7.25.22  Black Lung Benefit Trusts  (04-15-2003)

  1. IRC 501(c)(21) (P.L. 95–488), added by the Black Lung Benefits Revenue Act of 1977 provides tax exemption to qualifying black lung benefit trusts created and funded by coal mine operators to provide miners with benefits to cover disability or death from black lung disease.  (04-15-2003)
Liability of Coal Mine Operators

  1. The Federal Coal Mine and Safety Act of 1969 (P.L. 91–173) established a requirement that operators of coal mines pay benefits to miners that have contracted black lung disease.

  2. An operator could satisfy its liability through the purchase of insurance or by qualifying as a self-insurer.  (04-15-2003)
Deductibility under IRC 192

  1. Before the enactment of P.L. 95–488, the law provided for a current deduction for actual benefit claims approved or filed during the year.

  2. With enactment, the above provision was amended to allow for current tax deductions to be taken by coal mine operators for funds permanently set aside in a trust described in IRC 501(c)(21) to pay black lung benefits.

  3. These contributions cannot exceed the amount necessary to fund, on a sound actuarial basis, the operator’s remaining unfunded liability for claims expected to be filed.  (04-15-2003)
Application to Nuclear Plants

  1. The Deficit Reduction Act of 1984 (P.L. 98–369) imposes the rules of IRC 501(c)(21) to Nuclear Decommissioning Trust Funds described in IRC 468A(e).  (04-15-2003)
Requirements for Exemption

  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. 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).  (04-15-2003)
Requirements—Irrevocable Trust

  1. A trust must also be irrevocable, without any right or possibility of reversion of the corpus or income to the coal mine operator or other creator liable for the payment of black lung benefits, except that the creator may recover excess contributions.  (04-15-2003)
Chapter 42 Excise Taxes

  1. The Black Lung Benefits Revenue Act imposes excise taxes on certain acts of self-dealing (IRC 4951) and taxable expenditures (IRC 4952). These excise taxes are similar to those imposed on private foundations for self-dealing and taxable expenditures. Thus, the regulations under IRC 4941, 4945 and 4946 generally apply to IRC 4951 and 4952. The excise tax on self-dealing also applies to the Nuclear Decommissioning Trusts.  (04-15-2003)
Liability of Employers Other than Coal Mine Operators

  1. In addition to coal mine operators, the Black Lung Benefits Revenue Act established liability on coal mine construction and transportation employers for workers exposed to coal dust. Such an employer may be able to establish a trust in the same way as would a coal mine operator.  (04-15-2003)
Liability Under State Law

  1. Employers liable under state law for claims for black lung disability or death benefits may also establish a trust under IRC 501(c)(21). For example, worker’s compensation laws may impose this liability; however, liability arising under a state statute must be for, or with respect to, a claim for compensation for death or disability due to black lung disease. Black lung disease is defined as a chronic dust disease of the lung arising out of coal mine employment.  (04-15-2003)
Insurance Companies

  1. A trust established by an insurance company is not described in IRC 501(c)(21) because its liability arises from a contractual obligation rather than the operation of a mine.  (04-15-2003)
Permitted Activities

  1. A coal mine operator may establish a trust to pay all or part of the operator’s liability. The trust may pay the benefits directly to the beneficiaries or purchase insurance exclusively covering liability for black lung benefits.  (04-15-2003)
Payment of Related Fees Including Certain Excise Taxes

  1. 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.  (04-15-2003)
Payment of Certain Excise Taxes Not Permitted

  1. 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.  (04-15-2003)
Payment of Trustee Liability Insurance

  1. However, 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.  (04-15-2003)
Investment of Trust Assets

  1. 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.  (04-15-2003)
Investment of Trust Assets—Self-Dealing

  1. If a bank or credit union is a trustee of the trust or a disqualified person, deposits or investments in that bank or credit union would constitute an act of self-dealing under IRC 4951. This differs from the private foundation area, in which Reg. 53.4941(d)—2(c)(4) would allow private foundations to invest its assets in a bank that was a disqualified person.  (04-15-2003)
Applications for Exemption

  1. A trust seeking recognition of exemption from federal income tax under IRC 501(c)(21) should write to the Internal Revenue Service, Attn: Exempt Organizations Determinations, 550 Main Street, Cincinnati, OH 45202.

  2. 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.  (04-15-2003)
Returns Form 990–BL

  1. A tax-exempt black lung benefit trust described in IRC 501(c)(21) must file an annual information return, Form 990–BL, unless its normal annual gross receipts are not more than $25,000.  (04-15-2003)
Schedule A

  1. Schedule A of Form 990–BL must be filed to report any initial excise taxes imposed under IRC 4951 or 4952.

    1. A trust required to file a return and liable for tax under IRC 4952 must attach a completed Schedule A to a completed Form 990–BL.

    2. A trust liable for tax under IRC 4952, but not otherwise required to file an annual information return, must attach a completed Schedule A to Form 990–BL, in which only the identification and signature areas are to be completed.

    3. A trustee or disqualified person liable for tax under IRC 4951 or 4952 must attach a completed Schedule A to a Form 990–BL, in which only the heading (omitting check boxes for application pending, address change and FMV of assets) and signature areas are to be completed.

  2. Schedule A is not required if no taxes are due under IRC 4951 or 4952.  (04-15-2003)
Public Inspection

  1. The approved application and Forms 990–BL filed by black lung benefit trusts are subject to the public inspection requirements of IRC 6104. However, Part IV of Form 990–BL, identification of contributors, and Schedule A are not open for inspection.

  2. Form 990–BL and Schedule A filed by a trustee or disqualified person are not open for public inspection.

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