Low-income housing credit; satisfactory bond; “bond factor” amounts for the period January through September 2007. This ruling provides the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through September 2007.

Insurance premium. This ruling holds that an arrangement that provides for the reimbursement of inevitable future costs does not involve the requisite insurance risk for purposes of determining (i) whether the amount paid for the arrangement is deductible as an insurance premium and (ii) whether the assuming entity may account for the arrangement as an ‘insurance contract’ for purposes of subchapter L of the Code. Stakeholders are asked to comment on the application of the rationale of the revenue ruling outside of its facts. Rev. Rul. 89-96 amplified.

Nonexempt employees’ trusts. This ruling considers the federal tax consequences to the employees, the employer, and the trust when an employer contributes to a nonexempt employees’ trust on behalf of highly compensated employees. It also explains the effects of vesting of an employee’s interest in the trust and distributions from the trust. Rev. Rul. 74-299 amplified.

This notice provides a proposed revenue procedure that establishes a procedure for a payment card organization to request a determination that it is a Qualified Payment Card Agent (QPCA).

Accounting for advance trade discounts. This procedure provides that the Service will follow Westpac Pacific Food v. Commissioner, 451 F.3d 970 (9th Cir. 2006) with respect to taxpayers that adopt the Advance Trade Discount Method of accounting as provided in this procedure. The document also provides procedures for obtaining automatic consent to change to this method of accounting. Rev. Proc. 2002-9 modified and amplified.

Nonexempt employees’ trusts. This ruling considers the federal tax consequences to the employees, the employer, and the trust when an employer contributes to a nonexempt employees’ trust on behalf of highly compensated employees. It also explains the effects of vesting of an employee’s interest in the trust and distributions from the trust. Rev. Rul. 74-299 amplified.

Weighted average interest rate update; corporate bond indices; 30-year Treasury securities. The weighted average interest rate for July 2007 and the resulting permissible range of interest rates used to calculate current liability and to determine the required contribution are set forth.

Administrative programs; correction programs. This procedure updates the Service’s correction programs for retirement plans within the jurisdiction of the Commissioner, Tax Exempt and Government Entities Operating Division. Rev. Proc. 2006-27 modified.

Form 5500; elimination of Schedule P. This announcement states that, for plan years in which the Schedule P is eliminated, the Service will treat the plan’s filing of a return from the applicable Form 5500 series as if the filing constitutes a return of the plan’s employee benefit trust for purposes of section 6501(g)(2) of the Code.

This procedure sets forth procedures for issuing determination letters and rulings on the exempt status of organizations under sections 501 and 521 of the Code. The procedures also apply to revocation and modification of determination letters or rulings, and provide guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under section 7428. Rev. Proc. 90-27 superseded.

The IRS has revoked its determination that Eagle A C, Inc., of Louisville, KY, and Annie T. Smith Mercy Fund of Randolf, VT, qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code.

Nonexempt employees’ trusts. This ruling considers the federal tax consequences to the employees, the employer, and the trust when an employer contributes to a nonexempt employees’ trust on behalf of highly compensated employees. It also explains the effects of vesting of an employee’s interest in the trust and distributions from the trust. Rev. Rul. 74-299 amplified.

Electronic filing; magnetic media; 2007 form specifications. This procedure contains updates and changes to Publication 1220, Specifications for Filing Forms 1098, 1099, 5498 and W-2G, Electronically or Magnetically. Rev. Proc. 2006-33 superseded.

It is the policy of the Internal Revenue Service to announce at an early date whether it will follow the holdings in certain cases. An Action on Decision is the document making such an announcement. An Action on Decision will be issued at the discretion of the Service only on unappealed issues decided adverse to the government. Generally, an Action on Decision is issued where its guidance would be helpful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent.

Actions on Decisions shall be relied upon within the Service only as conclusions applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommendation of the Action on Decision to similar cases where the facts are different. Moreover, the recommendation in the Action on Decision may be superseded by new legislation, regulations, rulings, cases, or Actions on Decisions.

Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service has expanded its acquiescence program to include other civil tax cases where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court deciding the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin.

The recommendation in every Action on Decision will be summarized as acquiescence, acquiescence in result only, or nonacquiescence. Both “acquiescence” and “acquiescence in result only” mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, “acquiescence” indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions; whereas, “acquiescence in result only” indicates disagreement or concern with some or all of those reasons. “Nonacquiescence” signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.

The Actions on Decisions published in the weekly Internal Revenue Bulletin are consolidated semiannually and appear in the first Bulletin for July and the Cumulative Bulletin for the first half of the year. A semiannual consolidation also appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.

The Commissioner does NOT ACQUIESCE in the following decision:

Snider v. United States; Turley v.
United States,^[1]

468 F.3d 500 (8th Cir. 2006),
petition for reh’g en banc denied,
No. 05-3636 (8th Cir. Feb. 1, 2007)

In Rev. Rul. 90-60, 1990-2 C.B. 3, the Internal Revenue Service provided guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under § 42(j)(6) of the Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of bond factor amounts for dispositions occurring during each calendar month.

Rev. Proc. 99-11, 1999-1 C.B. 275, established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under § 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service as security.

This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under § 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11 for dispositions of qualified low-income buildings or interests therein during the period January through September 2007.

For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98-3, 1998-1 C.B. 248; Rev. Rul. 2001-2, 2001-1 C.B. 255; Rev. Rul. 2001-53, 2001-2 C.B. 488; Rev. Rul. 2002-72, 2002-2 C.B. 759; Rev. Rul. 2003-117, 2003-2 C.B. 1051; Rev. Rul. 2004-100, 2004-2 C.B. 718; Rev. Rul. 2005-67, 2005-2 C.B. 771; and Rev. Rul. 2006-51, 2006-2 C.B. 632.

The principal author of this revenue ruling is David McDonnell of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. McDonnell at (202) 622-3040 (not a toll-free call).

Does the arrangement described below involve the requisite insurance risk to constitute insurance for purposes of determining (i) whether X may deduct the amount paid under the arrangement as an “insurance premium” under § 162 of the Internal Revenue Code, and (ii) whether IC may account for the arrangement as an “insurance contract” for purposes of subchapter L of the Code?

X, a domestic corporation that uses an accrual method of accounting, is engaged in a Business Process that is inherently harmful to people and property. Applicable governmental regulations require X to take action to remediate that harm. Doing so will require X to incur Future Costs to undertake specific measures to restore X’s business location to its condition before Business Process began; the Future Costs will be incurred when X ceases to engage in Business Process. The exact amount and timing of the Future Costs are a function of many factors, including the future cost of wages, future cost of materials, future changes in the regulation of Business Process, and the timing of X’s discontinuation of Business Process. There is no uncertainty, however, that the Future Costs will be incurred.

When X began Business Process in Year 1, it estimated that the present value of Future Costs was $150x, based on its evaluation of the factors identified above and an appropriate discount rate based on economic projections. At that time, X entered into an arrangement with IC, an unrelated domestic insurance company taxable under § 831. Under the arrangement, X agreed to pay IC $150x, and IC agreed to reimburse X for its Future Costs, up to a limit of $300x. The arrangement had no limits on its duration.

Section 162(a) provides, in part, that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 1.162-1(a) of the Income Tax Regulations provides, in part, that among the items included in deductible business expenses are insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business.

Section 461 provides that the amount of any deduction shall be taken for the taxable year which is the proper taxable year under the method of accounting used by the taxpayer in computing taxable income. Under § 1.461-1(a)(2), a liability is incurred and generally is taken into account under an accrual method of accounting in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability. Section 1.461-4(g)(5) provides that if a liability arises out of the provision to the taxpayer of insurance, economic performance occurs as payment is made to the person to which the liability is owed. If the period of coverage extends substantially beyond the close of the taxable year, however, the amount permitted to be taken into account in the year of payment is determined under the capitalization rules of § 263. Section 1.461-4(g)(8)(Ex. 6); § 1.263-4(d)(3)(i).

Characterization of an arrangement as insurance has consequences for the issuer, as well. Section 831(a) provides that taxes, computed as provided in § 11, are imposed for each taxable year on the taxable income of each insurance company other than a life insurance company. Section 832(a) provides that for this purpose, taxable income means the gross income as defined in § 832(b)(1) less the deductions allowed by § 832(c). Gross income includes underwriting income, which is defined in § 832(b)(3) as premiums earned on insurance contracts during the taxable year, less losses incurred and expenses incurred. Premiums earned and losses incurred on insurance contracts are computed taking into account reserves for unearned premiums under § 832(b)(4) and for discounted unpaid losses under § 832(b)(5), respectively. If an arrangement is not an insurance contract, no reserves are permitted for unearned premiums or for discounted unpaid losses with respect to the arrangement. Even if an arrangement is an insurance contract, no reserve is permitted for discounted unpaid losses until a loss has been “incurred.”

Neither the Code nor the regulations define the terms “insurance” or “insurance contract.” The Supreme Court of the United States has explained that in order for an arrangement to constitute insurance for federal income tax purposes, both risk shifting and risk distribution must be present. Helvering v. Le Gierse, 312 U.S. 531 (1941). The risk transferred must be risk of economic loss. Allied Fidelity Corp. v. Commissioner, 572 F.2d 1190, 1193 (7^th Cir. 1978). The risk must contemplate the fortuitous occurrence of a stated contingency, Commissioner v. Treganowan, 183 F.2d 288, 290-91 (2d Cir. 1950), and must not be merely an investment or business risk. Le Gierse, 312 U.S. at 542; Rev. Rul. 89-96, 1989-2 C.B. 114.

In Le Gierse, the Court found that complementary annuity and insurance contracts did not involve an insurance risk but rather an investment risk because the risk assumed by the issuer was only that the amount the taxpayer paid for the contracts would earn less than the amount paid to the taxpayer as an annuity; the total amount paid by the taxpayer exceeded the face value of the life insurance contract. This risk, the Court said, “was an investment risk similar to the risk assumed by a bank; it was not an insurance risk.” Le Gierse, 312 U.S. at 542.

In Treganowan, the court held that a program under which the surviving members of the New York Stock Exchange paid a certain sum to the families of deceased members constituted insurance; the court distinguished the holding of Le Gierse as follows:

Treganowan, 183 F.2d at 290-91. See also Allied Fidelity Corp., 572 F.2d at 1193 (“[T]he insurer undertakes no present duty of performance but stands ready to assume financial burden of any covered loss,” citing Couch on Insurance § 1:2 (1959)).

The Supreme Court has applied a similar standard to determine what constitutes “the business of insurance” for purposes of § 2(b) of the McCarran-Ferguson Act, 59 Stat. 34, as amended, 61 Stat. 448, 15 U.S.C. § 1012(b). In Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979), the Court concluded that agreements between Blue Shield of Texas and three pharmacies for the provision of prescription drugs to Blue Shield policyholders did not constitute “the business of insurance” within the meaning of the McCarran-Ferguson Act, noting that “[t]he primary elements of an insurance contract are the spreading and underwriting of a policyholder’s risk.” The Court considered the legislative history of the Act, quoting approvingly from one of the early House Reports, as follows: “‘The theory of insurance is the distribution of risk according to hazard, experience, and the laws of averages. These factors are not within the control of insuring companies in the sense that the producer or manufacturer may control cost factors.’” Group Life & Health Ins. Co., 440 U.S. at 221 (quoting H.R. Rep. No. 873, 78th Cong., 1st Sess., 8-9 (1943)). Non-tax insurance treatises further confirm that arrangements entered into to manage losses that are at least substantially certain to occur, or that are not the result of fortuitous events, do not constitute insurance. See, e.g., Couch on Insurance, § 102:8 (losses that exist at the time of the insuring agreement, or that are so probable or imminent that there is insufficient “risk” being transferred between the insured and insurer, are not proper subjects of insurance); 1 Appleman on Insurance 2d, § 1.4 (“The fortuity principle is central to the notion of what constitutes insurance. The insurer will not and should not be asked to provide coverage for a loss that is reasonably certain or expected to occur within the policy period.”); 43 Am. Jur. 2d Insurance, § 479 (2005). See also Warren Freedman, Freedman’s Richards on Insurance § 1:2 (6^th ed. 1990) (insurance is an aleatory contract); Restatement (First) of Contracts § 291 (1932) (aleatory contract is one premised on happening of fortuitous event; that time or amount of performance depends on fortuitous event does not mean contract is aleatory).

In Rev. Rul. 89-96, 1989-2 C.B. 114, Y, a taxpayer that had already experienced a catastrophic loss, entered into a “liability insurance” contract with Z, an unrelated casualty insurance company. The exact amount of Y’s liability to injured persons as a result of the catastrophe could not be ascertained, but was expected to be substantially in excess of $130x. At the time the catastrophe occurred, Y’s liability insurance coverage totaled $30x. Under the contract between Y and Z, Y paid a premium of $50x in exchange for additional “liability insurance” coverage of $100x. That is, Z promised to pay on behalf of Y amounts in excess of $30x for which Y would become liable, subject to the contract’s limit of $100x. The $50x “premium” charged Y was an amount that, together with Z’s investment earnings and tax savings, would yield at least Z’s maximum anticipated liability of $100x by the time claims were liquidated. The ruling concludes that the arrangement does not involve the requisite risk shifting necessary for insurance, because the catastrophe had already occurred and the economic terms of the contract demonstrate the absence of any risk apart from an investment risk (that is, the risk Z would be required to pay out $100x earlier than anticipated, or that actual investment yield would be lower than forecast).

In order to determine the nature of an arrangement for federal income tax purposes, it is necessary to consider all the facts and circumstances in a particular case, including not only the terms of the arrangement, but also the entire course of conduct of the parties. Thus, an arrangement that purports to be an insurance contract but that lacks the requisite insurance risk, or fortuity, may instead be characterized as a deposit arrangement, a loan, a contribution to capital (to the extent of net value, if any), an option or indemnity contract, or otherwise, based on the substance of the arrangement between the parties. The proper characterization of the arrangement may determine whether the issuer qualifies as an insurance company and whether amounts paid under the arrangement may be deductible.

In the present case, the requirement that X incur Future Costs attached at the time X began Business Process; no insurance risk or hazard, such as a hurricane or an accident, exists as to whether X will have to incur those costs; it is certain that IC will have to perform under the arrangement with X by reimbursing X for the costs incurred to perform the measures, subject to the contract limit of $300x. Economically, the arrangement is a prefunding by X of its future obligations. Although IC assumed the risks of (i) the scope of the required measures, (ii) projections of future labor and material costs, (iii) the likely time frame when Future Costs would be incurred, and (iv) an appropriate discount rate based on projections of future investment earnings, the overall risk assumed by IC was whether the estimated present value of the cost of performing the measures ($150x) would accrue to exceed the greater of X’s costs to perform the required measures or the contract limit of $300x. This risk is akin to the timing and investment risks that Rev. Rul. 89-96 concludes are not insurance risks. Accordingly, the arrangement between X and IC lacks the requisite insurance risk to constitute insurance under the authorities set forth above.

The arrangement between X and IC lacks the requisite insurance risk to constitute insurance for purposes of determining (i) whether X may deduct the amount paid under the arrangement as an “insurance premium” under § 162 of the Internal Revenue Code, and (ii) whether IC may account for the arrangement as an “insurance contract” for purposes of subchapter L of the Code.

Rev. Rul. 89-96, 1989-2 C.B. 114, is amplified.

A revenue ruling represents the conclusion of the Internal Revenue Service (IRS) on the application of the law to the pivotal facts stated therein. Accordingly, this revenue ruling does not apply to reinsurance arrangements (including retroactive reinsurance, such as loss portfolio transfers), arrangements covering unanticipated environmental exposures, arrangements covering unanticipated cost overruns, or arrangements involving product warranties. The IRS may apply, or not apply, the authorities cited in this ruling to such arrangements, according to the facts and circumstances presented on a case-by-case basis. Comments are requested concerning the need for guidance in these and other areas. Comments should be submitted by October 22, 2007. Comments may be submitted by mail addressed to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Rul. 2007-47), P.O. Box 7604, Ben Franklin Station, Washington, DC 20044; by hand delivery (Monday through Friday between the hours of 8:00 a.m. through 4:00 p.m.) addressed to: Courier’s Desk, Internal Revenue Service, Attn.: CC:PA:LPD:PR (Rev. Rul. 2007-47), Room 5203, 1111 Constitution Avenue, NW, Washington, DC 20224; or by email addressed to: Notice.Comments@irscounsel.treas.gov. Commentators should include the identification number of the publication (Rev. Rul. 2007-47) in both the email subject line and the body of the comment.

The principal author of this revenue ruling is John E. Glover of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Mr. Glover at (202) 622-3970 (not a toll-free call).

When an employer contributes to a nonexempt employees’ trust on behalf of highly compensated employees, what are the Federal tax consequences to the employees, the employer, and the trust of contributions to the trust, vesting of an employee’s interest in the trust, and distributions from the trust?

X corporation has created a deferred compensation plan (Plan) for 50 key executives (participants), all of whom are highly compensated employees within the meaning of § 414(q) of the Internal Revenue Code. Pursuant to the Plan, X contributes each year on behalf of each participant to a trust, T. No contributions by participants to T are required or permitted. The Plan fails to satisfy the provisions of § 410(b) as well as other qualification requirements of § 401(a). Therefore, T is not and never has been a qualified trust under § 401(a) and is not exempt from taxation under § 501(a).

T was established under state law as a trust for the benefit of all of the Plan participants. T’s assets can revert to X only after all liabilities to participants and beneficiaries under the Plan have been satisfied. T’s assets are not subject to the claims of X’s creditors. Separate accounts that reflect the participant’s share of the net trust assets and income are maintained for each participant. T is not a foreign trust within the meaning of § 7701(a)(31).

A participant’s entire interest in T becomes vested upon completion of two years of service with X beginning on the date the individual first becomes a participant in the Plan. Participants or their beneficiaries are entitled to receive their vested interest in the net assets of T, net of applicable withholding and other taxes, on death, disability, or termination of employment. In addition, T is required to distribute to each participant each year an amount that the trustee reasonably estimates will be equal to the amount of Federal, state, and local income and employment taxes payable by the participant with respect to the increase in the participant’s vested accrued benefit in T during such year. T is permitted to make the distribution in part as a distribution of cash to the participant, and in part in the form of applicable employment tax withholding under Federal, state, or local law. X and T file income tax returns on a calendar year basis.

On each of January 1, 2007, 2008, 2009, and 2010, X contributes $100,000 to T on behalf of participant A under the Plan. As of the close of business on December 31, 2008, the fair market value of A’s interest in T is $214,000, which includes income and realized and unrealized gains and losses on T’s assets. A’s interest in T first becomes vested on January 1, 2009. As of the close of business on January 1, 2009, the fair market value of A’s interest in T is $314,000 (including a contribution of $100,000 from X on that date). A files income tax returns on a calendar year basis.

In 2009, the trustee distributes $132,000 to A. Part of the distribution is in the form of withholding of applicable Federal, state, and local income and employment taxes and the remainder is cash. T’s distributable net income allocable to A’s account for 2009 is $15,000. The fair market value of A’s interest in T at the end of 2009 (after the distribution) is $198,000.

In 2010, the trustee distributes $48,000 to A. Again, part of the distribution is in the form of withholding of applicable Federal, state, and local income and employment taxes and the remainder is cash. T’s distributable net income allocable to A’s account for 2010 is $16,000. The fair market value of A’s interest in T at the end of 2010 (after the distribution) is $270,000.

Income and Deductions. When an employer contributes to a nonexempt employees’ trust on behalf of highly compensated employee participants, a participant includes in gross income as compensation under § 402(b)(4)(A) the participant’s vested accrued benefit (other than the participant’s investment in the contract) as of the end of the taxable year of the trust ending with or within the taxable year of the participant. Provided that the separate account rule of § 404(a)(5) is satisfied, the employer is entitled to deduct a contribution made to the trust on behalf of a participant in the taxable year in which amounts attributable to the contribution are includible in the participant’s income, to the extent the contribution otherwise meets the requirements for deductibility. The trust is taxed as a trust under § 641. Because the separate share rule of § 663(c) applies to the trust, the trust is entitled to deduct distributions made to a participant to the extent the distributions do not exceed the distributable net income allocable to the participant’s separate share of the trust.

FICA and FUTA. When an employer contributes to a nonexempt employees’ trust on behalf of a highly compensated employee, the FICA and FUTA taxation of such contributions depends on whether the employee’s interest in the contribution is vested at the time of contribution. If the contribution is vested at the time of contribution, then the amount of the contribution is subject to FICA and FUTA taxes at the time of contribution. The employer is liable for the payment of FICA and FUTA taxes on such amounts. If the contribution is not vested at the time of contribution, then the amount of the contribution and the earnings thereon are subject to FICA and FUTA taxation at the time of vesting. With respect to contributions and earnings thereon that become vested after the date of contribution, the nonexempt employees’ trust is considered the employer under § 3401(d)(1) with respect to such amounts as they become vested.

Income Tax Withholding. With respect to an employee described in § 402(b)(4)(C), whose gross income is determined under § 402(b)(4)(A), wages for Federal income tax withholding purposes are determined in the same way gross income is determined under § 402(b)(4)(A). Such wages are in the amount of the employee’s vested accrued benefit (other than the employee’s investment in the contract) on the last day of the taxable year of the nonexempt employees’ trust and are treated as paid for Federal income tax withholding purposes on that same date. The nonexempt employees’ trust is the employer within the meaning of § 3401(d)(1) with respect to the highly compensated employee whose gross income is determined under § 402(b)(4)(A), regardless of whether contributions made for the benefit of the employee are vested at the time of contribution. Thus, the employees’ trust is responsible for all Federal income tax withholding with respect to such wages paid to the employee. Distributions of benefits from the nonexempt employees’ trust to the employee or for the employee’s benefit are included in determining the vested accrued benefit of the employee at the end of the trust’s taxable year, which is subject to Federal income tax withholding at the end of the trust’s taxable year.

Rev. Rul. 74-299 is amplified.

The principal authors of this revenue ruling are William C. Schmidt and Alfred G. Kelley of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue ruling, contact Mr. Schmidt at (202) 622-6030 (not a toll-free call), Mr. Kelley at (202) 622-6040 (not a toll-free call), or Bradford R. Poston of the Office of Associate Chief Counsel (Passthroughs and Special Industries) at (202) 622-3060 (not a toll-free call).

This notice provides a proposed revenue procedure that would supersede Rev. Proc. 2004-42, 2004-2 C.B. 121 (August 2, 2004). In general, Rev. Proc. 2004-42, establishes a procedure for a payment card organization to request a determination that it is a Qualified Payment Card Agent (QPCA) for purposes of the regulations under section 3406 and section 6724 of the Internal Revenue Code. A QPCA may act on behalf of cardholder/payors in soliciting, collecting, and validating merchants’ names, taxpayer identification numbers (TINs) and corporate status (collectively referred to as merchant/payee data) and on behalf of merchant/payees in furnishing merchant/payee data to cardholder/payors. Under section 301.6724-1(c) and (e) of the Regulations on Procedure and Administration, cardholder/payors are relieved of certain TIN solicitation requirements for payments made through a QPCA. Section 31.3406(g)-1(f) of the Employment Tax Regulations provides a limited exception from the backup withholding requirements for payments made to certain merchant/payees through a QPCA.

In response to the request in Notice 2005-25, 2005-1 C.B. 827 (April 4, 2005), for recommendations of publication items for the 2005-2006 Guidance Priority List, some businesses subject to the payment card rules and procedures recommended that Rev. Proc. 2004-42 and section 31.3406(g)-1(f) of the regulations be modified to reflect the current electronic business operations of the payment card industry and to permit the use of payment cards by merchant/payees that opt out of the QPCA program. Specifically, they requested the following changes to the procedures in Rev. Proc. 2004-42:

The Service and Treasury Department agree that it is appropriate to modify the requirements of Rev. Proc. 2004-42 and the regulations to reflect the current electronic business operations of the payment card industry. Proposed amendments to the regulations under section 3406 would authorize electronic furnishing of notifications regarding payee status and participation in the QPCA program if certain conditions are satisfied. In addition, the proposed revenue procedure set forth as an attachment to this notice would adopt the first and second recommendations regarding the electronic furnishing of notices. The proposed revenue procedure also responds to the third recommendation by authorizing the electronic furnishing of merchant/payee data reports if both the cardholder/payor and the merchant/payee consent.

The Service and the Treasury Department also agree that a merchant/payee that does not want to participate in the QPCA program should be allowed to opt out of the program by completing and returning a written statement to the payment card organization and should be permitted to continue accepting the payment card even if it opts out of the QPCA program. The proposed revenue procedure would make this change.

Although QPCAs would not act on behalf of nonparticipating payees in furnishing payee data to cardholders, the Service and the Treasury Department have concluded that a QPCA should be required to furnish certain information to cardholders that use the QPCA’s card to make reportable payments to nonparticipating payees. Specifically, the QPCA should be required to inform the cardholder that the payee is not a participant in the QPCA program and is not a qualified payee. Proposed amendments to the regulations under section 3406 would adopt this rule. In addition, the proposed revenue procedure would change the content of the written notice that payment card organizations are required to provide to merchant/payees so that the content is consistent with the proposed regulations relating to payees that opt out of the QPCA program.

The Service requests comments on the proposed revenue procedure. Written comments must be received by September 24, 2007. Comments should be submitted to: CC:PA:LPD:PR (NOT-2007-59), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be hand delivered between the hours of 8 am and 4 pm to CC:PA:LPD:PR (NOT-2007-59), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC. Comments may also be transmitted electronically via the following email address: Notice.Commments@irscounsel.treas.gov. Please include “Notice 2007-59” in the subject line of any electronic communication.

For further information regarding this notice, contact Michael Hara of the Office of Associate Chief Counsel (Procedure and Administration). Mr. Hara may be contacted at (202) 622-4910 (not a toll-free call).

This revenue procedure modifies the procedures set forth in Rev. Proc. 2004-42, 2004-2 C.B. 121 (August 2, 2004). Rev. Proc. 2004-42 established a procedure for a payment card organization to request a determination that it is a Qualified Payment Card Agent (QPCA) for purposes of the regulations under section 3406 and section 6724 of the Internal Revenue Code (Code). A QPCA may act on behalf of cardholder/payors in soliciting, collecting, and validating merchants’ names, taxpayer identification numbers (TINs) and corporate status (collectively referred to as merchant/payee data) and on behalf of merchant/payees in furnishing merchant/payee data to cardholder/payors. The Regulations on Procedure and Administration relieve cardholder/payors from certain TIN solicitation requirements for payments made through a QPCA. The Employment Tax Regulations provide a limited exception from the backup withholding requirements for payments made to certain merchant/payees through a QPCA.

The requirements a payment card organization must meet to obtain and retain a QPCA determination are modified as follows:

.01 The written notices that the payment card organization must provide to cardholder/payors and merchant/payees may be mailed (the only option described in Rev. Proc. 2004-42) or furnished electronically. If a notice is furnished electronically, a notification that important tax and privacy information is being provided must be included on the subject line of the electronic communication through which the notice is furnished.

.02 The written notices provided to merchant/payees will no longer be required to inform merchant/payees that they will be treated as participants in the QPCA program if they continue to accept the organization’s payment card. Instead, the notice must inform merchant/payees that they may opt out of the QPCA program by completing and returning a written statement to the payment card organization and that they may continue to accept the organization’s payment card even if they opt out of the QPCA program.

.03 The reporting requirements are modified to reflect the fact that a QPCA’s payment card may be accepted by merchant/payees that have opted out of the QPCA program (nonparticipating merchant/payees). Although QPCAs do not act on behalf of nonparticipating payees in furnishing payee data to cardholders, the QPCA is required to furnish certain information to cardholders that use the QPCA’s card to make reportable payments to nonparticipating payees. Specifically, the QPCA is required to inform the cardholder that the payee is not a participant in the QPCA program and is not a qualified payee. In addition, the QPCA must advise the cardholder/payor of the cardholder/payor’s obligation to solicit the name and TIN of a nonparticipating merchant/payee to which it makes a reportable payment.

.04 The reporting requirements are also modified to provide specific authority for furnishing the merchant/payee data report electronically, including by posting on a secure website. Electronic reporting is permitted only if both the cardholder/payor and merchant/payee consent by returning the consent form included with the written notice provided by the QPCA.

.01 Payment card transactions. A payment card transaction is a transaction in which a cardholder/payor uses a payment card (as defined in section 5.05 of this revenue procedure) to purchase goods or services and a merchant agrees to accept the payment card as a means of obtaining payment. A payment card organization (as defined in section 5.06 of this revenue procedure) sets the standards and provides the mechanism for effecting the payment.

.02 Reporting requirements. In general, section 6041 of the Code requires a person engaged in a trade or business and making a payment in the course of the trade or business of $600 or more during a calendar year of fixed or determinable income to file an information return with the Internal Revenue Service (IRS) and to furnish an information statement to the payee. Section 1.6041-3(p) of the Income Tax Regulations provides exceptions to these requirements, including, for example, exceptions for payments made to a payee that is a corporation. Section 6041A of the Code imposes similar requirements with respect to payments of remuneration for services and direct sales.

Section 6109(a)(2) of the Code provides that any payee, with respect to whom a return is required to be made by another person or whose identifying number is required to be shown on a return of another person, must furnish to the other person the identifying number prescribed for securing the proper identification of the payee. Section 6109(a)(3) provides that any person required to make a return with respect to a payee must ask the payee for the identifying number prescribed for securing the proper identification of the payee and must include that number in the return.

.03 Backup withholding. Section 3406(a)(1) requires a payor to withhold on reportable payments (as defined in section 3406(b)(1)) if the payee does not provide a TIN to the payor in the manner required, if the Secretary notifies the payor that the TIN furnished by the payee is incorrect, or if certain other circumstances exist. Section 3406(i) provides that the Secretary shall prescribe the regulations necessary or appropriate to carry out the purposes of section 3406.

Section 31.3406(j)-1 of the Employment Tax Regulations provides that the Commissioner has the authority to establish TIN matching programs through revenue procedures or other appropriate guidance. Under the regulations, a payor or a payor’s authorized agent may participate in a TIN matching program that permits the payor or authorized agent to contact the IRS with respect to the TIN furnished by a payee before the payor files an information return for reportable payments to the payee. The regulations further provide that the IRS will inform the payor or the payor’s authorized agent whether or not the name/TIN combination furnished by the payee matches a name/TIN combination maintained for the TIN matching program. Revenue Procedure 2003-9, 2003-1 C.B. 516, describes the procedures for participation in the IRS TIN Matching Program.

Section 31.3406(g)-1(f) of the Employment Tax Regulations provides that the backup withholding requirements of section 3406 do not apply to payments made through a QPCA if the payments are made to a qualified payee or during a grace period. Section 31.3406(g)-1(f)(3) requires a QPCA to notify the cardholder/payor when payments are made to a merchant/payee who is not a qualified payee. Proposed amendments to these regulations would require a QPCA to notify the cardholder/payor when payments are made to a merchant/payee that does not participate in the QPCA program.

.04 Information reporting penalties and waivers for reasonable cause. Section 6721 of the Code provides that a payor may be subject to a penalty for failure to file a complete and correct information return. Section 6722 of the Code provides that a payor may be subject to a penalty for failure to furnish a complete and correct information statement to a payee. A failure subject to the section 6721 and section 6722 penalties includes a failure to include correct payee TINs.

Section 6724 provides that the penalties under section 6721 and section 6722 may be waived if the filer shows that the failure was due to reasonable cause and was not due to willful neglect. Under section 301.6724-1(e)(1)(vi)(H) and (f)(5)(vii) of the Regulations on Procedure and Administration, a cardholder/payor in a payment card transaction may establish reasonable cause based on its reliance on a QPCA.

This revenue procedure applies to payment card organizations acting or seeking to act on behalf of cardholder/payors in soliciting, collecting, and validating merchant/payee data and on behalf of merchant/payees in furnishing merchant/payee data to cardholder/payors.

The following definitions and related rules apply solely for purposes of this revenue procedure:

.01 Cardholder. A cardholder (or cardholder/payor) is the person that agrees to make the payment through the payment card organization. Thus, in the case of a payment card issued to an employee of a person that agrees to make payments through the payment card organization, the employer rather than the employee is the cardholder/payor.

.02 Merchant. A merchant (or merchant/payee) is a person that has agreed to accept the payment card issued by the payment card organization as payment for goods and services.

.03 Merchant/payee data. Merchant/payee data includes the merchant/payee’s name, corporate status, and TIN, and whether the TIN has been validated through the IRS TIN Matching Program.

.04 Participating payee. A payee is a participating payee with respect to a reportable payment if—

(1) The written notice described in section 6.03(1)(c) of this revenue procedure was provided to the payee before the date on which the QPCA makes the payment; and

(2) At the time the QPCA makes the payment, the payee has not declined the QPCA’s services in the manner prescribed in the written notice.

.05 Payment card. A payment card is a card (or an account) issued by a payment card organization to a cardholder/payor which, upon presentation to a merchant/payee, represents an agreement of the cardholder to pay the merchant through the payment card organization.

.06 Payment card organization. A payment card organization is an entity that sets the standards and provides the mechanism for effectuating payment between a purchaser and a merchant in a payment card transaction. A payment card organization generally provides this payment mechanism by issuing payment cards, enrolling merchants as authorized acceptors of payment cards for payment for goods or services, and ensuring the system conducts the transactions in accordance with prescribed standards. In any case in which a payment card organization acts through a member, affiliate, or licensee, the action is treated for purposes of this revenue procedure (including this definition) as an action by a payment card organization.

.07 Qualified Payment Card Agent (QPCA). A QPCA is a payment card organization that has a current QPCA determination from the IRS. A person acting in its capacity as a QPCA does not act as an agent of the IRS, nor does it have the authority to hold itself out as an agent of the IRS.

.01 Where to apply for QPCA determination. A person authorized to act on behalf of a payment card organization may submit a written request for a QPCA determination to the following address:

Internal Revenue Service
1601 Market Street
20^th Floor
ATTN: TIN Matching Coordinator
SE:S:CCS:CRC:PC&T
Philadelphia, PA 19107

.02 Content of QPCA application. A payment card organization requesting a QPCA determination must include the following in its application:

(1) The name, address, and employer identification number of the payment card organization and a description of its business.

(2) The name of the department or office of the payment card organization that will serve as the information contact.

(3) The name of the department or the names and titles of the officers or employees that will be responsible for the performance of the TIN solicitation activities described in section 7.

(4) A list of the systems, business lines, or card product lines or levels that will be covered by the TIN solicitation activities described in section 7 and that will be covered by a QPCA determination.

(5) An explanation of the account opening procedures and documents the payment card organization uses, or requires its members, affiliates, or licensees to use, to establish merchant account relationships related to the payment card organization’s activities as a QPCA.

(6) The approximate number and the type of merchants (individuals, corporations, etc.) enrolled by the payment card organization.

(7) An explanation of the payment card organization’s systems and controls related to the payment card organization’s activities as a QPCA for—

(a) Obtaining merchant/payee data (including merchant/payee data provided by reputable third-party sources);

(b) Validating the accuracy of the merchant/payee data;

(c) Ensuring the accuracy and reliability of the merchant/payee data;

(d) Maintaining the merchant/payee data; and

(e) Supplying the merchant/payee data to the cardholder/payor.

.03 Requirements for QPCA determination. A payment card organization must meet the following requirements to obtain a QPCA determination:

(1) Authorization to act on behalf of cardholder/payors and on behalf of merchant/payees.

(a) The payment card organization must establish that cardholder/payors have authorized it or its members, affiliates, or licensees to act on their behalf in soliciting, collecting, and validating merchants’ names and TINs and to assist the cardholders in meeting their information reporting obligations under section 6041 and section 6041A. The payment card organization must also establish that merchant/payees have authorized it or its members, affiliates, or licensees to act on their behalf in furnishing their names, TINs, and corporate status to cardholders and to assist the merchants in meeting their obligations under section 6109(a)(2). To satisfy these requirements, the payment card organization must provide the written notice described in section 6.03(1)(b) to each cardholder/payor and must provide the written notice described in section 6.03(1)(c) to each merchant/payee.

(b) The text of the written notice provided to cardholder/payors must be in bold and conspicuous type, and the notice must include the legend: “Important Tax and Privacy Materials.” The notice must state:

The notice may be included in the annual (or periodic) agreement, or amendments thereto, between the payment card organization and the cardholder or in a separate document. The notice may be furnished by U.S. mail or electronically. If furnished by U.S. mail, the outside of the envelope in which the written notice is mailed must contain, in bold and conspicuous type, the legend: “Important Tax and Privacy Materials Enclosed.” If furnished electronically, the subject line of the electronic communication through which the notice is furnished must contain, in bold and conspicuous type, the legend: “Important Tax and Privacy Materials Enclosed.”

(c) The text of the written notice provided to merchant/payees must be in bold and conspicuous type, and the notice must include the legend: “Important Tax and Privacy Materials.” The notice must state:

The notice may be included in the annual (or periodic) agreement, or amendments thereto, between the payment card organization and the merchant or in a separate document. The notice may be furnished by U.S. mail or electronically. If furnished by U.S. mail, the outside of the envelope in which the written notice is mailed must contain, in bold and conspicuous type, the legend: “Important Tax and Privacy Materials Enclosed.” If furnished electronically, the subject line of the electronic communication through which the notice is furnished must contain, in bold and conspicuous type, the legend: “Important Tax and Privacy Materials Enclosed.”

(2) TIN solicitation activities. The payment card organization must establish that it has undertaken, or demonstrate that it will undertake, the TIN solicitation activities described in section 7.

(3) Reliability of merchant/payee data. After obtaining the authorizations required by section 6.03(1), the payment card organization must participate in the IRS TIN Matching Program and must demonstrate, based on the TIN matching results, that its merchant/payee data is sufficiently reliable.

.01 TIN solicitation methods. A QPCA should solicit merchant/payee TINs in a manner described in section 301.6724-1(e)(1)(i) of the Regulations on Procedure and Administration. Alternatively, a QPCA may obtain merchant/payee TINs from a reputable third-party source.

.02 Notification and disclosure requirements. A QPCA must give each merchant/payee for which it acts as agent the written notice described in section 6.03(1)(c) and must give each cardholder/payor for which it acts as agent the written notice described in 6.03(1)(b). In addition, a QPCA must give written notice of its status as a QPCA, and of any change in that status, to any member, affiliate, or licensee that issues payment cards, as well as to the merchant/payees and cardholder/payors for which it acts as agent.

.03 TIN Matching participation. A QPCA must participate in the IRS TIN Matching Program and must match its merchant/payee data relating to reportable payments of participating merchant/payees with IRS within three months after obtaining the merchant/payee’s TIN. A QPCA may seek to cure merchant/payee data that has not previously been validated through the IRS TIN Matching Program. The QPCA must transmit only merchant/payee data that has not previously been validated through IRS TIN Matching.

.04 Providing nonparticipating payee notifications and merchant/payee data to cardholders. The QPCA must provide cardholder/payors with a report containing notifications required by §31.3406(g)(3)(i)(B) (nonparticipating payee notifications) and merchant/payee data within four months of the date on which the QPCA makes the payment to which the notification or data relates. The report may be provided on a quarterly or other regular basis. The report must include the merchant/payee’s name and, if the merchant/payee is not a participating merchant/payee with respect to any reportable payment covered by the report, must include a notification to that effect. If the merchant/payee is a participating payee with respect to all reportable payments covered by the report, the report must also include the merchant/payee’s corporate status and TIN, and whether the TIN has been validated through participation in the IRS TIN Matching Program. A QPCA must furnish the report containing nonparticipating payee notifications and merchant/payee data for transactions occurring on or before December 31 of a calendar year no later than January 15 of the following calendar year.

The report may be furnished by U.S mail or electronically (e.g., by e-mail or posting on a secure website). A QPCA may furnish nonparticipating payee notifications and merchant/payee data electronically only if it has obtained the consents described in the written notices required by section 6.03(1) and the consents have not been withdrawn. If the report is posted on a website, the website must protect the privacy of nonparticipating payee notifications and merchant/payee data and allow access to the nonparticipating payee notification or merchant/payee data relating to a payee only to cardholder/payors that have made a reportable payment to that merchant/payee.

.01 Availability of records. A payment card organization and its members, affiliates, and licensees must respond to any reasonable IRS request for inspection of any books and records that relate to the operation of TIN solicitation activity, including, but not limited to, reports, memoranda, budgets, and computer printouts. The payment card organization and its members, affiliates, and licensees must allow the IRS reasonable access to the merchant/payee TIN data system, including instruction manuals describing the system.

.02 Change in information. The QPCA must promptly notify the IRS of any change in the information described in section 6.

.03 Confidentiality of information. For purposes of this revenue procedure, the payment card organization and its members, affiliates, and licensees must maintain the confidentiality of information obtained through the TIN solicitation activities in accordance with the requirements of section 31.3406(f)-1 of the Employment Tax Regulations. Except as permitted under section 31.3406(f)-1, the payment card organization and its members, affiliates, and licensees may not disclose any such information to any person other than the cardholder/payor without prior written consent of the merchant/payee. The IRS will treat all information provided by a QPCA as return information that is confidential under section 6103.

.01 Term and renewal. In general, a QPCA determination will be effective for five years from the date of the determination. A QPCA may request a renewal of the QPCA determination by submitting an application for renewal to the IRS no earlier than 12 months and no later than three months before the expiration of the five-year term. In the application for renewal, the QPCA must report any change in the information in the original application. Before renewal of the determination, the IRS may review the QPCA’s systems. In addition, the QPCA must demonstrate that the merchant/payee data continues to be reliable. The application for renewal must include the results from participation in the IRS TIN Matching Program during the current five-year term. The IRS will make every effort to issue a decision on a renewal application at least 30 days before the expiration of the current five-year term. In the event that the IRS does not issue a decision on a timely renewal application before the expiration of the existing QPCA determination, the existing determination will remain in effect until the IRS issues a decision on the renewal application.

.02 Revocation of determination. The IRS may revoke a QPCA determination before the expiration of its five-year term if the IRS determines, based on the results of the QPCA’s participation in the IRS TIN Matching Program, that the merchant/payee data is not reliable or if the payment card organization fails to meet any of the requirements in section 6, 7, or 8. A QPCA may terminate its status as a QPCA upon 60 days written notice to the IRS.

These procedures are proposed to be effective on the date they are published as a final revenue procedure.

The principal author of this revenue procedure is Michael Hara of the Office of Associate Chief Counsel (Procedure and Administration). For further information regarding this revenue procedure, contact Mr. Hara at (202) 622-4910 (not a toll-free call).

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In addition, it provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II).

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 877-829-5500 (a toll-free number), between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 202-283-9703. Mr. Montanaro may be reached at 202-283-9714. The telephone numbers in the preceding sentences are not toll-free.

.01 This revenue procedure describes the consequence to a sponsor or practitioner maintaining a pre-approved plan that submits its plan for review after the established deadline in section 16 of Rev. Proc. 2007-44, 2007-28 I.R.B. 54.

.02 This revenue procedure also modifies the streamlined VCP application procedure for failures set forth in section 11.01 and Appendix F of Rev. Proc. 2006-27, 2006-1 C.B. 945.

.01 Rev. Proc. 2006-27 sets forth the Employee Plans Compliance Resolution System (“EPCRS”), a comprehensive system of correction programs that permits plan sponsors to correct qualification failures and thereby preserve their plans’ tax-favored status. The components of EPCRS are the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”). Under SCP, a plan sponsor may correct certain qualification failures, including operational failures described in Appendix B of that procedure as being correctable by plan amendment. Under VCP, a Plan Sponsor, before audit, may submit to the Service and receive approval for correction of qualification failures. Under Audit CAP, a plan sponsor may correct qualification failures that are identified on audit.

.02 Rev. Proc. 2005-16, 2005-1 C.B. 674, sets forth the Service’s procedures for issuing opinion and advisory letters regarding the acceptability under §§ 401 and 403(a) of the Internal Revenue Code of the form of pre-approved plans (i.e., master and prototype (M&P) and volume submitter (VS) plans).

.03 An application for an opinion letter for an M&P plan may be submitted by a sponsor (as defined in Rev. Proc. 2005-16) who satisfies the requirements of section 4.07 of Rev. Proc. 2005-16. In the alternative, an application for an opinion letter may be submitted by an M&P Mass Submitter (as defined in section 4.08 of Rev. Proc. 2005-16) or a word-for-word identical adopter or minor modifier adopter of a plan of an M&P Mass Submitter as provided in section 4.08 of Rev. Proc. 2005-16.

.04 An application for an advisory letter for a VS plan may be submitted by a VS practitioner (as defined in Rev. Proc. 2005-16) who satisfies the requirements of section 13.04 of Rev. Proc. 2005-16. In the alternative, an application for an advisory letter may be submitted by a VS Mass Submitter (as defined in section 13.05 of Rev. Proc. 2005-16) or a word-for-word adopter of a plan of a VS Mass Submitter as provided in section 13.05 of Rev. Proc. 2005-16.

.05 Rev. Proc. 2007-44 sets forth a system of cyclical remedial amendment periods under § 401(b) for pre-approved plans and individually designed plans. Under this system, every pre-approved plan generally has a regular six-year remedial amendment/approval cycle. As a result, sponsors and practitioners generally need to apply for new opinion or advisory letters only once every six years.

.06 Section 16.02 of Rev. Proc. 2007-44 provides that sponsors and practitioners maintaining pre-approved plans generally have until January 31^st of the calendar year following the opening of the six-year remedial amendment cycle to submit applications for opinion or advisory letters. This deadline also applies to word-for-word identical adopters and minor modifier placeholder applications.

.07 Section 16.03 of Rev. Proc. 2007-44 provides that when the review of a cycle for pre-approved plans has neared completion (after approximately a two-year review process), the Service will publish an announcement providing the date by which adopting employers must adopt the newly approved plans. This will be a uniform date that will apply to all adopting employers. Depending upon the length of the review process, it is expected that this date will give virtually all employers approximately a two-year window to adopt their updated plans.

.08 Section 17.01 of Rev. Proc. 2007-44 provides that an employer’s plan will be treated as a pre-approved plan and therefore eligible for a six-year amendment/approval cycle if the employer’s plan meets the requirements of section 17.01(1) of Rev. Proc. 2007-44 and the sponsor or practitioner maintaining the pre-approved plan timely submits an opinion or advisory letter application in accordance with section 17.01(2) of Rev. Proc. 2007-44.

Section 11.01 of Rev. Proc. 2006-27 is supplemented to provide the following. The Appendix F format should not be modified. In addition, since it is a document that is executed by the Internal Revenue Service, it should not be submitted under the letterhead of the plan sponsor or the plan sponsor’s authorized representative. The failure to provide the information required by Appendix F in the format provided for by Appendix F may result in the application being returned as an incomplete submission.

.01 Applications for opinion or advisory letters submitted by sponsors and practitioners, including word-for-word identical adopters and minor modifier placeholder applications, are generally processed in the order received. If a sponsor or practitioner of an M&P or VS plan with a valid opinion or advisory letter from the immediately preceding six-year cycle (or, for the initial six-year cycle, a valid opinion or advisory letter for GUST^[2]) submits an application for an opinion or advisory letter after the scheduled due date provided for in section 16 of Rev. Proc. 2007-44 (or in the predecessor procedure, Rev. Proc. 2005-66, 2005-2 C.B. 509) or in any successor revenue procedure, then the review of the plan will be delayed and may not be completed by the time the review of timely submitted pre-approved plans is completed for other sponsors and practitioners (approximately two years). As a result, an employer adopting such plan may have less than two years to adopt the late submitted pre-approved plan (i.e., less time than an employer adopting a pre-approved plan that had been submitted by the deadline set forth in section 16 of Rev. Proc. 2007-44).

.02 Any application for an opinion or advisory letter submitted by sponsors and practitioners, including word-for-word identical adopters and minor modifier placeholder applications, should be mailed to the address listed in section 20 of Rev. Proc. 2005-16 and include the appropriate user fee referred to in section 6.05 or 6.06 of Rev. Proc. 2007-8, 2007-1 I.R.B. 230.

Section 3 of this revenue procedure is effective August 28, 2007. Section 4 of this revenue procedure applies to all late submissions for opinion or advisory letters made after January 31, 2006.

Rev. Proc. 2006-27 is modified.

The principal author of this revenue procedure is Avaneesh Bhagat of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number) between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday or Mr. Bhagat at RetirementPlanQuestions@irs.gov.