Relief for defined contribution plans with investments in life insurance companies in state liquidation proceedings.

AuthorAmoroso, Vincent

The IRS has issued Rev. Proc. 92-16, effective Feb. 18, 1992, providing a temporary closing agreement procedure for employers making restorative payments to defined contribution plans holding investments in insurance companies involved in state delinquency proceedings. This closing agreement program will settle certain tax liabilities arising from transactions between the employer-sponsor and the trust of a qualified defined contribution plan. "Restorative payments" are conditional payments to an "affected plan" on account of assets invested in guaranteed income contracts (GICS) that have suspended or reduced payments due to state insurance delinquency proceedings.

Under Rev. Proc. 92-16, the closing agreement must provide - that restorative payments do not violate Sec. 401(a)(2), 401(a)(4) or 415; - that restorative payments will not trigger excise taxes under Secs. 4972 and 4980; - that restorative payments will not give rise to acquisition indebtedness under Sec. 514 or be treated as a below-market loan under Sec. 7872; and - for the timing of deductions under Sec. 404 for restorative payments ultimately retained in the trust.

Exclusive specific terms of the closing agreement are included with Rev. Proc. 92-16. The Service will not enter into closing agreements unless the employer has received a prohibited transaction exemption from the Department of Labor (DOL) or has an opinion of counsel stating that the employer is exempt under a DOL class exemption. The IRS will consider entering into a closing agreement with terms other than those contained in the sample agreement only if the employer took meaningful steps...

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