Part III. — Internal Revenue Bulletin 2003-32

Elimination of User Fees for Certain Determination Letter Requests Pursuant to Section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001

Notice 2003–49

I. Purpose

This notice provides guidance on the application of section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16 (EGTRRA), regarding elimination of user fees for certain determination letter requests. The guidance in this notice amplifies the guidance in Notice 2002–1, 2002–1 C.B. 283, by describing when the EGTRRA remedial amendment period begins for purposes of determining if a determination letter application is eligible for elimination of the user fee. The guidance in Notice 2002–1 and this notice will help a plan sponsor determine if it is required to pay a user fee for a determination letter application.

II. Background

Beginning January 1, 2002, section 620 of EGTRRA eliminated the requirement for payment of user fees for certain requests to the Internal Revenue Service for determination letters with respect to the qualified status of a pension, profit-sharing, stock bonus, annuity, or employee stock ownership plan maintained solely by one or more eligible employers ¹ or the exempt status of any trust which is part of the plan. However, section 620 of EGTRRA did not eliminate user fees for any determination letter request made after the later of (a) the fifth plan year the plan is in existence or (b) the end of any remedial amendment period with respect to the plan beginning within the first 5 plan years.

Notice 2002–1 provides guidance on section 620 of EGTRRA, including guidance on who is an eligible employer, when a plan is in existence, and the types of determination letter requests that are eligible for elimination of the user fee. Notice 2002–1, Q&A–12, provides guidance on when the GUST ² remedial amendment period begins for purposes of determining if a user fee is eliminated.

Notice 2001–42, 2001–2 C.B. 70, provides a remedial amendment period for EGTRRA ending no earlier than the end of the 2005 plan year. The EGTRRA remedial amendment period is available to plans that timely adopt good faith plan amendments for EGTRRA.

Rev. Proc. 2003–8, 2003–1 I.R.B. 236, provides guidance for complying with the Service's user fee program as it pertains to requests for determination letters on matters under the jurisdiction of the Commissioner, Tax Exempt and Government Entities (TE/GE). Form 8717, User Fee for Employee Plan Determination Letter Re- quest, is used as an attachment to a determination letter application to transmit the payment of the required user fee or to certify exemption from the fee pursuant to section 620 of EGTRRA.

III. Beginning of EGTRRA Remedial Amendment Period for User Fee Purposes

For a defined contribution plan, the earliest date on which the plan's EGTRRA remedial amendment period could have begun is January 1, 2002. The first day of the 5-year period ending on January 1, 2002, is January 2, 1997. Thus, if a determination letter application for a defined contribution plan is filed within the plan's EGTRRA remedial amendment period, the application may be eligible for elimination of the user fee provided the plan was first in existence after January 1, 1997.

For a defined benefit plan, the earliest date on which the plan's EGTRRA remedial amendment period could have begun is January 2, 2001. (Although EGTRRA is generally effective for years beginning after December 31, 2001, section 611(a) of EGTRRA, which increased the defined benefit dollar limit under § 415 of the Code, is effective for limitation years ending after December 31, 2001. January 2, 2001, is the earliest date section 611(a) of EGTRRA could be effective for a plan and, thus, the earliest date on which a defined benefit plan's EGTRRA remedial amendment period could have begun.) The first day of the 5-year period ending on January 2, 2001, is January 3, 1996. Thus, if a determination letter application for a defined benefit plan is filed within the plan's EGTRRA remedial amendment period, the application may be eligible for elimination of the user fee provided the plan was first in existence after January 2, 1996.

The guidance in this notice amplifies but does not supersede the guidance in Notice 2002–1. Thus, pursuant to Q&A–12 of Notice 2002–1, if a determination letter application for a plan is filed within the plan's GUST remedial amendment period, the application may be eligible for elimination of the user fee provided the plan was first in existence on or after December 9, 1989.

IV. Effect on Other Documents

Notice 2002–1 is amplified.

DRAFTING INFORMATION

The principal drafter of this notice is James Flannery of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans' taxpayer assistance telephone service at 1–877–829–5500 between the hours of 8:00 a.m. and 6:30 p.m. Eastern

1 In general, an employer is an eligible employer if the employer had (i) at least one employee who was not a highly compensated employee (within the meaning of § 414(q) of the Internal Revenue Code) and who participated in the plan for the plan year preceding the determination letter request, and (ii) no more than 100 employees who received at least $5,000 of compensation from the employer for the calendar year preceding the request. See Q&A–5 through Q&A–10 of Notice 2002–1.

2 The term “GUST” refers to the following:

the Uruguay Round Agreements Act, Pub. L. 103–465;
the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103–353;
the Small Business Job Protection Act of 1996, Pub. L. 104–188;
the Taxpayer Relief Act of 1997, Pub. L. 105–34;
the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105–206; and
the Community Renewal Tax Relief Act of 2000, Pub. L. 106–554.

August 11, 2003 294 2003-32 I.R.B.

group. § 1.861–11T(d)(6). This expanded definition was intended to prevent taxpayers from avoiding application of section 864(e)(1) through disaffiliation of one member or the creation of two affiliated groups.

Treasury and the IRS are aware that certain taxpayers have imposed transfer restrictions on the stock of an 80 percent or greater owned foreign corporation and taken the position that such stock is stapled to the stock of an 80 percent or greater owned domestic corporation. If the interests of the corporations are treated as stapled for purposes of section 269B, then although the foreign corporation generally is treated as a domestic corporation, Notice 89–94 announced that regulations will be issued that would treat it as a foreign corporation for purposes of the definition of an includible corporation under section 1504(b) and therefore not an includible corporation.

This notice announces that regulations issued under section 269B will provide that a foreign corporation that is stapled to a domestic corporation will be treated as a domestic corporation for purposes of the definition of an includible corporation under section 1504(b) when applying §§ 1.904(i)–1 and 1.861–11T(d)(6). The provisions of the regulations described in the preceding sentence will be effective for taxable years beginning after July 22, 2003. In the case of structures completed on or after July 22, 2003, such provisions will be effective for taxable years including July 22, 2003.

The IRS will continue to apply principles of existing law to determine whether interests are stapled for purposes of section 269B. For example, under a substanceover-form analysis, restrictions on transferability of ownership interests may be disregarded for tax purposes if the interests are held by the same person or related persons. Finally, Treasury and the IRS are considering issuing further guidance under section 269B, including guidance on situations where the interests of two or more entities are held by the same person or related persons.

EFFECT ON OTHER NOTICES

Notice 89–94, 1989–2 C.B. 416, is modified.

Time, Monday through Friday (a toll-free number). Mr. Flannery may be reached at 1–202–283–9888 (not a toll-free number).

Treatment of Foreign Stapled Entity Under Section 269B as Domestic for Purposes of Sections 904(i) and 864(e)

Notice 2003–50

This notice modifies Notice 89–94, 1989–2 C.B. 416. Section 269B provides that, except as provided in regulations, if a domestic corporation and a foreign corporation are stapled entities, the foreign corporation will be treated as a domestic corporation for U.S. income tax purposes. Section 269B(a)(1). Two entities are stapled entities if more than 50 percent in value of the beneficial ownership in each of such entities consists of stapled interests. Section 269B(c)(2). Interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms and conditions, in connection with the transfer of one of the interests the other interest is also transferred or required to be transferred. Section 269B(c)(3).

Notice 89–94 announced that regulations issued under section 269B will provide that a stapled foreign corporation, treated as a domestic corporation under section 269B(a)(1), will nevertheless be treated as a foreign corporation for purposes of the definition of an includible corporation under section 1504(b). Thus, losses of a stapled foreign corporation will not be allowed to offset income of any member of an affiliated group, unless a valid section 1504(d) election is in effect with respect to the stapled foreign corporation.

Section 904(i) provides that if two or more domestic corporations would be members of the same affiliated group if (i) section 1504(b) were applied without regard to the exceptions contained therein, and (ii) the constructive ownership rules of section 1563(e) applied for purposes of section 1504(a), the Secretary is authorized to issue regulations that provide for resourcing the income of any of such domestic corporations or for modifications to the consolidated return regulations to

the extent that such resourcing or modifications are necessary to prevent the avoidance of the provisions of this subpart (sections 901 to 908). Section 904(i) was enacted to prevent a consolidated group of corporations from manipulating its foreign tax credit limitation by utilizing techniques to disaffiliate a subsidiary. See H.R. Rep. No. 101–247, at 1292–93 (1989).

The regulations under section 904(i) provide that two includible corporations that are “affiliates” (as defined in § 1.904(i)–1(b)(1)) must consistently elect either to credit or to deduct foreign income taxes paid or accrued (or deemed paid) for the taxable year and require the affiliates to determine their foreign tax credit limitations on a combined basis. § 1.904(i)–1(a), (d). In order to be an “affiliate” under § 1.904(i)–1(b), a corporation must be an includible corporation under section 1504(b). See § 1.904(i)–1(b)(1)(i) and –1(b)(2).

Section 864(e)(1) requires the members of an affiliated group to allocate and apportion interest expense as if all members of the group were a single corporation. Section 864(e)(5) provides that, except for certain financial institutions, the term “affiliated group” has the same meaning as in section 1504 (determined without regard to section 1504(b)(4)). Section 864(e)(1) was enacted because Congress was concerned that the separate company approach for allocating and apportioning expenses did not reflect economic reality. Instead, consideration of the expenses of an entire group of corporations that file a consolidated income tax return is a more appropriate approach. In addition, Congress wanted to prevent an affiliated group from manipulating its foreign tax credit limitation by adjusting the location of borrowing within the affiliated group. H.R. Rep. No. 99–426, at 374–75 (1985); S. Rep. No. 99–313, at 346–47 (1986). Sections 1.861–11 and 1.861–11T contain rules for allocating and apportioning interest expense of an affiliated group. For purposes of these rules, the definition of an “affiliated corporation” is expanded to include any “includible corporation” (as defined in section 1504(b) without regard to section 1504(b)(4)) if 80 percent of the vote or value of all the stock is owned directly or indirectly by an includible corporation or by members of an affiliated

2003-32 I.R.B. 295 August 11, 2003

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part I, sections 66, 6015.)

Rev. Proc. 2003–61