Menu
Tax Notes logo
HOMETax Notes ResearchFederalOther Documentspublic comments on regulations

Law Firm Recommends Changes to Proposed Retirement Annuity Regs

JAN. 31, 2006

Law Firm Recommends Changes to Proposed Retirement Annuity Regs

DATED JAN. 31, 2006
DOCUMENT ATTRIBUTES

 

January 31, 2006

 

 

Mr. John Tolleris Internal

 

Revenue Service Fax No: 1-202-927-1851

 

Re: Comment Regarding Proposed Treasury Regulation Section 1.414(c)-5(b)

 

Dear Mr. Tolleris:

This letter constitutes a comment regarding section 1.414(c)-5(b) of the Proposed Treasury Regulations. This section was originally proposed to become effective on January 1, 2006. I understand that this proposed effective date has been delayed by the IRS until January 1, 2007.

This section provides the general rule for determining when two or more separately incorporated tax-exempt entities are deemed to be under "common control" so as to be subject to aggregation for testing purposes under various employee benefit plan coverage and other tests. This section currently reads, in relevant part, as follows;

 

"In the case of an organization that is exempt from tax under section 501(a) (an exempt organization) whose employees participate in a plan, the employer with respect to that plan includes the exempt organization and any other organization that is under common control with the exempt organization whose employees participate in the plan. For this purpose, common control exists between exempt organizations if at least 80% of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization. A trustee or director is treated as a representative of another exempt organization if he or she also is a trustee, director, agent, or employee of the other exempt organization.

 

Due to this provision, two entities that are completely unrelated could be deemed to be under common control, and thus be aggregated for employee benefit plan testing purposes, if all the trustees of one exempt entity happen to be employees of another exempt entity. For example, suppose two nurses who are employees of a tax-exempt hospital ("Organization A") decide, on their own time and with their own resources, to establish an exempt organization the purpose of which is fundraising for the prevention of cruelty to animals ("Organization B"). Suppose the two nurses are the sole trustees of Organization B. Due to the provisions noted above, because Organization A employs the nurses, the organizations are aggregated for testing purposes even though the organizations are completely unrelated. Accordingly, to resolve this overbroad language, it is respectfully suggested that the following words be added to the third sentence of the above-quoted paragraph (additive words are shown in underline):

 

"A trustee or director is treated as a representative of another exempt organization if he or she is acting as trustee or director in his or her capacity as a trustee, director, agent or employee of the other exempt organization."

 

After you have had an opportunity to review the above, please let me know if you have any questions or comments.
Very truly yours.

 

 

Michael P. Connors

 

Smith & Downey
DOCUMENT ATTRIBUTES
Copy RID