IRS sets rules for SLOB determination letters.

• Author: Fiore, Nicholas J.
• Position: Separate lines of business

Sec. 414(r) sets forth the rules for determining whether an employer is treated as operating qualified separate lines of business (SLOBs) for purposes of certain employee benefit provisions under the Code. If an employer is treated as operating qualified SLOBs under Sec. 414(r), certain requirements under those provisions are applied separately with respect to the employees of each qualified SLOB operated by the employer. These requirements include the minimum coverage requirements of Sec. 410(b), the minimum participation requirements of Sec. 401(a)(26) and the 55% average benefits test of Sec. 129(d)(8).

Pursuant to Sec. 414(r)(2)(C) and Regs. Sec. 1.414(r)-1(b)(iv)(D), an employer is not treated as operating qualified SLOBs unless each SLOB operated by the employer passes administrative scrutiny. The regulations provide two general methods for satisfying this requirement. Under the first method, an SLOB that satisfies any of the safe harbors in Regs. Sec. 1.414(r)-5 satisfies the requirement of administrative scrutiny. Under the second method, an SLOB that does not satisfy any of the safe harbors in Regs. Sec. 1.414(r)-5 nonetheless satisfies the requirement of administrative scrutiny if the employer requests and receives an individual determination from the IRS that the SLOB satisfies the requirement of administrative scrutiny.

Among the safe harbors provided in Regs. Sec. 1.414(r)-5 is the safe harbor of Regs. Sec. 1.414(r)-4(c) for SLOBs in different industries. This safe harbor is satisfied only if the SLOB is in a different industry or industries from every other SLOB of the employer.

When an SLOB does not satisfy any of the safe harbors in Regs. Sec. 1.414(r)-5, a determination may be requested from the Service that the SLOB passes administrative scrutiny, but only if at least one of the requirements set forth in Regs. Sec. 1.414(r)-6(b) is satisfied. For example, pursuant to Regs. Sec. 1.414(r)-6(b)(2)(ii), a determination may be requested if 90% of the property or services provided by the SLOB falls within one or more of the specified industry categories and no more than 10% of the property or services provided by other SLOBs falls within the same industry category. However, this revenue procedure does not establish a program for processing requests for a determination whether an SLOB meets administrative scrutiny. The IRS will publish procedures relating to such requests at a later date.

This revenue procedure sets forth the...