4.76.27  Black Lung Benefit Trusts (§501(c)(21))

4.76.27.1  (05-01-2010)
Introduction

  1. This manual section contains both detailed technical information and specific examination guidelines for an organization recognized as exempt from income tax under IRC §501(c)(21). It provides examination techniques effective in identifying and developing issues that may be encountered during the examination of an IRC §501(c)(21) organization.

    Note:

    As of 2006, there were 28 organizations listed on master file as being exempt under IRC §501(c)(21). http://nccsdataweb.urban.org/PubApps/subsectionPicker.php

  2. These guidelines provide specific assistance for the examination of an IRC §501(c)(21) organization and are not all-inclusive. The intent is not to restrict the examiner in identifying issues or using examination techniques not included herein.

4.76.27.2  (05-01-2010)
Background

  1. Regulation of coal mining and related activities started in 1891. A series of public laws were enacted throughout the decades governing mine safety, health of miners, and benefits paid to miners (1910, 1941, 1947, 1952, 1966, 1969, 1977, and 2006.) The Internal Revenue Service eventually became involved with passage of the Black Lung Benefits Revenue Act of 1977.

  2. Coal miners and those working with coal are commonly exposed to coal dust, leading to a respiratory condition medically referred to as coal workers’ pneumoconiosis, or more commonly known as black lung, due to the change in the color of the lungs after prolonged exposure. In time, a form of emphysema and fibrosis can develop. Only those working with coal can be diagnosed with black lung disease.

  3. Of the 27 states in which coal mines operate, the largest operations as of 2009 are in Arizona, Colorado, Illinois, Kentucky, Montana, New Mexico, North Dakota, Ohio, Pennsylvania, Texas, Utah, West Virginia, and Wyoming. (Source: http://www.eia.doe.gov/)

  4. The Federal Black Lung Benefit Act (also known as the Federal Coal Mine Health and Safety Act of 1969 (Public Law 91-173)) obligates coal mine operators to provide certain benefits to their employees who are stricken with black lung disease due to exposure to coal dust during their employment.

  5. The Black Lung Benefits Revenue Act of 1977 (BLBRA) (Public Law 95-227), as originally passed, amended the Internal Revenue Code to impose a two percent excise tax on the sale of coal by the producer. The act also established a trust fund, to be known as the Black Lung Disability Fund, funded by the coal tax and certain other revenues. The amounts in the fund are to be available for expenses of providing medical benefits where such benefits are not paid by the appropriate mine operator. The act required that mine operators would be liable to the fund for benefits actually paid by the fund for which such operator was liable.

    Note:

    This fund is currently administered by the Federal Black Lung Program of the U.S. Depart of Labor, Office of Workers Compensation Programs, Division of Coal Mine Workers’ Compensation.

  6. The BLBRA also created an income tax exemption for a qualifying trust used by a coal mine operator to self-insure for liabilities under black lung benefits laws and limited tax deductions for amounts contributed to the trust by the operator. The act also imposed taxes for engaging in the acts of self-dealing, for making taxable expenditures, and for making excess contributions to black lung benefit trusts.

  7. Public Law 95-488 amended the Internal Revenue Code to allow an additional income tax deduction for contributions to a tax-exempt black lung disability trust for the funding of future liabilities incurred by an employer. This law limited the amount of the deduction to an amount, determined according to sound actuarial methods, necessary to fund the remaining unfunded liability of the taxpayer for black lung claims filed (or expected to be filed) by past or present employees of the taxpayer, or an amount necessary to pay all black lung benefits for the current taxable year.

  8. The law required that deductions for such estimated unfunded liability be taken over a funding period, which is the greater of the average remaining working life of miners who are present employees of the taxpayer or ten taxable years. The law also disallowed ordinary and necessary business expense deductions for direct payments outside the trust for black lung benefit liabilities.

  9. The final aspect of Public Law 95-488 was to open to public inspection the exemption application and tax returns of a black lung disability trust, while prohibiting the disclosure of contributors to a black lung trust.

  10. In the Deficit Reduction Act of 1984 (P.L. 98-369), the rules of IRC §501(c)(21) were imposed upon Nuclear Decommissioning Trust Funds described in IRC §468A(e), also subjecting them to an excise tax under IRC §4951. Such trusts file Form 1120-ND, and are under the purview of the LB&I Division.

4.76.27.3  (05-01-2010)
Exemption Requirements

  1. To qualify under IRC §501(c)(21) a trust must be created or organized in the United States and established pursuant to a written instrument. An oral trust is insufficient, even if valid under state law. The trust’s terms must provide that no part of its assets may be used for, or diverted to, any purpose not specified in IRC §501(c)(21)(A). No particular form for the trust instrument is required.

  2. IRC §501(c)(21)(A) sets the purpose of such trust(s) as exclusively:

    • To satisfy, in whole or in part, the liability of the coal mine operator (or other person subject to §501(c)(21)) for, or with respect to, claims for compensation for disability or death due to pneumoconiosis under Black Lung Acts,

    • To pay premiums for insurance exclusively covering such liability,

    • To pay administrative and other incidental expenses of such trust in connection with the operation of the trust and the processing of claims against the coal mine operator (or other person subject to §501(c)(21)) under Black Lung Acts,

    • To pay accident or health benefits for retired miners, their spouses and dependents (including administrative and other incidental expenses of such trust(s)) or premiums for insurance exclusively covering such benefits,

    • Investment in qualified investments (but only to the extent that they exceed current year obligations), or

    • Payment into the Black Lung Disability Trust Fund (described in IRM 4.76.27.2(5) above) or into the general fund of the United States Treasury (other than in satisfaction of any tax or other civil or criminal liability of the person who established or contributed to the trust).

  3. The trust instrument must make it impossible definitely and affirmatively for a diversion or use of trust assets to occur. The trust must be irrevocable, with no right or possibility of reversion of either corpus or income to the coal mine operator, except for the recovery of excess contributions by the operator.

    Note:

    None of the assets may be diverted, ether by operation or natural termination of the trust, by power of revocation or amendment, by the happening of a contingency, by collateral arrangement, or by any other means. Any actual diversions will result in excise taxes under IRC §4951, §4952, and/or §4953.

  4. The use of the trust to fund the payment of black lung benefits is optional as the trust may be established to satisfy an operator's liability, completely or in part. In addition, an operator may use more than one trust. For example, a trust may be established only for state or only for Federal claims. The trust need not make direct payments itself, as it may purchase, in whole or in part, insurance exclusively covering liability for black lung benefits.

  5. Insurance companies can not establish trusts described in IRC §501(c)(21) because their liabilities arise from contractual obligations rather than the operation of a mine.

  6. Administrative and incidental costs of the trust may be paid out of its assets. Such costs may include any excise tax imposed on a taxable expenditure and reasonable expenses arising in connection with a claim against the trust for liability as a taxable expenditure.

  7. Excise taxes imposed on the trustee or other disqualified person for acts of self-dealing or making excess contributions cannot be covered by the trust.

  8. A trust may purchase insurance covering the liability of a trustee for excise taxes to the extent that the cost of the insurance together with any other compensation to the trustee is reasonable. A trust may also indemnify a trustee for reasonable expenses arising from a successful defense in an administrative proceeding involving excise taxes. This indemnification is also subject to reasonable compensation limitations.

  9. A trust may invest its assets but only to the extent that they exceed current year obligations. These investments must be limited to public debt securities of the United States (obligations guaranteed as to principal and interest by the United States), obligations of a state or local government, which are not in default as to principal and interest, or time-demand deposits in a bank or an insured credit union in the United States.

  10. A trust seeking recognition of exemption from federal income tax under IRC §501(c)(21) should write to:

    Internal Revenue Service

    P.O. Box 192

    Covington, KY 41012-0192

  11. No specific application form is required. However, a letter should be submitted requesting a ruling on exempt status along with a copy of the trust instrument.

4.76.27.4  (05-01-2010)
Excise Taxes

  1. Black lung benefit trusts are subject to excise taxes on certain acts of self-dealing, IRC §4951, taxable expenditures, IRC §4952, and taxes on excess contributions to such trusts.

  2. Per Treasury Regulations §1.4951-1(a) and §1.4952-1(a), regulations and rulings under IRC §§4941, 4945, and 4946 apply where appropriate.

  3. A person’s liability for tax as a self-dealer or trustee under IRC §§4951 and 4952 is joint and several. If more than one person is liable for tax on an act of self-dealing as a self-dealer or trustee, they may prorate the tax among themselves. The Service can assess a deficiency against one or more self-dealers or trustees liable for the tax under IRC §§4951 or 4952, regardless of the apportionment of tax shown on the return, if the amount paid by all those who are liable for a particular transaction, is less than the total tax due for that transaction.

  4. Self-disclosure of the first tier taxes under §§4951 and 4952 is reported on Schedule A of Form 990-BL.

4.76.27.4.1  (05-01-2010)
Excise Taxes: IRC §4951

  1. An initial tax of 10% of the amount involved is imposed for each act of self-dealing between a disqualified person and a IRC §501(c)(21) trust, for each year (or part of a year) in the taxable period. The tax is paid by any disqualified person (other than a trustee acting only as such) who participated in the act of self-dealing.

  2. When a tax is imposed on an act of self-dealing, any trustee who knowingly participated in such an act must pay a tax of 2.5% of the amount involved in the act of self-dealing for each year or part of a year in the taxable period unless participation in the act was not willful and was due to reasonable cause.

  3. A second tier tax equal to 100% of the amount involved is imposed on the self-dealer if a first tier tax of 50% was imposed, and the act is not corrected within the taxable period. The tax imposed shall be paid by any disqualified person (other than a trustee acting only as a trustee of such a trust) who participated in the act of self-dealing.

  4. A tax equal to 50% of the amount involved is imposed on the trustee in any case in which the 100% tax is imposed on the self-dealer, if a trustee of such a trust refused to agree to part or all of the correction. The tax imposed shall be paid by any such trustee who refused to agree to part or all of the correction.

  5. For purposes of IRC §4951, the term “self-dealing” means any direct or indirect:

    • Sale, exchange, or leasing of real or personal property between a trust described in IRC §501(c)(21) and a disqualified person;

    • Lending of money or other extension of credit between such a trust and a disqualified person;

    • Furnishing of goods, services, or facilities between such a trust and a disqualified person;

    • Payment of compensation (or payment or reimbursement of expenses) by such a trust to a disqualified person;

    • Transfers to, or use by or for the benefit of, a disqualified person of the income or assets of such a trust;

    • The transfer of personal property by a disqualified person to such a trust is treated as a sale or exchange if the property is subject to a mortgage or similar lien;

    • If a bank or an insured credit union is a trustee of the trust or otherwise is a “disqualified person” with respect to the trust, any amount invested in checking accounts, savings accounts, certificates of deposit, or other time or demand deposits in that bank or credit union constitutes a lending of money;

    • The furnishing of goods, services, or facilities by a disqualified person to such a trust is not an act of self-dealing if the furnishing is without charge and if the goods, services, or facilities so furnished are used exclusively for the purposes specified in IRC §501(c)(21)(A); and

    • The payment of compensation (and the payment or reimbursement of expenses) by such a trust to a disqualified person for personal services that are reasonable and necessary to carry out the exempt purpose of the trust is not an act of self-dealing if the compensation (or payment or reimbursement) is not excessive.

  6. The term "disqualified person " means, for a trust described in IRC §501(c)(21), a person who is:

    1. A contributor to the trust,

    2. A trustee of the trust,

    3. An owner of more than 10% of the total combined voting power of a corporation, which is a contributor to the trust,

    4. An owner of more than 10% of the profits interest of a partnership, which is a contributor to the trust,

    5. An owner of more than 10% the beneficial interest of a trust or unincorporated enterprise, which is a contributor to the trust,

    6. An officer, director, or employee of a person who is a contributor to the trust,

    7. The spouse, ancestor, lineal descendant, or spouse of a lineal descendant of an individual described in a, b, c, d, e, or f,

    8. A corporation of which persons described in a, b, c, d, e, or f own more than 35% of the total combined voting power,

    9. A partnership in which persons described in a, b, c, d, e, or f own more than 35% of the profits interest, or

    10. A trust or estate in which persons described in a, b, c, d, e, or f hold more than 35% of the beneficial interest.

  7. The term “amount involved” means, for any act of self-dealing, the greater of the amount of money and the fair market value (FMV) of the other property given or the amount of money and the FMV of the other property received. In the case of services involving payment of compensation (IRC §4951(d)(2)(C)), the amount involved is only the excess compensation. The FMV for property:

    1. Is determined as of the date on which the act of self-dealing occurs (for the initial taxes imposed by IRC §4951(a)); and

    2. Is the highest FMV during the taxable period (for additional taxes imposed by IRC §4951(b).

  8. The term “taxable period” means, with respect to any act of self-dealing, the period beginning with the date on which the act of self-dealing occurs and ending on the earliest of:

    • The date of mailing of a Statutory Notice of Deficiency (90-day letter), with respect to the tax imposed by IRC §4951(a)(1),

    • The date on which the tax imposed by IRC §4951(a)(1) is assessed, or

    • The date on which correction of the act of self-dealing is completed.

  9. The terms “correction” and “correct” mean, for any act of self-dealing, undoing the transaction to the extent possible, but in any case placing the trust in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards.

4.76.27.4.2  (05-01-2010)
Excise Taxes: IRC §4952

  1. An initial tax of 10% of the amount of the expenditure is imposed on each taxable expenditure from the assets of a IRC §501(c)(21) trust. The tax is paid by the trustee out of the assets of the trust.

  2. When a tax is imposed on the trust for a taxable expenditure, any trustee who knowingly agreed to the expenditure must pay a tax of 2.5% of the amount of the taxable expenditure unless such agreement was not willful and was due to reasonable cause.

  3. A second tier tax equal to 100% of the taxable expenditure is imposed on the trust, if the taxable expenditure is not corrected within the taxable period. The tax imposed shall be paid by the trustee out of the assets of the trust.

  4. A tax equal to 50% of the taxable expenditure is imposed on any trustee in cases in which the 100% tax is imposed on the trust, and the trustee refused to agree to a part or all of the correction. The tax imposed shall be paid by any trustee who refused to agree to part or all of the correction.

  5. For purposes of IRC §4952, the term “taxable expenditure” means any amount paid or incurred by a trust described in IRC §501(c)(21) other than for a purpose specified in that section.

  6. The term “taxable period” means, with respect to any taxable expenditure, the period beginning with the date on which the taxable expenditure occurs and ending on the earlier of:

    1. The date of mailing of a Statutory Notice of Deficiency (90-day letter), with respect to the tax imposed by IRC §4952(a)(1), or

    2. The date on which the tax imposed by IRC §4952(a)(1) is assessed.

  7. The terms “correction” and “correct” mean, with respect to any taxable expenditure, placing the trust in a financial position not worse than that in which it would have been if the taxable expenditure had not been made:

    1. By recovering all or part of the expenditure to the extent recovery is possible; and

    2. When full recovery is not possible, by contributions by the person or persons whose liabilities for black lung benefit claims (as defined in IRC §192(e)) are to be paid out of the trust.

4.76.27.4.3  (05-01-2010)
Excise Taxes: IRC §4953

  1. IRC §4953 imposes, on the contributor, a 5% tax on the excess contributions over the deductibility limits of IRC §192. As this is computed on Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction, the computations explained below mirror the form.

    Note:

    It should be pointed out that IRC §192 controls the deductions in question, thus both IRC §192 and IRC §4953 are administered by LB&I.

  2. To determine the amount of excess contributions, the coal mine operator (contributor) must first determine the maximum allowable deduction under IRC §192. This requires the contributor to determine the amount necessary to fund (with level funding) the remaining unfunded liability for claims filed or expected to be filed by, or on behalf of, past or present employees of the operator based on:

    • The average remaining working life of miners currently employed (Amount A)

    • 10 tax years (Amount B), and

    • Any other funding period prescribed or approved by the Secretary of the Treasury (Amount C).

  3. The contributor also needs to determine:

    • The amount necessary to carry out the IRC §501(c)(21)(A) purposes for the tax year (Amount D), and

    • The fair market value of the trust’s assets (Amount E).

  4. The computation of the maximum allowable deduction under IRC §192 is as follows:

    1. Select the lesser of Amount A of Amount B.

    2. Compare this selected amount to Amount C. Select the greater of the two. Call this Amount F.

    3. Subtract Amount E from Amount D, with the result $0 or greater (no negative amount). Call this Amount G.

    4. Compare Amount F to Amount G. The larger of the two amounts is the maximum allowable deduction under IRC §192. Call this Amount H.

  5. To compute the excise tax under §4953, you need another three amounts:

    • The contributions made to the IRC §501(c)(21) trust for operator’s tax year (Amount I),

    • The amounts, if any, of excess contributions from the prior year (Amount J), and

    • The amount of the previous year’s excess contributions, if any, that were returned to the contributor during the current tax year (Amount K).

      Note:

      If this is the first year of the trust, there will be no prior year excess contributions (Amount J) and no prior year excess contribution return (Amount K).

  6. The tax is then computed as follows:

    1. Subtract Amount H from Amount I, and call this Running Total.

    2. Subtract Amount I from Amount H, with the result $0 or greater. Call this Amount L.

    3. Add Amount J to the Running Total.

    4. Subtract Amount K and Amount L from the Running Total, with the result $0 or greater.

    5. Multiply the Running Total by 5% to arrive at the tax.

  7. There is no correction requirement for this type of violation and it is not reportable to state officials under IRC §6104(c).

4.76.27.5  (05-01-2010)
Large Midsize Business (LB&I) (Effective 10-1-2010, Large Business & International (LB&I) Requests For Assistance

  1. (1) Questions concerning the exempt status under IRC §501(c)(21) of a Black Lung Benefit Trust may arise during the course of the LB&I Division’s examination of a coal mine operator’s income tax return.

  2. Requests for assistance from LB&I will be established through the Specialist Referral System (SRS) (https://srs.web.irs.gov). When LB&I examiners submit an online request for an EO agent, SRS automatically notifies the appropriate EO Manager of the request. The system provides management necessary information reports.

  3. SRS referrals are automatically tracked. This system will automatically follow up with the manager if a response has not been made.

  4. Assistance can vary from informal questions submitted via SRS to formal assistance on an LB&I case.

  5. When an EO agent is involved in a case, the LB&I agent maintains control of the return and its management.

  6. EO agent(s) assigned to the case should meet with the LB&I agent and the taxpayer (if appropriate) to discuss the issue, information required, time for information to be presented, and an estimated completion date of the report.

  7. Coordination with the LB&I agent is required to ensure issues are material to the return and time charged is commensurate with the issue.

  8. Disagreements on proposed adjustments between the LB&I agent and EO agent should be elevated to their respective managers for resolution.

4.76.27.5.1  (05-01-2010)
Formal Assistance

  1. If the assistance of EO Examinations concerning Black Lung Benefit Trusts is necessary, a copy of Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust under Section 4953 and Coal Mine Operator’s Worksheet for Section 192 Deduction, and a copy of the trust instrument should be requested from the LB&I agent.

  2. If Form 6069 is required and has not been filed or prepared by the coal mine operator, the required data will be obtained by LB&I.

  3. After receipt of all necessary information, determine whether the Black Lung Benefit Trust involved is exempt under IRC §501(c)(21). This determination of exempt status may be made on the basis of

    • Information provided by LB&I and/or;

    • Checking the Exempt Organization Business Master File (EOMF) and/or;

    • By examination, if necessary. If required, obtain the Black Lung Benefit Trust’s Form 990-BL by opening the case on RCCMS using source code 70.

      Note:

      If the LB&I agent has requested the examination of an exempt trust, and believes it to fail either the organizational or operational aspects of IRC §501(c)(21), an examination would be required. See IRM 4.76.27.7 through 4.76.27.9 below.

  4. For a trust that is determined to not be exempt (and was not previously granted exemption):

    1. Secure Form 1041, U.S. Fiduciary Income Tax Return for Estates and Trusts.

    2. Forward the Form 1041 to the appropriate service campus for processing.

    3. Provide a copy of the Form 1041 to the LB&I agent.

    4. Provide assistance in developing any necessary information.

  5. When finished with consideration of the issues referred by LB&I, the determination and any supporting data will be returned to LB&I. Any additional reports necessary to convey the results of any actions taken will be attached.

  6. LB&I is responsible for protecting the Statute of Limitations on the coal mine operator’s income tax return while its request for assistance is under consideration by EO.

4.76.27.6  (05-01-2010)
Form 990–BL

  1. Generally, the information reported on or with Form 990-BL, including most attachments, is available for public inspection (IRC §6104(b)). This applies both to information required by the form and to information furnished voluntarily.

    Note:

    Part IV of Form 990-BL, Statement With Respect to Contributors, etc., and Schedule A (Form 990-BL) are not open to public inspection.

  2. The public inspection rules do not apply to Form 990-BL and the attached Schedule A (Form 990-BL) filed by a trustee or disqualified person to report initial taxes on self-dealing or taxable expenditures.

  3. The Form 990-BL can be filed by:

    • A black lung benefit trust as an information return, or tax return, or both;

    • A trustee because of liability for taxes under IRC §4951 or 4952, or both; or

    • A disqualified person who is liable for IRC §4951 tax only.

  4. If filed by an individual using a Social Security Number, the return will be posted to Non-Master File (NMF). Individual Master File (IMF) displays only the Forms 1040 and civil penalties. Forms 990-BL are not currently available on Online SEIN (http://sein.osc.irs.gov) at this time, and must be requested from files.

4.76.27.7  (05-01-2010)
Pre-audit Examination Procedures

  1. Upon receipt of the case file, request/perform IDRS research using command codes BMFOLI and BMFOLT to determine the filing history and assessment statute expiration dates for the return under examination as well as the prior and subsequent years.

  2. Discuss with the Group Manager whether to open the prior and subsequent years for examination, and/or whether to request them as information returns. Due to the inability to view electronic images, returns must be requested from files via RCCMS.

    Note:

    Information returns are requested via source code 45. When received, a copy of the return should be made, and the return closed off of RCCMS within 30 days, unless the decision is made with managerial approval to convert the return to an open examination.

    Caution: If the statute has expired on an information return, do not convert it to an open examination.

  3. Review the return for large, unusual, and questionable items. Questionable items can include, but are not limited to, amounts reported as other income, other expenses, and other assets. IRC §501(c)(21) is very specific about what is permitted in each category.

  4. Check the bottom of Part IV of the Form 990-BL to see if excess contributions were determined. If so, check BMFOLT to verify the filing of Form 6069.

  5. Review the checklist of items in Part III of the Form 990-BL. Any disclosures of excise taxes under IRC §4951 and §4952 will be declared here, and reported on the third page, Schedule A. The names of the responsible trustees and/or disqualified persons will be listed, but without any identifying numbers.

  6. Prior to initial contact with the organization, request the determination file from Cincinnati using Form 8057. Electronic copies can be requested and will be provided on CD.

  7. Determine whether the organization has filed a determination application, based on the response from the EO Microfiche Unit.

    • If there is no determination file, ask in the initial document request (IDR) for the trust instrument and any amendments to the trust instrument.

    • Any documents secured should later be sent to Cincinnati for inclusion in the determination file. See IRM 4.75.16 for EO microfiche procedures.

  8. Upon receipt of the determination file, examine the trust instrument to verify that the trust:

    1. Was created or organized in the United States and established pursuant to a written instrument. An oral trust is insufficient, even if valid under state law;

    2. Does not permit a diversion or improper use of trust assets;

    3. Is irrevocable, with no right or possibility of reversion of either corpus or income to the coal mine operator, except for the recovery of excess contributions by the operator; and

    4. Was not established by an insurance company.

  9. Using these records, revise your initial interview accordingly. At a minimum, ask the following questions:

    • Who are disqualified persons with respect to the trust?

    • On behalf of which company (or companies), is the trust operated ?

    • With which insurance company (or companies) did the trust have policies during the year under examination, if any?

    • What types of policies were placed with the insurance company (or companies) by the trust?

    • Who is covered by the insurance policies?

    • What kind of health issues are covered by the policies (such as black lung)?

    • With which financial institutions are the investment assets held?

    • What is the specific mix (checking/savings accounts, certificates of deposit, government bonds) of investment assets?

    • Are there any other assets aside from the investment assets, and if so, what are they?

  10. In the event no insurance policies were placed by the trust, request the organization to describe the process through which the trust determines and makes payments for black lung benefits.

  11. For the initial information document request (IDR), consider requesting the following items for sample review, dependent on whether the organization has reported paying benefits directly:

    • Medical claim reimbursement forms

    • Proof of payment of doctor visits

    • Pharmacy bill receipts

    • Medical travel refund requests

    • Remittance vouchers (or other similar documents)

    • Policy of permitted expenses

    • List of reimbursed coal miners (and other recipients), providing the name, address, and employer (if multiple coal mine operators involved in the trust)

      Note:

      Prior to issuing the first IDR, call the organization to discuss the records available for review and adjust the request accordingly.

  12. Include in the initial IDR a request for the organization’s actuarial computations for the amounts listed in IRM 4.76.27.4.3(2). Alternatively, if filed, request a copy of Form 6069 as an information return via source code 45 on RCCMS.

4.76.27.8  (05-01-2010)
Field Examination Procedures

  1. Obtain any revised trust instruments not already included in the determination file, even if previously attached to Forms 990-BL. At the conclusion of the examination, forward such documents to Cincinnati via the EO Microfiche procedures outlined in IRM 4.75.16.

  2. Inspect all sources of income, e.g. cash receipts journal, bank statements, credit union statements, etc.

    1. Verify the accuracy of the amounts reported on the return, and

    2. Identify any unusual sources of income. Income received from any source other than the employer or permitted investments should be considered unusual and merit further investigation.

  3. Review disbursement journals and supporting documents, including invoices and cancelled checks, in order to:

    1. Verify the accuracy of the amounts reported on the return; and

    2. Identify any unusual disbursements. Disbursements for other than benefits and administrative expenses, including legal, accounting, actuarial, and trustee expenses, should be considered unusual and merit further investigation.

  4. Test benefit payments to determine whether they are permitted benefits, using the documents requested in IRM 4.76.27.7(11) above. The trust cannot make benefit payments that are unrelated to black lung disease.

    Example:

    Workers compensation payments for injuries or death resulting from coal mine accidents.

  5. Verify that the trust’s assets have been used for investments only to the extent that trust assets exceed current year obligations.

  6. Verify that the trust’s assets are only invested in the following types of permitted investments:

    • “Public debt” securities of the United States, obligations guaranteed as to principal and interest by the United States (e.g. Treasury bonds);

    • Obligations of a state or local government which are not in default as to principal or interest (e.g. municipal bonds, Build America Bonds); or

    • Time or demand deposits in a bank or an insured credit union located in the United States (e.g. checking accounts, savings accounts, CDs).

  7. Obtain managerial approval to expand the examination to multiple years in the event that unreported liability for excise taxes under IRC §4951 and/or §4952 is determined.

4.76.27.9  (05-01-2010)
Concluding The Examination

  1. Determine if the organization continues to qualify for exemption under IRC §501(c)(21). Prepare a report of examination revoking the organization if:

    • The organization’s trust instrument, as amended, does not properly restrict use of the assets to purposes under IRC §501(c)(21).

      Note:

      If this is the sole issue, a remedy can be obtained by securing an amendment to the trust instrument correcting the deficiency.

    • The organization’s trust instrument was created outside the United States.

    • The trust was established by an insurance company.

    • The investment assets are not qualified investments as identified in IRM 4.76.27.8(6) above.

    • Egregious amounts of taxable expenditures or self-dealing transactions were made during the years under examination. Counsel should be consulted in such situations.

      Example:

      If over 50% of the organization’s expenditures were self-dealing transactions that also constituted taxable expenditures, the trust would likely merit revocation.

  2. For an agreed revocation, close the case using the procedures included in IRM 4.75.31, .Conversion of Returns Upon Revocation of Exemption., subsection 4.75.31.3.:

  3. For an unagreed revocation:

    1. If not otherwise excluded from Fast Track Settlement, issue a report of preliminary findings (draft RAR), with a drafted cover letter, Forms 886-A, 6018-A, and 14017. Issue with Publication 4539. Allow 30 days for a response, then close the case using the procedures located in IRM 4.75.31, Conversion of Returns Upon Revocation of Exemption, Subsection 4.75.31.4:

  4. Determine whether excise taxes under IRC §4951 or §4952 are to be imposed upon a disqualified person and/or trustee. (IRC §4953 adjustments should involve assistance from an LB&I engineer obtained via the Specialist Referral System.)

  5. For an agreed excise tax assessment (all parties):

    1. Discuss the issue with the taxpayers fully to verify that they will agree.

    2. Establish Forms 990-BL for each disqualified person and/or trustee liable for tax on NMF via RCCMS.

    3. Issue a report using a drafted letter based on Letter 3614, with Forms 870-E, 886-A, and 4883, to each responsible party. Provide the taxpayers with 30 days to respond.

    4. Upon receipt of the signed agreements and payments, prepare Forms 3244-A to process the payments.

    5. Forward the payments with Forms 3244-A to Cincinnati Service Campus for processing, via overnight mail, with appropriate Forms 3210.

    6. For the closing letter, prepare Letter 3607 to be mailed with a copy of the signed Form 870-E, as well as Forms 886-A and 4883.

    7. Close each case as agreed on RCCMS.

  6. For a partial agreement (trust agreed, disqualified person/trustee unagreed, or vice versa):

    1. Discuss the issue with the taxpayers fully to determine who will agree. (For the agreed party (or parties), follow IRM 4.76.27.9(5) above.)

    2. Establish Forms 990-BL for each disqualified person and/or trustee liable for tax on NMF via RCCMS.

    3. If not otherwise excluded from Fast Track Settlement, issue a report of preliminary findings (draft RAR), with a drafted letter based on Letter 3614, with Forms 870-E, 886-A, 4621-A, 4883, and 14017 to each unagreed responsible party. Issue with Publication 4539. Allow 30 days for a response.

    4. For cases not entered into the Fast Track Settlement process, issue the final report using a drafted letter based on Letter 3614, with Forms 870-E, 886-A, 4621-A, and 4883. Provide the taxpayer with 30 days to respond.

    5. Close all unagreed cases (including formal protests to Appeals) to Mandatory Review, via management on RCCMS.

  7. If the case is to be closed as a no change, prepare Letter 3594 and close following the procedures outlined in IRM 4.76.16, Case Closing Procedures.


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