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Revenue Procedure 92-65



Rev. Proc. 92-65
1992-2 C.B. 428
Section 404
Section 451 -- Year of Inclusion
Statement of Procedural Rules

Summary
IRS SPECIFIES CONDITIONS FOR ADVANCE RULINGS ON UNFUNDED DEFERRED COMPENSATION ARRANGEMENTS.

The Service in Revenue Procedure 92-65 has set forth the circumstances in which it will issue advance rulings concerning the application of the constructive-receipt doctrine to unfunded deferred compensation arrangements. Rev. Proc. 92-65, which is effective as of July 28, 1992, amplifies Rev. Proc. 71-19, 1971-1 C.B. 698.

The Service says that in each request for a ruling involving the deferral of compensation, it will determine whether the constructive- receipt doctrine is applicable on a case-by-case basis. It will ordinarily issue rulings regarding unfunded deferred compensation arrangements only if the requirements of Rev. Proc. 71-19 are met and the arrangement complies with the guidelines specified in section 3 of Rev. Proc. 92-65. One of those guidelines specifies that if a plan refers to a trust, the plan must also provide that any trust created by the employer and any assets held by the trust to assist it in meeting its obligations under the plan will conform to the terms of the model rabbi trust described in Rev. Proc. 92-64.

The general procedures of Rev. Proc. 92-1, 1992-1 I.R.B. 9, on the issuance of ruling and determination letters, and Rev. Proc. 71-19 continue to apply to requests relating to unfunded deferred compensation arrangements to the extent they are not covered by Rev. Proc. 92-65.

Full Text
Rev. Proc. 92-65

Section 1. Purpose.
01. The purpose of the Revenue Procedure is to set forth the conditions, or circumstances, under which the Internal Revenue Service will issue advance rulings concerning the application of the doctrine of constructive receipt to unfunded deferred compensation arrangements and to amplify Rev. Proc. 71-19, 1971-1 C.B. 698.

Section 2. Background.
In 1960, the Service issued Rev. Rul 60-31, 1960-1 C.B. 174, concerning the application of the doctrine of constructive receipt to certain deferred compensation arrangements. Rev. Rul. 60-31, was modified by Rev. Rul. 64-279, 1964-2 C.B. 121, and Rev. Rul. 70-435, 1970-2 C.B. 100. The conditions under which the Service would issue advance rulings on unfunded deferred compensation arrangements, were originally published in Rev. Proc. 71-19, 1971-1 C.B. 698.

Section 3. Scope and Objective.
In each request for a ruling involving the deferral of compensation, the Service will determine whether the doctrine of constructive receipt is applicable on a case by case basis. The Service will ordinarily issue rulings regarding unfunded deferred compensation arrangements only if the requirements of Rev. Proc. 71- 19 are met and, in addition, the arrangement meets the following guidelines.

  1. Section 3.01 of Rev. Proc. 71-19 states that, if the plan provides for an election to defer payment of compensation, such election must be made before the beginning of the period of service for which the compensation is payable, regardless of the existence in the plan of forfeiture provisions. The period of service for purposes of this requirement generally has been regarded by the Service as the employee's taxable year for cash basis, calendar year taxpayers. Rev. Rul. 68-86, 1968-1 C.B. 184; Rev. Rul. 69-650, 1969-2 C.B. 106; Rev. Rul. 71-419, 1971-2 C.B. 220. The Service will issue advance rulings under are two exceptions to this general requirement, as follows:

    1. In the year in which the plan is first implemented, the eligible participant may make an election to defer compensation for services to be performed subsequent to the election within 30 days after the date the plan is effective for eligible employees.
    2. In the first year in which a participant becomes eligible to participate in the plan, the newly eligible participant may make an election to defer compensation for services to be performed subsequent to the election within 30 days after the date the employee becomes eligible.

  2. The plan must define the time and method for payment of deferred compensation for each event (such as termination of employment, regular retirement, disability retirement or death) that entitles a participant to receive benefits. The plan may specify the date of payment or provide that payments will begin within 30 days after the occurrence of a stated event.

  3. The plan may provide for payment of benefits in the case of an "unforeseeable emergency." "Unforeseeable emergency" must be defined in the plan as an unanticipated emergency that is caused by an event beyond the control of the participant or beneficiary and that would result in severe financial hardship to the individual if early withdrawal were not permitted. The plan must further provide that any early withdrawal approved by the employer is limited to the amount necessary to meet the emergency. Language similar to that described in section 1.457-2(h)(4) and (5) of the Income Tax Regulations may be used.

  4. The plan must provide that participants have the status of general unsecured creditors of the employer and that the plan constitutes a mere promise by the employer to make benefit payments in the future. If the plan refers to a trust, the plan must also provide that any trust created by the employer and any assets held by the trust to assist it in meeting its obligations under the plan will conform to the terms of the model trust, as described in Revenue Procedure 92-64, page- , /*/ this Bulletin. Finally, the plan must state that it is the intention of the parties that the arrangements be unfunded for tax purposes and for purposes of Title I of ERISA.

  5. The plan must provide that a participant's rights to benefit payments under the plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the participant or the participant's beneficiary.

Section 4. Procedure.
The general procedures of Rev. Proc. 92-1, 1992-1 I.R.B. 9, relating to the issuance of ruling and determination letters, and Rev. Proc. 71-19, 1971-1 C.B. 698, apply to requests relating to unfunded deferred compensation arrangements to the extent they are not covered by this revenue procedure.

Section 5. Effect On Other Revenue Prcedures.
Rev. Proc. 71-19, 1971-1 C.B. 698, is hereby amplified to set forth the conditions under which the Service will issue advance rulings on unfunded deferred compensation plans.

Section 6. Effective Date.
The revenue procedure is effective on July 28, 1992.

Drafting Information
The principal author of this revenue procedure is Catherine Livingston Fernandez of the Office of the Assistant Chief Counsel, (Employee Benefits and Exempt Organizations). For further information regarding this revenue procedure contact Ms. Fernandez at (202) 622- 6030 (not a toll-free call).

 

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