IRS written determination 201442073

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
UIL No.: 9100.00-00
Attn.:
Legend:
Company
A=
Company 8 =
Firm C =
Firm D =
Individual E =
Individual F =
Individual G =
Individual H =
Dear
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
JUL Z 1 2014
2014420·73
This is in response to a letter dated January 6, 2014, as supplemented by
information received on June 25,
2014,
in which you request, through your
authorized representative, an extension of time pursuant to section 301.9100-1 of
the Procedure and Administration Regulations (the "P&A Regulations") to file the
notice of election described in Section 3 of Revenue Procedure 93-40,1993-2
C. B. 535 ("Rev. Proc. 93-40") to be treated as operating qualified separate lines

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2014420·73
of business ("QSLOBs") under section 414(r)(2) of the Internal Revenue Code
(the
"Code").
The following facts and representations have been submitted under penalties
of
perjury in support of Company A's ruling request. Affidavits supporting these
facts and representations were also submitted.
Company A is a holding company with nine wholly-owned subsidiaries. Each
of
its subsidiaries sponsors a plan described under sections 401{a) and 401 (k) of
the Code ("401 (k) plan~'). Company B, a subsidiary of Company A, established
its
401 (k) plan in 1996. Company A acquired Company Bin 2005. Prior to the
acquisition, Company B was not part of a controlled group. Following the
acquisition
in 2005, Company B continued to operate as a separate entity with its
own financial and accounting systems, human resources system and
procedures, employees, and
401 (k) plan. Company A had minimal involvement
in the business operations
of Company B, which continues to operate
independently
of Company A and the other entities in Company A's controlled
group.
Company A recognized that certain plan qualification requirements apply to the
controlled group and retained Firm
C, a third-party administrator, to consolidate
testing data for Company
A. Firm C tested the 401 (k) plans maintained by
Company A's subsidiaries
on an employer-wide basis, including the average
deferral percentage ("ADP") test. If excess contributions were found, Company
A's policy was to inform the affected subsidiary
of the test results and identify the
HCEs to whom corrective distributions should be made. Company A did not
confirm with each subsidiary that the corrective distributions were actually made.
Following the expiration
of the transition period for acquisitions contained in
section 410(b)(6)(C)
of the Code, Firm C began including Company Bin
consolidated testing beginning in the 2007 plan year.
Company B provided the information requested each year and acknowledged
Company A's instructions to make corrective distributions to HCEs; however,
Company B failed to make the distributions. Instead, Company B followed the
results
of testing prepared by its own third-party administrator, Firm 0, because it
considered itself to be an independent entity with a stand-alone plan.
Individual
E, the Vice-President for Human Resources at Company B, has held
her position since October
of 2009. She had trained for several months with her
predecessor, who informed her that Company B was not required to follow
Company A's testing results and instructions to make corrective distributions
because it performed its own testing. Individual E did not understand the
significance
of Company B's relationship to Company A, and she received
confirmation that Company B could act independently from Company B's Chief
Financial Officer ("CFO"), Individual G, whose understanding was also based on
advice given by Individual E's predecessor. Individual G had also been informed

3
by the prior CFO of Company B that Company A had assured Company Bit
would operate independently after the 2005 acquisition.
In 2011 and 2012, Company B's Benefits Manager, Individual F, completed an
annual questionnaire from Firm
0, which asked whether Company B was part of
a controlled group, whether it was a QSLOB, and whether any changes in
ownership had occurred. Individual F followed her predecessor's answers of
responding negatively to these questions. While Individual F assisted in
gathering the information annually provided to Company
A, the request for
information and instructions to make corrective distributions were sent to
Individual E and not to her.
The prior Director
of Human Resources for Company A, Individual H, recalls
annual discussions with Company B regarding the testing because Company B
did not believe it should be included
in group testing. Individual H also recalls
particular concerns from other subsidiaries about including Company B
in the
testing because Company B has a high percentage
of HCEs. In 2011, Firm C
had some communications with Firm
0 regarding Company B's controlled group
status, but no further action was taken. Prior to the spring
of 2013, neither Firm
C nor Firm
0 raised the possibility of making a QSLOB election by filing the Form
5310-A, Notice
of Qualified Separate Lines of Business ("Form 5310-A").
In the spring of 2012, Individual E contacted benefits counsel to streamline the
communications between Company A and Company B regarding plan testing.
At
this time, she learned that Company A would be required to file the Form 531 0-A
in order for Company B to rely
on .separate testing. However, she did not notify
Company A
of this issue and became absorbed in Company B's other business
priorities. She revisited the issue during the next round
of testing in the spring of
2013 and, at that time, notified Company A of the issue.
You represent that, except for the filing
of the Form 531 0-A, Company B satisfied
the requirements for treatment as a
QSLOB beginning January
1, 2007.
Based on the above facts and representations, you request
an extension of time,
pursuant to section
301.9100-3 of the P&A Regulations, to file the Form 5310-A
effective for plan years beginning on or after January
1, 2007.
In general, section 414(r)
of the Code provides that for purposes of sections
129( d)(8) and
41 O(b) an employer shall be treated as operating separate lines of
business during any year if the employer operates separate lines of business for
bona fide business reasons and satisfies certain other conditions under the
Code.
If the employer is treated as operating qualified separate lines of business
for the year, the employer may apply the
minimi..lm coverage requirements of
section 410(b) (including the nondiscrimination requirements of section 401(a)(4)
and the minimum participation requirements of section 401 (a)(26)) separately
with respect to the employees
in each qualified separate business line.

4
201442078
Section 414(r)(2)(B) of the Code requires that an employer notify the Secretary of
the Treasury that a line of business is being treated as separate for purposes of
sections 129(d)(8) and 41 O(b ).
Section 3 of Rev. Proc. 93-40 sets forth the exclusive rules for satisfying the
notice requirement
of section 414(r)(2)(B) of the Code. Section 3.03 of Rev.
Proc. 93-40 provides that notice must be given by filing Form
531 0-A. Section
3.05
of Rev. Proc. 93-40 provides that notice for a testing year must be given on
or before the Notification Date for the testing year. The Notification Date for a
testing year is the later
of October 15 of the year following the testing year or the
15th day
of the 1Oth month after the close of the plan year of the plan of the
employer that begins earliest
in the testing year. Section 3.06 of Rev. Proc. 93-
40 provides that after the
Notification Date, notice cannot be modified, withdrawn
or revoked, and
will be treated as applying to subsequent testing years unless
the employer takes timely action to provide a new notice.
Section 301.9100-1 (a)
of the P&A Regulations states that the regulations under
sections 301.9100-1, 301.9100-2 and 301.9100-3 provide the standards the
Commissioner
of Internal Revenue ("Commissioner") will use to determine
whether to grant an extension
of time to make a regulatory election. It further
provides that the granting
of an extension of time is not a determination that the
taxpayer is otherwise
eligible to make the election.
Section 301.9100-1 (b)
of the P&A Regulations defines a "regulatory election" to
mean an election whose due date is prescribed by a regulation, revenue ruling,
revenue procedure, notice, or announcement published
in the Internal Revenue
Bulletin. Notice that
an employer elects to be treated as operating qualified
separate lines
of business pursuant to section 414(r) of the Code and Section 3
of Rev. Proc. 93-40 constitutes a regulatory election.
Section 301.9100-1(c)
of the P&A Regulations provides that the Commissioner,
in the Commissioner's discretion, may grant a reasonable extension of time
under the rules
of sections 301.9100-2 and 301.9100-3 to make a regulatory ·
election.
Section
301.9100-2
of the P&A Regulations lists certain elections for which
automatic extensions
oftime to file are granted. Section 301.9100-3 generally
provides guidance with respect to the granting of relief with respect to those
elections not referenced
in section 301.9100-2. The relief requested in this case
is not referenced in section
301.9100-2.
Section 301.91 00-3(a)
of the P&A Regulations provides that applications for relief
that fall within section 301.9100-3 will be granted when the taxpayer provides
sufficient evidence (including affidavits described
in section 301.9100-3(e)(2)) to
establish that (1) the taxpayer acted reasonably and
in good faith, and (2)

5
201442073
granting relief would not prejudice the interests of the Government.
Section 301.91 00-3(b)(1)
of the P&A Regulations provides that, except as
provided
in paragraphs (b)(3)(i) through (iii) of this section, a taxpayer will be
deemed to have acted reasonably and
in good faith if (i) the taxpayer's request
for relief under this section is filed before the failure to make a timely election is
discovered by the Service; (ii) the taxpayer inadvertently failed to make the
election because
of intervening events beyond the taxpayer's control; (iii) the
taxpayer failed to
mak~ the election because, after exercising reasonable
diligence, the taxpayer was unaware of the necessity for the election; (iv) the
taxpayer reasonably relied upon the written advice of the Service; or (v) the
taxpayer reasonably relied on a qualified tax professional, including a tax
professional employed by the taxpayer, and the tax professional failed to make,
or advise the taxpayer to make, the election.
Section 301.91 00-3(b)(3)
of the P&A Regulations provides that a taxpayer is
deemed to have not acted reasonably or
in good faith if (i) the taxpayer seeks to
alter a return position for which
an accuracy-related penalty has been or could be
imposed at the time relief is requested; (ii) the taxpayer was informed in all
material respects
of the required election and related tax consequences, but
chose not to file the election; or (iii) the taxpayer requests relief based on
hindsight.
Section 301.91 00-3(c)(1)
of the P&A Regulations provides the standards for
determining whether the interests
of the Government are prejudiced. Paragraph
(c)(1 )(i) provides that the interests of the Government are prejudiced if granting
relief would result
in lower tax liability in the aggregate for all taxable years
affected by the election than the taxpayer would have had if the election had
been timely made. Paragraph (c)(1)(ii) provides that ordinarily the
Service will
not grant relief when tax years that would have been affected by the election had
it been timely made are·closed by the statute
of limitations before the taxpayer's
receipt
of a ruling granting relief under this section.
Company A's ruling request contains an explanation describing the
circumstances that caused its failure to give the
Service timely notice
of its
QSL08 election for the 2007 testing year. Company 8 had operated as an
independent company prior to its acquisition by Company A
in 2005, and testing
its 401 (k) plan, established
in 1996, on a controlled group basis was not required
until the plan year beginning January
1, 2007. Company 8 continued to operate
independently from Company
A, as it been assured it could do after the 2005
acquisition. The persons involved
in the administration of Company 8's 401 (k)
plan, Individuals
E, F, and G, and Firm 0, were unaware of the election until
Individual E learned
of the requirement to file Form 5310-A in the spring of 2012
and informed Company A
in the spring of 2013. Firm C, hired by Company A in
2005 to test the 401 (k) plans annually for compliance, did not raise the possibility
of electing QSL08 status until the spring of 2013. Although Firm C and Firm 0

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201442073
had communicated regarding Company B's controlled group status in 2011, no
further action was taken. This request for relief under section 301.9100-1
of the
P&A
Regulations was made on January 6, 2014, before the Service discovered
the failure to file the election. Based on these facts, Company A is deemed to
have acted reasonably and
in good faith because it satisfies clause (i) of section
301.91 00-3(b)(1
).
Although the interests of the Government are ordinarily prejudiced if the taxable
year in which the election would have been made is closed by the statute of
limitations, Company A has filed an application under the Voluntary Correction
Program to correct the
401 (k) plans for failures to satisfy the ADP test.
Additionally, Company A does not have a lower tax liability than it would have if it
had timely filed the election.
Accordingly, Company A is granted
an extension of 60 days from the date of the
issuance
of this ruling letter to file notification of the QSLOB election on Form
531 0-A with the appropriate office of the Service.
No opinion is expressed as to whether the separate lines
of business of the
taxpayer satisfy the requirements (other than notifying the Secretary) under
section 414(r) of the Code.
This
ruling does not constitute a determination that a separate line
of business
satisfies the requirement of administrative scrutiny within the meaning of section
1.414(r)-6
of the federal Income Tax Regulations.
No opinion is expressed as to the tax treatment of the transaction described
herein under any other provisions
of the Code cr regulations, which may be
applicable thereto.
This letter is directed only to the
taxpayer who requested it.
Section
611 O(k)(3)
of the Code provides that it may not be used or cited as precedent.
A copy of this letter has been sent to your authorized representative in
accordance with a power
of attorney on file with this office.

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201442073
Should you have any concerns regarding this ruling, please contact
Enclosures:
Deleted
copy
of letter ruling
Notice
437
cc:
c;~.~
Carlton A. Watkins, Manager
Employee Plans Technical Group 1