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IRS sets rules for SLOB determination letters.

Sec. 414(r) sets forth the rules for determining whether an employer is treated as operating qualified separate lines of business (SLOBs) for purposes of certain employee benefit provisions under the Code. If an employer is treated as operating qualified SLOBs under Sec. 414(r), certain requirements under those provisions are applied separately with respect to the employees of each qualified SLOB operated by the employer. These requirements include the minimum coverage requirements of Sec. 410(b), the minimum participation requirements of Sec. 401(a)(26) and the 55% average benefits test of Sec. 129(d)(8).

Pursuant to Sec. 414(r)(2)(C) and Regs. Sec. 1.414(r)-1(b)(iv)(D), an employer is not treated as operating qualified SLOBs unless each SLOB operated by the employer passes administrative scrutiny. The regulations provide two general methods for satisfying this requirement. Under the first method, an SLOB that satisfies any of the safe harbors in Regs. Sec. 1.414(r)-5 satisfies the requirement of administrative scrutiny. Under the second method, an SLOB that does not satisfy any of the safe harbors in Regs. Sec. 1.414(r)-5 nonetheless satisfies the requirement of administrative scrutiny if the employer requests and receives an individual determination from the IRS that the SLOB satisfies the requirement of administrative scrutiny.

Among the safe harbors provided in Regs. Sec. 1.414(r)-5 is the safe harbor of Regs. Sec. 1.414(r)-4(c) for SLOBs in different industries. This safe harbor is satisfied only if the SLOB is in a different industry or industries from every other SLOB of the employer.

When an SLOB does not satisfy any of the safe harbors in Regs. Sec. 1.414(r)-5, a determination may be requested from the Service that the SLOB passes administrative scrutiny, but only if at least one of the requirements set forth in Regs. Sec. 1.414(r)-6(b) is satisfied. For example, pursuant to Regs. Sec. 1.414(r)-6(b)(2)(ii), a determination may be requested if 90% of the property or services provided by the SLOB falls within one or more of the specified industry categories and no more than 10% of the property or services provided by other SLOBs falls within the same industry category. However, this revenue procedure does not establish a program for processing requests for a determination whether an SLOB meets administrative scrutiny. The IRS will publish procedures relating to such requests at a later date.

This revenue procedure sets forth the industry categories established by the Service for purposes of the safe harbor in Regs. Sec. 1.414(r)-5(c) and the administrative scrutiny determination in Regs. Sec. 1.414(r)-6.

The industry categories listed in this revenue procedure are derived from the Standard Industrial Classification codes (the "SIC" codes) set forth in the Office of Management and Budget Standard Industrial Classification Manual (1987). The SIC codes are arranged by one-digit divisions, two-digit major groups of industries, three-digit industry groups and four-digit industries. The industry categories listed in this revenue procedure are based on SIC codes at the two-digit level corresponding to major groups of industries. The IRS anticipates that these industry categories may be modified from time to time to reflect technological, institutional and other changes in the economy, taxpayers' and the Service's experiences in working with the industry categories, and changes in the SIC codes from which they are derived.

The SIC code or codes to which a particular industry category corresponds are set forth in parentheses following the name of the industry category. Except as otherwise indicated, each industry category is intended to have the same content as the SIC code or codes from which it is derived. Although each industry category describes an industry in general terms, the category includes all property and services that are provided to customers by business in that industry. Thus, for example, agriculture entomological services (SIC code 0721) are included in the food and agriculture industry category listed below.

Regs. Sec. 1.414(r)-5(c)(1) requires that the property or services provided to customers of the employer by an SLOB must fall exclusively within one or more of the industry categories listed, and that none of the property or services provided to customers of the employer by any of the employer's other SLOBs may fall within the same industry category or categories. In determining whether this requirement is satisfied, the SIC code or codes (if any) assigned to the employer's establishments by the Census Bureau are not determinative, because they look to the activities conducted at each of the employer's establishments rather than to the ultimate property or services provided by the SLOB to customers of the employer. Thus, the employer must look directly to the property or services provided by the SLOB to customers of the employer to determine whether the requirements of the safe harbor are satisfied.

Industry and categories

1. Food and agriculture. Food, beverages, tobacco, food stores and restaurants (Groups 1, 2, 7, 8, 9, 20, 21, 54 and 58).

2. Textiles and clothing. Textile mill products, apparel and other finished products made from fabrics and other similar materials (including leather and leather products) and general merchandise stores (Groups 22, 23, 31, 53, 56 and 57).

3. Forest products. Pulp, paper, lumber and wood products (including furniture) (Group 24, 25, 26).

4. Transportation. Transportation equipment and services (Groups 37, 40, 41, 42, 44, 45, 47 and 75).

5. Finance. Banking, insurance and financial industrial (Groups 60, 61, 62, 63, 64 and 67).

6. Utilities. Public utilities and other regulated industries and communications (Groups 48 and 49).

7. Coal and metals. Metal industries and coal mining and production (Groups 10, 12, 14, 33 and 34).

8. Machinery and electronics. Industrial and commercial machinery; computers and other electronic and electrical equipment and components (Groups 35, 36 and 38).

9. Petroleum and chemicals. Oil and gas extraction, production and distribution (including gasoline service stations); petroleum refining and related industries; chemicals and allied products; rubber and miscellaneous plastic products (Groups 13, 28, 28, 29, 30, 46 and 55).

10. Construction and real estate. Construction industry, real estate, stone, clay and glass products (Groups 15, 16, 17, 32 and 65).

11. Leisure. Entertainment, sports and hotels (Groups 70, 78, 79 and 84).

12. Printing and publishing. Printing, publishing and allied industries (Group 27).
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Title Annotation:separate lines of business
Author:Fiore, Nicholas J.
Publication:The Tax Adviser
Date:Feb 1, 1992
Words:1067
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