- Each year, a few months prior to the meeting, questions are gathered and presented to IRS actuaries and attorneys. Generally, these questions focus on situations that are ambiguous (at least to the questioner).
- The IRS responds, verbally never in writing, and the answers are paraphrased by an EA committee. These Q&A's are assembled, printed, and distributed to those who attend the EA meeting each spring.
It’s been issued every year since 1990, and is called “Gray Book” merely because the cover page is gray stock. I spell it "gray", but some people use "grey".
As far as I know, no edition is in the public domain. The recent editions carry a copyright notice like this:
Copyright © 2008, Enrolled Actuaries Meeting
All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.
Most of the recent editions also include this important footnote on every page:
The above response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.
QUOTE (david rigby @ Dec 19 2008, 06:45 PM)
The Gray Book is a creation of the Enrolled Actuaries Meeting.
- Each year, a few months prior to the meeting, questions are gathered and presented to IRS actuaries and attorneys. Generally, these questions focus on situations that are ambiguous (at least to the questioner).
- The IRS responds, verbally never in writing, and the answers are paraphrased by an EA committee. These Q&A's are assembled, printed, and distributed to those who attend the EA meeting each spring.
It’s been issued every year since 1990, and is called “Gray Book” merely because the cover page is gray stock. I spell it "gray", but some people use "grey".
As far as I know, no edition is in the public domain. The recent editions carry a copyright notice like this:
Copyright © 2008, Enrolled Actuaries Meeting
All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.
Most of the recent editions also include this important footnote on every page:
The above response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.
- Each year, a few months prior to the meeting, questions are gathered and presented to IRS actuaries and attorneys. Generally, these questions focus on situations that are ambiguous (at least to the questioner).
- The IRS responds, verbally never in writing, and the answers are paraphrased by an EA committee. These Q&A's are assembled, printed, and distributed to those who attend the EA meeting each spring.
It’s been issued every year since 1990, and is called “Gray Book” merely because the cover page is gray stock. I spell it "gray", but some people use "grey".
As far as I know, no edition is in the public domain. The recent editions carry a copyright notice like this:
Copyright © 2008, Enrolled Actuaries Meeting
All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.
Most of the recent editions also include this important footnote on every page:
The above response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.
Someone should have noted that the Gray book cannot be cited as precedent by the IRS since it is not issued under any provision for issuing guidance under the IRC and IRS agents cannot cite it in an audit. Also there is no UBIT tax due if the amount of UBI does not exceed $1000 sinced the org is still exempt from tax. If you apply the rule literally as stated in the gray book then few if any tax exempt orgs will be eligible for a reversion because some de minimus amount of UBI is usually credited to their investments at some prior time. The other problem is whether the org even has any records that it received UBI that was not taxed.
As I recall from looking at this issue 4 or 5 years ago, there are at least 6-10 IRS PLRs where tax-exempt orgs terminating a DB plan have asked whether:
- they owe 4980 tax
- they owe income tax
Definitely look at those before definitively answering the question. I agree though -- I recall that the answer is generally no excise tax applies (because the company took no deduction when the contributions were made).
- they owe 4980 tax
- they owe income tax
Definitely look at those before definitively answering the question. I agree though -- I recall that the answer is generally no excise tax applies (because the company took no deduction when the contributions were made).
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