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

Manual Transmittal

February 04, 2015

Purpose

(1) This transmits revised IRM 4.76.27, Exempt Organizations Examination Guidelines, Black Lung Benefit Trusts IRC 501(c)(21).

Material Changes

(1) Revised this manual to comply with the Plain Writing Act of 2010, P. L. 111-274. Replaced references to examination and examiner with audit and agent.

(2) Removed several phrases, sentences, paragraphs, and notes from throughout this section. Most of the items removed referenced material extraneous to the topic.

The table below lists the locations of removed paragraphs, sentences, notes, and clauses:
Section Paragraph Sentences Notes Clause
4.76.27.1     (1) (1), (2)
4.76.27.2 (3) (1), (2) (5) (1), (2), (5), (6)
4.76.27.3 (3) (3), (4) (3) (2), (4)
4.76.27.4.1       (5)
4.76.27.4.2       (1), (2)
4.76.27.4.3       (1)
4.76.27.7   (7), (8), (9)   (8)
4.76.27.8   (1)    
4.76.27.9       (1), (3), (5), (6), (7)

(3) Inserted new paragraphs at IRM 4.76.27.1 (3), IRM 4.76.27.4.1 (6), IRM 4.76.27.4.1 (7), IRM 4.76.27.4.1 (13), and IRM 4.76.27.4.2 (8).

(4) Provided updated references to other manuals, forms, and publications. Replaced references to letters with references to IRM 4.75.15, Closing Letters and Reports of Examination.

Effect on Other Documents

This IRM supersedes IRM 4.76.27, Black Lung Benefit Trusts (§501(c)(21)), dated 05-01-2010.

Audience

Tax Exempt and Government Entities
Exempt Organizations
Examinations

Effective Date

(02-04-2015)


Tamera L. Ripperda
Director, Exempt Organizations
Tax Exempt and Government Entities

4.76.27.1  (02-04-2015)
Introduction

  1. This section contains both detailed technical information and specific audit guidelines for an IRC 501(c)(21) tax-exempt organization. It provides audit techniques effective in identifying and developing issues found during audits of IRC 501(c)(21) organizations. For additional technical information, see IRM 7.25.22, Black Lung Benefit Trusts.

  2. These guidelines provide specific assistance for the audit of an IRC 501(c)(21) organization and aren't all-inclusive. Agents are not restricted to identifying issues or using audit techniques not included herein. For general field audit guidelines, refer to IRM 4.75.11, On-Site Examination Guidelines.

  3. This section frequently references the following forms and publications:

    • Form 870-E, Waiver of Restrictions on Assessments and Collection of Deficiency and Acceptance of Overassessment

    • Form 886-A, Explanation of Items

    • Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons

    • Form 1041, U.S. Income Tax Return for Estates and Trusts

    • Form 4621-A, Report of Examination-Exempt Organizations

    • Form 4883, Exempt Organizations Excise Tax Audit Changes

    • Form 6018-A, Consent to Proposed Action-Non Declaratory Judgment

    • Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction

    • Form 14017, Application for Fast Track Settlement

    • Pub 5092, Fast Track Settlement: A Process for Prompt Resolution of Tax Exempt and Government Entities (TE/GE) Tax Issues

4.76.27.2  (02-04-2015)
Background

  1. Regulation of coal mining and related activities started in 1891. Congress enacted a series of public laws throughout the decades governing mine safety, health of miners, and benefits paid to miners.

  2. Coal miners and those working with coal commonly encounter coal dust, leading to a respiratory condition medically referred to as coal workers’ pneumoconiosis, or more commonly known as black lung. The laws restrict diagnoses of black lung disease to only those working with coal.

  3. The Federal Black Lung Benefit Act (also known as the Federal Coal Mine Health and Safety Act of 1969 (P.L. 91-173)) added IRC 501(c)(21) and obligates coal mine operators to provide certain benefits to employees stricken with black lung disease due to exposure to coal dust during their employment.

  4. The Black Lung Benefits Revenue Act of 1977 (BLBRA) (P.L. 95-227), amended the Code to establish a trust fund (the Black Lung Disability Fund) funded by the coal tax and certain other revenues. The amounts in the fund are for the expenses of providing medical benefits where such benefits aren't 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.

  5. The BLBRA 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.

  6. P.L. 95-488 amended the 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.

  7. 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.

  8. The final aspect of P.L. 95-488 was to open for 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.

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

4.76.27.3  (02-04-2015)
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 as exclusively:

    • To satisfy, in whole or in part, the liability of the coal mine operator (or other person subject to IRC 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 IRC 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) or premiums for insurance exclusively covering such benefits.

    • To invest in qualified investments (but only to the extent that they exceed current year obligations).

    • To pay into the Black Lung Disability Trust Fund (established under IRC 9501 ) 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. Diversions by a black lung trust may result in excise taxes under IRC 4951, IRC 4952, and IRC 4953.

  4. An operator may use more than one trust.

    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't establish trusts described in IRC 501(c)(21) because their liabilities arise from contractual obligations rather than the operation of a mine.

  6. The trust may pay its administrative and incidental costs 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. The trust can't cover excise taxes imposed on the trustee or other disqualified person for acts of self-dealing or making excess contributions.

  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 aren't 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 12192

    Covington, KY 41012

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

4.76.27.4  (02-04-2015)
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, IRC 4953 .

  2. They also are subject to excise taxes for self-dealing and taxable expenditures pursuant to Treas. Regs. 1.4951-1(a) and 1.4952-1(a). Regulations and rulings under IRC 4941, IRC 4945, and IRC 4946 apply where appropriate.

  3. A person’s liability for tax as a self-dealer or trustee under IRC 4951 and IRC 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 IRC 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 IRC 4951 and IRC 4952 occurs on Schedule A of Form 990-BL.

4.76.27.4.1  (02-04-2015)
Excise Taxes: IRC 4951

  1. IRC 4951(a)(1) imposes an initial tax of 10% of the amount involved 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. Any disqualified person (other than a trustee acting only as such) who participated in the act of self-dealing pays the tax.

  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 wasn't willful and was due to reasonable cause. (IRC 4951(a)(2))

  3. IRC 4951(b)(1) imposes a tax equal to 100% of the amount involved on the self-dealer if the initial tax of 10% was imposed, and the act isn't corrected within the taxable period. Any disqualified person (other than a trustee acting only as a trustee of such a trust) who participated in the act of self-dealing pays the 100% tax.

  4. IRC 4951(b)(2) imposes a tax equal to 50% of the amount involved on a trustee in a 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. Any such trustee who refuses to agree to part or all of the correction pays the 50% tax. (IRC 4951(b)(2))

  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.

  6. Self-dealing also includes the following:

    • 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.

  7. Self-dealing excludes the following:

    • The furnishing of goods, services, or facilities by a disqualified person to such a trust if furnished without charge and used exclusively for IRC 501(c)(21)(A) purposes.

    • 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 trust's exempt purposes if the compensation/payment/reimbursement isn't excessive.

  8. 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 contributing corporation.

    4. An owner of more than 10% of the profits interest of a contributing partnership.

    5. An owner of more than 10% the beneficial interest of a contributing trust or contributing unincorporated enterprise.

    6. An officer, director, or employee of a person contributing 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, f, or g own more than 35% of the total combined voting power.

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

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

  9. 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.

  10. 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).

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

  11. 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 of assessment of the tax imposed by IRC 4951(a)(1).

    • The date of completion of correction of the act of self-dealing.

  12. 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.

  13. As IRC 4951 and IRC 4941 share the same statutory framework, compute the taxes for IRC 4951 in the same manner as you would for IRC 4941, just with some different tax rates. See IRM 4.76.4.2.2.2, IRC 4941: Self-Dealing for guidance on computing the tax and IRM 4.76.4-2, IRC 4941: First Tier Tax Example - PF Payment to DP (No Services Rendered) through IRM 4.76.4-5, IRC 4941: First Tier Tax Example - PF Loan of Money to DP for examples on how to compute the taxes and prepare the audit reports.

4.76.27.4.2  (02-04-2015)
Excise Taxes: IRC 4952

  1. IRC 4952(a)(1) imposes an initial tax of 10% of the amount of the taxable expenditure from the assets of a IRC 501(c)(21) trust. The trustee pays the tax out of the assets of the trust.

  2. Any trustee who agreed to the expenditure, knowing it was taxable, must pay a tax of 2.5% of the amount of the taxable expenditure unless such agreement wasn't willful and was due to reasonable cause. The trustee who agreed to the making of the expenditure pays the 2.5% tax. (IRC 4952(a)(2))

  3. IRC 4952(b)(1) imposes a tax equal to 100% of the taxable expenditure on the trust, if the initial tax of 10% is imposed, and if the taxable expenditure isn't corrected within the taxable period. The trustee pays the 100% tax out of the assets of the trust.

  4. IRC 4952(b)(2) imposes a tax equal to 50% of the taxable expenditure on a trustee in a case in which the 100% tax is imposed on the trust, and the trustee refuses to agree to a part or all of the correction. Any trustee who refuses to agree to part or all of the correction pays the 50% tax.

  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).

    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 hadn't been made:

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

    2. When full recovery isn't 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.

  8. As IRC 4952 and IRC 4945 share the same statutory framework, compute the taxes for IRC 4952 in the same manner as you would for IRC 4945, just with different initial tax rates. See IRM 4.76.4-13, IRC 4945: First Tier Tax Example and IRM 4.76.4-14, IRC 4945: Second Tier Tax Example for examples on how to compute the taxes and prepare the audit reports.

4.76.27.4.3  (02-04-2015)
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 Form 6069 computes this amount, the computations explained below mirror the form.

    Note:

    IRC 192 controls the deductions in question, thus LB&I administers both IRC 192 and IRC 4953.

  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).

    • 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).

    • 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 or 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 IRC 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).

    • 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. Compute the tax 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 isn't reportable to state officials under IRC 6104(c).

4.76.27.5  (02-04-2015)
Large Business & International (LB&I) Requests For Assistance

  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 audit of a coal mine operator’s income tax return.

  2. LB&I establishes requests for assistance through the Specialist Referral System (SRS) (https://srs.web.irs.gov). When LB&I agents 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 automatically follows up with the manager if he/she is unresponsive.

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

  5. When involving an EO agent 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.

    • An estimated completion date of the report.

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

  8. Elevate disagreements on proposed adjustments between the LB&I agent and EO agent to their respective managers for resolution.

4.76.27.5.1  (02-04-2015)
Formal Assistance

  1. If the assistance of EO Examinations concerning Black Lung Benefit Trusts is necessary, request a copy of Form 6069 and a copy of the trust instrument from the LB&I agent.

  2. If a required Form 6069 isn't filed or prepared by the coal mine operator, LB&I obtains the required data.

  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.

    • Checking the Exempt Organization Business Master File (EOBMF).

    • By audit, if necessary. If required, obtain the trust’s Form 990-BL by opening the case on the Reporting Compliance Case Management System (RCCMS) using source code 70.

      Note:

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

  4. For a trust determined to not be exempt (and wasn't previously granted exemption):

    1. Secure Form 1041.

    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, return the determination and any supporting data to LB&I. Attach any additional reports necessary to convey the results of any actions taken.

  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  (02-04-2015)
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) aren't open to public inspection. The public inspection rules also do not apply to the trustee or disqualified person's SSN or EIN.

  2. The public inspection rules don't 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 IRC 4952, or both.

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

  4. If filed by an individual using a Social Security Number, the return posts to Non-Master File (NMF). Individual Master File (IMF) displays only the Forms 1040 and civil penalties. Forms 990-BL aren't currently available on the Online Statistics of Income Exempt Organizations Return Image Net system (SEIN). Request them from files (see IRM 4.76.27.7 (2)).

4.76.27.7  (02-04-2015)
Preaudit 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 audit as well as the prior and subsequent years.

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

    Note:

    Request information returns via source code 45. When received, make a copy of the return, and close the return off of RCCMS within 30 days, unless making the decision with managerial approval to convert the return to an open audit.

  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 (revenue, expenses, and assets).

  4. Check line 2 of Part IV of the Form 990-BL to see if excess contributions were marked as "Yes" . 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 IRC 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 the form in IRM Exhibit 4.75.10-9. Electronic copies can be requested and will be provided on CD or via secure e-mail.

  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.

  8. Upon receipt of the determination file, examine the trust instrument to verify that the trust meets the requirements listed at IRM 4.76.27.3.

  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), does the trust operate?

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

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

    • Who is covered by the insurance policies?

    • 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 yes, what are they?

  10. In the event the trust placed no insurance policies, 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, depending on whether the organization 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 via RCCMS a copy of Form 6069 as an information return via source code 45.

4.76.27.8  (02-04-2015)
Field /Office Correspondence Audit Procedures

  1. Obtain any revised trust instruments not already included in the determination file, even if previously attached to Forms 990-BL.

  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.

    2. Identify any unusual sources of income.

      Note:

      Consider income received from any source other than the employer or permitted investments unusual and meriting 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.

    2. Identify any unusual disbursements.

      Note:

      Consider disbursements for other than benefits and administrative expenses, including legal, accounting, actuarial, and trustee expenses, unusual and meriting 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 can't make benefit payments unrelated to black lung disease.

    Example:

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

  5. Verify that the trust used its assets for investments only to the extent that trust assets exceed current year obligations.

  6. Verify that the trust only invested its assets 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 aren't in default as to principal or interest (e.g. municipal bonds, Build America Bonds).

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

  7. Obtain managerial approval to expand the audit to multiple years in the event that you determine an unreported liability for excise taxes under IRC 4951 and/or IRC 4952.

4.76.27.9  (02-04-2015)
Concluding The Audit

  1. Determine if the organization continues to qualify for exemption under IRC 501(c)(21). Prepare an audit report revoking the organization if:

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

      Note:

      If this is the sole issue, secure an amendment to the trust instrument correcting the deficiency to remedy the issue.

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

    • An insurance company established the trust.

    • The investment assets aren't qualified investments. (See IRM 4.76.27.8 (6)).

    • The trust made significant amounts of taxable expenditures or self-dealing transactions during the years under audit. Consult Counsel 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 in IRM 4.75.31.3, Revocation Case.

  3. For an unagreed revocation:

    1. If not otherwise excluded from Fast Track Settlement, issue an initial report (IRM 4.75.15.9, Initial Reports of Examination). Include Form 886-A, Form 6018-A, and Form 14017. Issue with Pub. 5092. Allow 30 days for a response, then close the case using the procedures in IRM 4.75.31.4, Converted Returns Case.

  4. Determine whether to impose excise taxes under IRC 4951 or IRC 4952 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. See IRM 4.75.22.7, Substitute For Return Procedures.

    3. Issue an initial report (IRM 4.75.15.9 ) with Form 870-E, Form 886-A, and Form 4883, to each responsible party. Provide the taxpayers with 30 days to respond.

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

    5. Forward the payments via overnight mail with Form 3210 and Form 9814. See IRM 4.75.22.4.1, Payment Processing.

    6. For the closing letter, prepare Letter 3607 to be mailed with a copy of the signed Form 870-E, as well as Form 886-A and Form 4883. See IRM 4.75.15.9 (14).

    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 an initial report (IRM 4.75.15.9). Include Form 870-E, Form 886-A, Form 4621-A, Form 4883, and Form 14017. Issue with Pub. 5092. Allow 30 days for a response.

    4. For cases not entered into the Fast Track Settlement process, issue the final report (IRM 4.75.15.10, Formal Reports of Examination). Include Form 870-E, Form 886-A, Form 4621-A, and Form 4883. Provide the taxpayer with 30 days to respond.

    5. Close all unagreed cases (including formal protests to Appeals) to Mandatory Review via RCCMS. See IRM 4.75.16.4.2, Statute Considerations and IRM 4.75.16.6, Cases Subject to Mandatory Review.

  7. If the case is to be closed as a no change, see IRM 4.75.15.5, No Issues and IRM 4.75.16.4, Examined Closures.


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