SECTION 2. BACKGROUND

.01 Section 408(q) was added to the Code by section 602 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), Pub. L. 107–16, effective for plan years beginning after December 31, 2002. Section 408(q) provides

§ 115(1) accrual test if its articles of organization fail to limit distribution of all the organization’s assets upon dissolution to one or more States, political subdivision(s) thereof, the District of Columbia, or to other organizations whose income is excluded from gross income under § 115(1).

.03 An organization may be described in § 501(c)(3) of the Internal Revenue Code and its income may also be excluded from gross income under § 115(1). See Treas. Reg. § 1.6033–2(g)(1)(v) (a state institution exempt from taxation under § 501(a) the income of which is excluded from gross income under § 115(a) (now § 115(1)) is not required to file an annual information return on Form 990, Return of Organiza- tion Exempt From Income Tax ); see also Rev. Proc. 95–48, §§ 3.01, 4.02, 1995–2 C.B. 418.

.04 To qualify as an organization described in § 501(c)(3) and exempt from federal income tax under § 501(a), an organization must meet the requirements of the organizational test of § 501(c)(3). One requirement of the organizational test is that the assets of the organization be dedicated to an exempt purpose. Treas. Reg. § 1.501(c)(3)–1(b)(4).

.05 A § 501(c)(3) organization’s articles of organization must contain a dissolution clause that satisfies the organizational test of § 1.501(c)(3)–1(b)(4) of the Treasury Regulations, unless the organization is organized under State laws that satisfy the distribution of assets upon dissolution provisions of § 1.501(c)(3)–1(b)(4). See Treas. Reg. § 1.501(c)(3)–1(b)(4); Rev. Proc. 82–2, 1982–1 C.B. 367.