Does anyone have a copy of the "Padilla Memo". The memo issued by Carol Gold on March 13, 1998? Thanks.

Here you are.


Internal Revenue Service Memorandum

Date: March 13, 1998

To: Robert Padilla, Chief, EP/EO Cincinnati Key District

From: Director, Employee Plans Division, CP:E:EP

Subject: Requirement for definitely determinable allocations

On September 8, 1994, we issued a field directive concerning whether a profit-sharing plan that provided for employer discretion to determine amounts allocated to particular groups of employees satisfied the definite predetermined formula requirement under section 1.401-1(b)(1)(ii) of the Income Tax Regulations. The field directive concluded that this requirement was not satisfied for such a plan.

On July 30, 1996, we issued a second field directive which rescinded the prior field directive and illustrated several plan designs that satisfied the definite predetermined formula requirement.

You have asked whether the first field directive was rescinded in its entirety or was limited to the illustrated plan designs. The first field directive was revoked in its entirety. Consequently, the second field directive should not be interpreted as applying only to the illustrated plan designs, but rather to all plan designs. A plan would not violate the definite predetermined formula requirement if the employer has discretion to determine the amount of the contributions to be allocated to particular groups of employees defined under the plan and the plan specifies the method for allocating these amounts among the employees within each group. The number of people in each group or the number of groups is immaterial provided that each group is identifiable under the plan and the identity of particular employees in each group is not subject to employer discretion. It is also immaterial that the purpose for forming the groups is to satisfy the cross testing requirements under section 1.401(a)(4)-8. For example, a plan with defined groups including a group with one person (i.e. 100% shareholder) would not violate the definite predetermined formula requirement.

Although the plan can provide for employer discretion to determine the amount of employer contributions for each group, the plan must require that the employer notify the trustee, in writing, of the amount of contributions for each group. This requirement does not mean that the plan must provide the specific amount of contributions for each group. Instead, the plan must provide that the trustee be given written notification from the employer as to the amount of the contribution to be allocated to each group.

If you have any further questions regarding this matter, please call Mr. Al Reich of Technical Branch 5 at (202) 622-7976.

Date Published: 03-13-1998

Date Added to File: 05/03/99 09:55 PM EDT

Microfiche Number: Doc 1999-15303 (2 original pages)