SECTION 5. EFFECT — Internal Revenue Bulletin

REVENUE PROCEDURES

Rev. Proc. 92–10 is clarified.

EXHIBIT

CLOSING AGREEMENT ON FINAL DETERMINATION

COVERING SPECIFIC MATTERS

Under § 7121 of the Internal Revenue Code (the ‘‘Code’’), the X Corporation (the ‘‘Employer’’),

[address and EIN], the X Corporation Retirement Plan Trust (the ‘‘Trust’’), [address and EIN], and the Commissioner of Internal Revenue make the following closing agreement:

WHEREAS, the X Corporation Retirement Plan (the ‘‘Plan’’) was established on ; and WHEREAS, the Employer represents that the Plan and Trust are qualified under § 401(a) of the Code; and WHEREAS, the Plan is a defined contribution plan; and

[The closing agreement must contain either Alternative A or Alternative B.]

Alternative A

WHEREAS, the Trust holds a guaranteed investment contract [insert group annuity contract, if applicable] (the ‘‘GC’’) issued by (the ‘‘Insurer’’), a life insurance company (within the meaning of § 816(a) of the Code) that is in state insurer delinquency proceedings; and

Alternative B

WHEREAS, the Trust holds an interest in a guaranteed investment contract [insert group annuity contract, if applicable] (the ‘‘GC’’) issued by (the ‘‘Insurer’’), a life insurance company within the meaning of § 816(a) of the Code that is in state insurer delinquency proceedings; and

WHEREAS, the Insurer is prohibited under the state insurer delinquency proceedings from making full payment in accordance with the terms of the GC; and

WHEREAS, the Employer represents that it has made or will make payments to the Trust (‘‘Restorative Payments’’) meeting the following criteria:

The total of the Restorative Payments made on any date plus the amount of Restorative Payments made before that date (less the amount of Restorative Payments that have previously been returned pursuant to paragraph 2 below) do not exceed the ‘‘current value’’ of the GC as of that date. The ‘‘current value’’ of the GC is defined as [if Alternative A above is used insert ‘‘the issue price of the GC’’ and if Alternative B above is used insert ‘‘the sum of the Trust’s investments in the GC’’], adjusted as follows: (A) interest is credited to the current date calculated at the guaranteed interest rate under the terms of the GC during any period for which the terms of the GC provide for interest at a guaranteed rate; [(B) no interest is credited for periods for which no rate of interest is guaranteed under the terms of the GC or (B) interest is credited for periods for which no interest is guaranteed under the terms of the GC at ——— ]; and (C) any actual proceeds received by the Trust on or before the current date with respect to the GC are subtracted when received. For purposes of this agreement, all references to various terms and conditions of the GC refer to the terms and conditions of the GC in force immediately prior to the beginning of the state insurer delinquency proceedings.
Pursuant to a written agreement between the Employer and the Trustee, whenever the total amount of the Restorative Payments (less the amount of Restorative Payments that have previously been returned pursuant to this paragraph) exceeds the current value of the GC, the ‘‘excess amount’’ will be promptly returned to the Employer. The ‘‘excess amount’’ is defined as the excess of Restorative Payments (less the amount of Restorative Payments that have previously been returned pursuant to this paragraph) over the current value of the GC, plus any actual or deemed earnings on Restorative Payments permitted to be returned to the Employer under a prohibited transaction exemption issued by the Department of Labor.
The Employer notifies the Trustee at the time any Restorative Payment is paid to the Trust that the payment is a Restorative Payment under the written agreement described in paragraph 2 above; and

[The closing agreement should include either Alternative C or Alternative D.]

Alternative C

WHEREAS, the Department of Labor issued a prohibited transaction exemption to the Employer on

[date of issuance], in accordance with § 408(a) of the Employee Retirement Income Security Act of 1974, covering the payment of Restorative Payments to the Trust and the return of Restorative Payments to the Employer as described above; and

442 1995–2 C.B.

Alternative D

WHEREAS, the Employer has supplied an opinion of counsel to the Service stating that a class exemption issued by the Department of Labor in accordance with § 408(a) of the Employee Retirement Income Security Act of 1974 covers the payment of Restorative Payments to the Trust and the return of Restorative Payments to the Employer as described above; and

WHEREAS, the Employer and the Trustee have determined that the agreement set forth herein is in the best interests of the Employer and the Trust; and

WHEREAS, the Service, through its authorized representative, has determined that said agreement is also in its best interests;

NOW IT IS HEREBY DETERMINED AND AGREED for federal income and excise tax purposes that the above representations are material to this closing agreement and that:

The Service will treat the Plan as not failing to satisfy the requirements of § 401(a) of the Code on account of the following:

(A) The payment of Restorative Payments to the Trust. (B) The return of Restorative Payments (and earnings as permitted to be returned) to the Employer (including any amount deemed returned to the Employer as provided in subparagraph 6(D) below) as required under the representations made in this agreement.

(C) The use of Restorative Payments and earnings thereon to make distributions or loans to any participant or to make any transfer to another investment option from the participant’s account.

(D) The allocation of earnings attributable to Restorative Payments to any participant’s account, where earnings attributable to Restorative Payments are used in lieu of current employer contributions to make current allocations to a participant’s account as provided in subparagraph 6(F) below.

The Service will not apply the § 4972 excise tax on nondeductible contributions to Restorative Payments that are treated as contributions (as provided in subparagraph 6(C) below) and that exceed the deduction limits under § 404. If otherwise applicable, the § 4972 excise tax will apply only to the amount of nondeductible contributions remaining, if any, after subtracting the ‘‘amount attributable to Restorative Payments.’’ In each year, the ‘‘amount attributable to Restorative Payments’’ is the sum of (1) the amount of Restorative Payments treated as contributions for the taxable year under subparagraph 6(C) below; plus (2) the amount of nondeductible contributions for the preceding year for which the § 4972 excise tax was not applied because of this paragraph.
The Service will not apply the § 4980 excise tax on employer reversions to the return of Restorative Payments or earnings thereon, or to the deemed return of Restorative Payments or earnings thereon as provided under subparagraph 6(D) below.
The Service will not treat the Trust as having incurred acquisition indebtedness under § 514 of the Code on account of the receipt of Restorative Payments.
The Service will not treat the payment of Restorative Payments to the Trust as a below-market loan under § 7872 of the Code.
As a condition to the treatment described in paragraphs 1 through 5 above, the Employer and the Trustee agree to the following:

(A) The use of Restorative Payments and earnings thereon to make distributions or loans to any participant or to make any transfer to another investment option from the participant’s account will not increase the amount of the participant’s account balance over the amount that would have been the participant’s account balance, in the absence of Restorative Payments, had the Insurer satisfied the terms and conditions of the GC. This subparagraph does not apply to allocations made as provided in subparagraph (F)(3) of this paragraph 6.

(B) The use of Restorative Payments and earnings thereon to make distributions or loans to any participant or to make any transfer to another investment option from the participant’s account will be carried out on the same basis with respect to all similarly situated participants. This subparagraph does not apply to allocations made as provided in subparagraph (F)(3) of this paragraph 6.

(C) Any Restorative Payments will be treated as contributions paid to the Trust in a particular taxable year to the extent that the Employer has reasonably determined that the Restorative Payments will not be returned pursuant to the state insurer delinquency proceedings. The Restorative Payments that are not returned to the Employer and that are treated as contributions under this paragraph will be subject to the limits of § 404 of the Code.

(D) Where any Restorative Payments or earnings thereon are required to be returned to the Employer, as represented in this agreement, any amount that is not promptly returned to the Employer will be treated as returned to the Employer and recontributed to the Trust in the taxable year in which the Trustee is obligated to return that amount to the Employer. Because the deemed recontribution to the Trust is not a Restorative Payment, it is subject to the rules governing plan contributions and allocations without regard to this agreement.

(E) Amounts that are returned to the Employer, as described under the representations in this agreement, are treated as follows:

(1) Except as provided in subparagraph (2) below, an amount returned to the Employer is includible in the gross income of the Employer only if the amount returned causes the total of the amounts returned to date to exceed the total Restorative Payments made to date.

1995–2 C.B. 443

(2) An amount returned to the Employer that does not cause the total of amounts returned to the Employer to exceed the total Restorative Payments is includible in gross income, subject to § 111 of the Code, if the amount returned causes the total of amounts returned to the Employer to exceed the total Restorative Payments made to date less Restorative Payments deducted by the Employer to date.

(F) The Trustee will maintain an unallocated suspense account to determine the amount of any increase in the value of Plan assets over what the value would have been, in the absence of Restorative Payments, had the Insurer satisfied the terms and conditions of the GC. This account will be maintained as described in subparagraphs (1) and (2) below. Any balance ultimately remaining in this account will be allocated to participants’ accounts as described in subparagraph (3) below.

(1) The account will be established as of the date the Employer commences to make Restorative Payments to the Plan. The amount in the account, until subparagraph (2) below applies, will be equal to the amount of Restorative Payments plus the proceeds received by the Plan on account of the GC, less distributions, loans and transfers to other investment options of account balances invested in the GC, and repayments of Restorative Payments to the Employer (including amounts deemed repaid under subparagraph (D) of this paragraph 6). The account will be adjusted to reflect the investment experience (positive or negative) attributable to any balance in the account.

(2) When the Trust is not entitled to receive any further proceeds on account of the GC, the value of all participants’ account balances remaining that are attributable to investment in the GC will be subtracted from the amount in the account.

(3) Any positive balance remaining in the account, after the application of subparagraph (2) above, must be allocated to participants’ accounts as contributions under the Plan before any additional employer contributions are made to the Plan. The Employer will not treat this allocation as a contribution paid to the Trust under § 404 of the Code. The Employer will make this allocation in accordance with the normal plan qualification rules, including §§ 401(a)(4) and 415.

This agreement constitutes a resolution under the Code solely of the specific matters discussed herein. No inference shall be made as to the application of the Code under any facts and circumstances outside this agreement. No inference shall be made with respect to whether this resolution satisfies other federal law, including Title I of the Employee Retirement Income Security Act of 1974.

This agreement is final and conclusive except: (a) the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact; (b) it is subject to the Code sections that expressly provide that effect be given to their provisions (including any stated exception for § 7122) notwithstanding any other law or rule of law; and

(c) if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period.

By signing, the above parties certify that they have read and agreed to the terms of this document.

X CORPORATION By: Title: Date Signed:

X CORPORATION RETIREMENT PLAN TRUST By: Title: Date Signed:

COMMISSIONER OF INTERNAL REVENUE By: Title: Date Signed:

444 1995–2 C.B.

26 CFR 601.602: Tax forms and instructions. (Also Part I, §§ 1, 32, 63, 68, 132, 135, 151, 170, 513, 4001, 4003, 6012, 6013, 6033; 1.1–1, 1.32–2, 1.63–1, 1.151–4, 1.170–1, 1.6012–1, 1.6013–1.)

Rev. Proc. 95–53

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