Part III. Administrative, Procedural, and Miscellaneous

Additional Relief for Certain Employee Benefit Plans as a Result of Hurricane Katrina

Notice 2005–60

I. PURPOSE

The Internal Revenue Service, the Department of Labor’s Employee Benefits Security Administration (“EBSA”) and the Pension Benefit Guaranty Corporation (“PBGC”) are providing relief in connection with certain employee benefit plans because of damage caused by Hurricane Katrina (“Katrina”). The relief provided by this notice is in addition to the relief already provided by the Service and the PBGC to victims of Katrina.

II. BACKGROUND

Section 412(a) of the Code and § 302(a) of the Employee Retirement Income Security Act of 1974, Pub. L. No. 93–406 (“ERISA”) provide that, in order for a plan to meet the minimum funding standards of the Code and ERISA, the plan must not have an accumulated funding deficiency as of the end of each plan year. Section 412(c)(10) of the Code and § 302(c)(10) of ERISA provide that, for purposes of satisfying the minimum funding requirements of the Code and ERISA, any contributions for a plan year made by an employer by the end of the 8 ¹ /2-month period following the end of such plan year are deemed to have been made on the last day of the year.

Section 412(d) of the Code and § 303 of ERISA provide for waivers of the minimum funding requirements in the event of temporary substantial business hardship. In order for a plan other than a multiemployer plan to receive such a waiver, § 412(d)(4) of the Code and § 303(d)(1) of ERISA provide that an application for such a waiver must be submitted no later than the 15 ^th day of the 3rd month beginning after the close of the plan year for which the waiver is sought. Thus, for example, in order for a plan to receive a waiver of the minimum funding requirements for the plan year ending on June 30, 2005, the sponsor of the plan must have submitted an application by September 15, 2005.

Section 412(m)(1) of the Code and § 302(e)(1) of ERISA require that, with respect to certain plans with a funded current liability percentage of less than 100 percent, a higher rate of interest be charged on any unpaid required quarterly installments. Section 412(m)(5) of the Code and § 302(e)(5) of ERISA increase the required quarterly installments to the amount needed to prevent a liquidity shortfall (as defined in those sections). For a plan with a calendar-year plan year, the due dates for the required installments for the 2005 calendar year are April 15, 2005, July 15, 2005, October 15, 2005, and January 15, 2006.

Section 412(n)(1) of the Code and § 302(f)(1) of ERISA provide that, with respect to certain plans with a funded current liability percentage of less than 100 percent, if the required installments or any other payment required under those sections are not made to the plan before the due date for such installment or other payment, and if the aggregate unpaid balance of such installments or other payments exceeds $1,000,000, then there shall be a lien in favor of the plan. The lien may be perfected by the PBGC.

Section 7508A(b) of the Code provides that, in the case of a pension or other employee benefit plan, or any sponsor, administrator, participant, beneficiary, or other person with respect to such plan, affected by a Presidentially declared disaster or a terroristic or military action, the Secretary of the Treasury may prescribe a period of up to 1 year which may be disregarded in determining the date by which any action is required or permitted to be completed. No plan shall be treated as failing to be operated in accordance with its terms solely because the plan disregards any period by reason of such relief. Parallel provisions are in Titles I and IV of ERISA.

Under the PBGC’s premium regulations, contributions may be taken into account for determining a plan’s unfunded vested benefits for a premium payment year or a plan’s entitlement to the full funding limit exemption from the variable-rate premium for a premium payment year if the contributions (1) are for a plan year before the premium payment year

and (2) are made on or before the earlier of (a) the due date for payment of the variable-rate premium or (b) the date the variable-rate premium is paid (29 CFR §§ 4006.4(b)(2)(iv) and 4006.5(a)(5)). In addition, there are Title IV reporting and disclosure requirements arising from certain late contributions ( e.g., 29 CFR § 4043.25, 29 CFR § 4011.10(b)(6)).

III. RELIEF

For any plan that is affected by Katrina (an “Affected Plan”), if the date described in § 412(c)(10) or 412(m) of the Code and § 302(c)(10) or 302(e) of ERISA for making contributions falls within the period beginning on August 29, 2005, and ending on October 30, 2005, then the date such contributions must be made is postponed to October 31, 2005. If the date described in § 412(d)(4) of the Code and § 303(d)(1) of ERISA for applying for a waiver for an Affected Plan falls within the period beginning on August 29, 2005, and ending on October 30, 2005, then the date such waiver must be applied for is postponed to October 31, 2005.

For purposes of the notice, a plan is an Affected Plan only if any of the following were located at the time of Katrina in any of the parishes or counties declared by the President to be eligible for individual assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93–288: the principal place of business of the employer that maintains the plan (in the case of a single-employer plan, determined disregarding the rules of § 414(b) and (c) of the Code); the principal place of business of employers that employ more than 50 percent of the active participants covered by the plan (in the case of a plan covering employees of more than one employer, determined disregarding the rules of § 414(b) and (c)); the office of the plan or the plan administrator; the office of the primary recordkeeper serving the plan; or the office of the enrolled actuary or other advisor that had been retained by the plan or the employer at the time of Katrina to determine the funding requirements for which the due date falls between the period beginning on August 29, 2005, and ending on October 30, 2005. For purposes of the preceding

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sentence, the term “office” includes only the worksite of those individuals, and the location of any records, necessary to determine the plan’s funding requirements for the relevant period.

The following rule applies under Title IV of ERISA for purposes of determining a plan’s unfunded vested benefits for a premium payment year or entitlement to the full funding limit exemption from the variable-rate premium for a premium payment year. For any plan for which this notice extends a date described in § 412(c)(10) of the Code and § 302(c)(10) of ERISA, contributions for any plan year before the premium payment year may be taken into account if they are made on or before the earlier of (1) the extended § 412(c)(10)/§ 302(c)(10) date under this notice or (2) the date of the plan’s variable-rate premium filing (or, if applicable, amended variable-rate premium filing) for the premium payment year. In addition, for any plan for which this notice extends a date described in § 412(c)(10) of the Code and § 302(c)(10) of ERISA, contributions are treated as timely for purposes of any Title IV reporting and disclosure requirement if they are made on or before the extended § 412(c)(10)/§ 302(c)(10) date under this notice.

DRAFTING INFORMATION

The principal authors of this notice are Donna Prestia and Roger Kuehnle 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 8:30 a.m. and 6:30 p.m. Eastern Time, Monday through Friday (a toll-free number). Ms. Prestia may be reached at (202) 283–9543 (not a toll-free number).

Reporting Requirements for Dependent Care Assistance Programs

Notice 2005–61

PURPOSE

The purpose of this notice is to clarify the Form W–2 reporting requirements

when an employer has amended a cafeteria plan document to provide a grace period for qualified dependent care assistance immediately following the end of a cafeteria plan year.

BACKGROUND AND APPLICATION

Notice 2005–42, 2005–23 I.R.B. 1204, modifies the application of the rule prohibiting deferred compensation under a cafeteria plan. That notice permits an employer to amend a cafeteria plan document to provide a grace period immediately following the end of each plan year during which unused benefits or contributions remaining at the end of the plan year, including contributions for dependent care assistance as described in § 129, may be used to pay or reimburse expenses incurred during the grace period.

Notice 89–111, 1989–2 C.B. 449, am- plified, Notice 90–66, 1990–2 C.B. 350 (extending Notice 89–111 to years following 1989), provides guidance concerning the reporting requirements for dependent care assistance furnished by an employer to an employee under a qualified dependent care assistance program. The notice states that in a cash reimbursement arrangement, the amount reported on Form W–2, Wage and Tax Statement, is the total amount of cash reimbursement furnished to the employee during the calendar year. However, if the employer does not know the actual total amount of cash reimbursement at the time the Form W–2 is prepared, the employer may report a reasonable estimate of the total amount on Form W–2. Notice 89–111 states that for a salary reduction arrangement under a § 125 cafeteria plan, the amount electively contributed by an employee for the year for dependent care assistance (plus any employer matching contributions attributable thereto) will be considered a reasonable estimate.

An employer that amends its cafeteria plan to provide a grace period for dependent care assistance may continue to rely on Notice 89–111, by reporting in Box 10 of Form W–2 the salary reduction amount elected by the employee for the year for dependent care assistance (plus any employer matching contributions attributable thereto). For example, suppose an employer amends its calendar year cafeteria plan to permit a grace period for dependent care assistance until March 15 of the

subsequent year, that an employee elects salary reduction of $5,000 for dependent care assistance for the 2005 calendar year and elects an additional $5,000 salary reduction for dependent care assistance for the 2006 calendar year, and that the employee has $500 of dependent care contributions remaining unused at the end of the 2005 plan year, which is available to reimburse dependent care expenses incurred during the grace period. For the 2005 calendar year, the employer may report in Box 10 of Form W–2 the $5,000 salary reduction amount elected by the employee for dependent care assistance in 2005. Similarly, for the 2006 calendar year, the employer may report in Box 10 of Form W–2 the $5,000 salary reduction amount elected by the employee for dependent care assistance in 2006.

EFFECT ON OTHER DOCUMENTS

Notice 89–111, 1989–2 C.B. 449, is amplified.

DRAFTING INFORMATION

The principal author of this notice is Elizabeth Purcell of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Purcell at (202) 622–6080 (not a toll-free call).

Announcement of Rules Relating to the Temporary Operation of Ships in the Domestic Trade as a Result of Hurricane Katrina

Notice 2005–65

As a result of the devastation caused by Hurricane Katrina, the Treasury Department and the Internal Revenue Service (IRS) understand that on September 1, 2005, the Secretary of the Department of Homeland Security waived the Merchant Marine Act of 1920 and related laws for the transportation of petroleum and refined petroleum products for the period until 12:01 a.m., September 19, 2005, and for the transportation of petroleum released from the Strategic Petroleum Reserve undertaken in response to the circumstances

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EFFECTIVE DATE

This notice is an emergency measure and relates to the specific circumstances described in the waiver. Except as otherwise provided, the rules of this notice are applicable from September 1, 2005, through September 18, 2005. With respect to the transportation of petroleum released from the Strategic Petroleum Reserve undertaken pursuant to the waiver, the rules of this notice are applicable from September 1, 2005, through October 31, 2005.

DRAFTING INFORMATION

The principal author of this notice is Patricia A. Bray of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Patricia Bray or David Lundy at (202) 622–3880 (not a toll-free call).

arising from Katrina (the waiver). As a result of these unique circumstances, Treasury and the IRS announce the following guidance with respect to the temporary operation of ships in the domestic trade pursuant to the waiver.

The IRS will not challenge a position taken by a foreign corporation that is otherwise engaged in the international operation of ships, that the transport of petroleum pursuant to the waiver is an activity incidental to its international operation of ships under Treas. Reg. § 1.883–1(g). In addition, Treasury and the IRS consider such activities conducted pursuant to the waiver by enterprises otherwise engaged in the operation of ships in international traffic to be ancillary activities the income from which will qualify for exemption under the shipping article of U.S. income tax treaties.

In light of these unique circumstances, and the special consideration given to foreign crew members reflected in section 861(a)(3), the IRS will not challenge a po

sition that compensation for labor or services performed by a nonresident alien as a regular member of a crew of a foreign vessel during the use of the vessel pursuant to the waiver is income from sources without the United States.

For purposes of section 7701(b)(7), the IRS will not challenge a position taken by an individual who is temporarily present in the United States on any day as a regular member of the crew of a foreign vessel operating in the United States pursuant to the waiver that the individual is not present in the United States on such day unless such individual otherwise engages in any trade or business in the United States on such day.

In addition, for purposes of the alternative tax under subchapter R of the Internal Revenue Code, the IRS will not challenge a position that days operating in the United States pursuant to the waiver are not included in the computation of the 30-day limitation of section 1355(f)(4).

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