SECTION 3. CLOSING

AGREEMENT PROGRAM FOR RESTORATIVE PAYMENTS

.01 Under this revenue procedure, the Service will enter into a closing agreement with an employer that maintains an affected plan and the trustee of the plan’s trust that provides that restorative payments (including amounts subsequently returned to the employer) do not cause the affected plan to violate §§ 401(a)(2), 401(a)(4), or 415. In general, restorative payments are conditional payments to an affected plan on account of plan assets that are invested in a guaranteed contract under which payments have been reduced or suspended by reason of state insurer delinquency proceedings.

.02 Under this revenue procedure, the closing agreement will provide for the timing of deductions under § 404 for any restorative payments ultimately retained by the trust of an affected plan. The closing agreement will also provide that the restorative payments will not trigger the application of any excise taxes described in §§ 4972 and 4980. In addition, the closing agreement will provide that the restorative payments will not be treated as giving rise to acquisition indebtedness under § 514 or as a below-market loan under § 7872.

.03 The Service will not enter into the closing agreement described in this revenue procedure unless an employer that maintains an affected plan either has received a prohibited transaction exemption from DOL to make restorative payments or supplies an opinion of counsel that the restorative payments are exempt under a DOL class exemption. Where § 4975 does not apply to an affected plan ( i.e., no exemption is required from DOL) the Service will consider entering into a closing agreement with an employer under the terms and conditions set forth in the sample closing agreement, excluding those conditions that relate to § 4975 and any

other income tax or excise taxes that would otherwise not apply to the employer.

.04 The specific terms and conditions applicable to the closing agreement (including certain variable factors) are set forth in the sample closing agreement attached as an exhibit to this revenue procedure. This is the case even if an employer has already selected a method of payment in lieu of the original schedule of payments of principal and interest from the guaranteed contract or if the employer wishes to limit restorative payments solely to loans or transfers or distributions.

.05 A request for a closing agreement under this revenue procedure is subject to the provisions of Rev. Proc. 95–4, 1995–1 C.B. 397, without regard to any user fee described in Rev. Proc. 95–8, 1995–1 C.B. 485. Any such request must contain the relevant items listed in section 9 of Rev. Proc. 95–4, and must also include (1) a copy of the guaranteed contract, (2) a copy of the agreement under which the employer will make (or is making) restorative payments to the affected plan, (3) a completed closing agreement (to the extent that the information is available at the time of the request), (4) a copy of the most recent series Form 5500 filed for the affected plan to which the closing agreement would apply, (5) if applicable, a copy of either the application submitted to DOL for the prohibited transaction exemption or an opinion of counsel that a class exemption applies, and (6) if a rate of interest is to be used after the maturity date of the guaranteed contract, a statement of the reasons that such interest rate is reasonable under the facts and circumstances. Any such request must be clearly labeled as a request for a closing agreement under this revenue procedure. Five copies of the applicable closing agreement must be enclosed and sent to the following address:

Internal Revenue Service 1111 Constitution Avenue, N.W. Employee Plans Technical Branch,

Rm. 6052 Washington, D.C. 20224