Part III. — Internal Revenue Bulletin 2003-5

in this notice. The revision to the temporary regulations reflecting this notice will be effective for equity investments made on or after April 20, 2001.

DRAFTING INFORMATION

The principal author of this notice is Paul Handleman of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Mr. Handleman at (202) 622–3040 (not a toll-free call).

Definition of Early Retirement Benefit and Retirement-Type Subsidy

Notice 2003–10

I. PURPOSE

The Internal Revenue Service and the Treasury Department intend to propose regulations that would provide guidance on benefits that are treated as early retirement benefits and retirement-type subsidies for purposes of § 411(d)(6)(B) of the Internal Revenue Code. It is expected that the regulations would include guidance resolving conflicting court decisions that address the extent to which payments that are contingent on the occurrence of an unpredictable event, such as a plant shutdown, are protected under § 411(d)(6)(B). The Service and Treasury invite comments on possible approaches before regulations are proposed.

II. BACKGROUND

Section 411(d)(6) generally provides that a plan is not treated as satisfying the requirements of § 411 if the accrued benefit of a participant is decreased by a plan amendment. Under § 411(d)(6)(B), a plan amendment that has the effect of eliminating or reducing a retirement-type subsidy, with respect to benefits attributable to service before the amendment, is treated as reducing accrued benefits for any employee who satisfies the pre-amendment conditions for the subsidy (either before or after the amendment). In addition, a plan amendment that has the effect of eliminating an early retirement benefit or, except as

Section 45D.—New Markets Tax Credit

Notice 2003–9

PURPOSE

The purpose of this notice is to announce that the Treasury Department and Internal Revenue Service will amend § 1.45D– 1T(c)(3)(ii) of the temporary Income Tax Regulations to extend a deadline relating to certain equity investments made before the receipt of a new markets tax credit allocation from the Secretary under § 45D(f)(2) of the Internal Revenue Code.

BACKGROUND

Section 45D(a)(1) provides a new markets tax credit on certain credit allowance dates described in § 45D(a)(3) with respect to a qualified equity investment in a qualified community development entity (CDE).

Section 45D(b)(1) provides that an investment in a CDE is a qualified equity investment only if, among other requirements, the CDE designates the investment as a qualified equity investment.

Section 45D(c)(1) provides that an entity is a CDE only if, among other requirements, the entity is certified by the Secretary as a CDE.

Section 45D(b)(2) provides that the maximum amount of equity investments issued by a CDE that may be designated by the CDE as qualified equity investments shall not exceed the portion of the new markets tax credit limitation set forth in § 45D(f)(1) that is allocated to the CDE by the Secretary under § 45D(f)(2).

Section 1.45D–1T(c)(3)(i) provides that, except as provided in § 1.45D–1T(c)(3)(ii), an equity investment in an entity is not eligible to be designated as a qualified equity investment if it is made before the entity enters into an allocation agreement with the Secretary. An “allocation agreement” is an agreement between the Secretary and a CDE relating to a new markets tax credit allocation under § 45D(f)(2).

Section 1.45D–1T(c)(3)(ii) provides that, notwithstanding § 1.45D–1T(c)(3)(i), an equity investment in an entity is eligible to be designated as a qualified equity investment if - (A) the equity investment is

made on or after April 20, 2001; (B) the entity in which the equity investment is made is certified by the Secretary as a CDE under § 45D(c) before January 1, 2003; (C) the entity in which the equity investment is made receives notification of the credit allocation (with the actual receipt of such credit allocation contingent upon subsequently entering into an allocation agreement) from the Secretary before January 1, 2003; and (D) the equity investment otherwise satisfies the requirements of § 45D and § 1.45D–1T.

The Secretary of the Treasury Department has delegated certain administrative functions relating to the new markets tax credit program to the Under Secretary (Domestic Finance), who in turn has delegated those functions to the Community Development Financial Institutions Fund (CDFI Fund). The delegated administrative functions include CDE certifications and new markets tax credit allocations.

The CDFI Fund published a Notice of Allocation Availability (NOAA) in the Fed- eral Register on June 11, 2002 (67 FR 40112) covering, among other things, how an entity applies for an allocation under § 45D(f)(2). The NOAA set a deadline for receiving all allocation applications (electronic and written) of no later than 5 p.m. ET on August 29, 2002.

DISCUSSION

The CDFI Fund will not complete new markets tax credit allocations before January 1, 2003. Accordingly, the Treasury Department and Service intend to amend § 1.45D–1T(c)(3)(ii) to provide that, notwithstanding § 1.45D–1T(c)(3)(i), an equity investment in an entity is eligible to be designated as a qualified equity investment under § 1.45D–1T(c)(1)(iii) if:

The equity investment is made on or after April 20, 2001;
The designation of the equity investment as a qualified equity investment is made for a credit allocation received pursuant to an allocation application submitted to the CDFI Fund no later than August 29, 2002; and
The equity investment otherwise satisfies the requirements of § 45D and § 1.45D–1T.

The temporary regulations will be revised to incorporate the guidance set forth

February 3, 2003 369 2003–5 I.R.B.

ration, and that continue beyond normal retirement age, are retirement-type subsidies that are protected under § 411(d)(6)(B) both before and after the occurrence of the contingency. In addition, the upcoming proposed regulations are expected to address the question of whether payment of the accrued benefit at an early commencement date on an unreduced or partially subsidized basis will be treated as providing a benefit that continues beyond normal retirement age and, hence, would be considered to be a retirement-type subsidy.

Section § 411(d)(6) does not restrict the ability of an employer to amend a plan to eliminate accruals, subsidies, or other benefits (whether or not contingent), with respect to benefits not yet accrued. Thus, for example, the anticipated proposed regulations would not restrict an employer from amending a plan to compute the subsidized portion of the contingent benefit based solely on service completed before the date of the amendment, or to limit the benefit payable under the retirement-type subsidy to the amount payable as of the date of the amendment. In addition, because § 411(d)(6) does not prevent an employer from amending a plan to eliminate ancillary benefits, the anticipated proposed regulations would not restrict a plan amendment to eliminate contingent benefits that are ancillary benefits. Thus, the anticipated proposed regulations would not restrict a plan amendment to eliminate an ancillary benefit described in Treas. Reg. § 1.411(d)–4, Q&A–1(d) ( e.g., a social security supplement that is not a qualified social security supplement under § 1.401(a)(4)–12), regardless of whether the amendment occurs before or after the occurrence of any contingency on which the benefit is based.

IV. REGULATIONS WILL BE PROSPECTIVE

The regulations described above will be prospective. Regardless of the position taken in the final regulations, the Service will not treat a plan as failing to satisfy the requirements of §§ 401 and 411 merely because of a plan amendment that eliminates or reduces an early retirement benefit or retirement-type subsidy that is conditioned on the occurrence of an unpredictable contingent event (within the meaning of section § 412(l)) if the amendment is adopted and effective prior to the occurrence of the contingent event and prior to the publica

provided in regulations, an optional form of benefit is treated as reducing accrued benefits. Further, Treas. Reg. § 1.411(d)–4, Q&A–1(d) specifies benefits that are ancillary and thus not protected from reduction or elimination under § 411(d)(6)(B).

Section 645(b) of the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA) amended § 411(d)(6)(B) to provide for the Secretary of Treasury to issue regulations permitting the elimination of benefits or subsidies that create significant burdens or complexities for the plan and plan participants, and that affect the rights of any participant in no more than a de minimis manner. In Notice 2002–46, 2002–28 I.R.B. 96, the Service and Treasury requested comments in advance of developing regulations implementing the EGTRRA amendment.

Section 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA), Public Law 93–406, 88 Stat. 829, as amended, provides parallel rules to the rules of § 411(d)(6) of the Code. Pursuant to Reorganization Plan. No. 4 of 1978, 43 F.R. 47713, October 17, 1978, 1979–1 C.B. 480, Treasury regulations issued under § 411(d)(6) apply as well for purposes of § 204(g) of ERISA.

Section § 411(d)(6)(B) was added to the Code by § 301 of the Retirement Equity Act of 1984 (“REA”), Pub. L. No. 98–397, 98 Stat. 1426, 1450–51 (1984). With respect to retirement-type subsidies, the legislative history relating to § 301 of REA states, in part:

The bill provides that an amendment of a qualified plan is to be treated as reducing accrued benefits if, with respect to benefits accrued before the amendment is adopted, the amendment has the effect of either (1) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (2) except as provided by Treasury regulations, eliminating an optional form of benefit.

- - The bill provides that the term

“retirement-type subsidy” is to be defined by Treasury regulations. The committee intends that under these regulations, a subsidy that continues after retirement is generally to be considered a retirement-type subsidy. The committee expects, however, that a qualified disability benefit, a medical benefit, a social security supplement, a death

benefit (including life insurance), or a plant shutdown benefit (that does not continue after retirement age) will not be considered a retirement-type subsidy. The committee expects that Treasury regulations will prevent the recharacterization of retirement-type benefits as benefits that are not protected by the provision.

S. Rep. No. 98–575, at 28, 30 (1984), re- printed in 1984 U.S.C.C.A.N. 2547, 2574, 2576. Questions have arisen as to whether a benefit that is contingent on the occurrence of an unpredictable event, such as a plant shutdown or an involuntary separation, is a retirement-type subsidy and, thus, protected by § 411(d)(6). Since the enactment of REA, three circuit courts have held that an unpredictable contingent event benefit is protected, while one has held that it is not. Compare Bellas v. CBS, Inc., 221 F.3d 517 (3rd Cir. 2000), cert. denied, 531 U.S. 1104 (2001) (separation benefit is both an early retirement benefit and a retirementtype subsidy to the extent it provides for the payment of normal retirement benefits that continue beyond normal retirement age); Richardson v. Pension Plan of Bethlehem Steel Corp., 67 F.3d 1462 (9th Cir. 1995), withdrawn, 91 F.3d 1312 (9th Cir. 1996), modified, 112 F.3d 982 (9th Cir. 1997) (shutdown benefit is a retirement-type subsidy protected under anticutback rule, opinion withdrawn and modified because court later found plan amendment not valid), and Harms v. Cavenham Forest Industries, Inc., 984 F.2d 686 (5th Cir.), cert. denied, 510 U.S. 944 (1993) (involuntary separation benefit is a retirement-type benefit protected under the anticutback rule), with Ross v. Pension Plan for Hourly Employees of SKF Industries, Inc., 847 F.2d 329 (6th Cir. 1988) (plant shutdown benefit is not a retirement-type subsidy).

III. UPCOMING PROPOSED REGULATIONS

The Service and Treasury anticipate that upcoming proposed regulations will provide general guidance concerning early retirement benefits and retirement-type subsidies under § 411(d)(6)(B). The upcoming proposed regulations are expected to address whether benefits that are contingent on the occurrence of certain events, such as plant shutdown or involuntary sepa

2003–5 I.R.B. 370 February 3, 2003

ing spouse. The nonrequesting spouse may not, however, appeal a decision by the Service to deny relief to the requesting spouse.

.05 In section 6015(h)(2), Congress expressed its intent that the nonrequesting spouse have notice of, and be involved in, proceedings with respect to a section 6015 election made by the requesting spouse. The nonrequesting spouse has (with respect to the Service or the Tax Court, as the case may be) the following opportunities to participate in the determination of whether the requesting spouse is entitled to relief under section 6015:

(1) As required by section 6015(h)(2) and section 1.6015–6 of the Income Tax Regulations, the Service notifies the nonrequesting spouse of the requesting spouse’s claim for relief and provides the nonrequesting spouse with an opportunity to submit information to be considered by the Service in its administrative determination. The nonrequesting spouse is not required to provide information. The Service will consider all relevant information submitted by the requesting spouse and the nonrequesting spouse in determining whether to grant or deny relief.

(2) Once the Service notifies the requesting spouse and the nonrequesting spouse of the preliminary determination regarding the requesting spouse’s claim for relief, the requesting spouse, the nonrequesting spouse, or both spouses may file a protest and receive an Appeals conference as set forth in section 4 of this revenue procedure.

(3) Section 6015(e)(1)(A) allows the requesting spouse to petition the Tax Court from a notice of final determination. There are no provisions in section 6015 that allow the nonrequesting spouse to petition the Tax Court from a notice of final determination. See Maier v. Commissioner, 119 T.C. 267 (2002). If, however, the requesting spouse petitions the Tax Court, section 6015(e)(4) and the Tax Court’s Rules allow the nonrequesting spouse to become a party to the proceeding.