The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name], EIN ________.

[Insert Taxpayer Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to as “Taxpayer”) and is entering into this APA on behalf of itself and other members of its consolidated group.

Taxpayer’s principal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].

This APA contains the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions under I.R.C. section 482, the Treasury Regulations thereunder, and any applicable tax treaties.

{If renewal, add} [Taxpayer and IRS previously entered into an APA covering taxable years ending _____ to ______, executed on ________.]

The Parties agree as follows:

WITNESS,

The Parties have executed this APA on the dates below.

[Taxpayer Name in all caps]

By: ___________________________ Date: ___________________, 201___

Jane Doe

Sr. Vice President (Taxes)

IRS

By: ___________________________ Date: ___________________, 201___

Nicole L. Welch

Acting Director, Advance Pricing and Mutual Agreement Program

The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes, work papers, records, or other writings that support the information provided in such documents.

The Annual Report (and each of the four copies required by paragraph 5(e) of this APA) will include:

UNDER REVENUE PROCEDURE 2015-41

_______________

The Advance Pricing and Mutual Agreement Program (“APMA”) of the Internal Revenue Service (“IRS”) is providing this template for use in drafting advance pricing agreements (“APAs”) issued under IRS Revenue Procedure 2015-41, 2015-35 I.R.B. 263 (“Rev. Proc. 2015-41”). This template is designed to systematize how taxpayers propose terms for their APAs and standardize language used in executed APAs. It will improve efficiency in the APA process and enhance consistency in the administration of the APA program.

Rev. Proc. 2015-41 requires that taxpayers include as part of a complete APA request a draft APA and a “redline” comparison of the proposed draft APA against the current model APA. See section 2.03, exhibit 15, of the Appendix to Rev. Proc. 2015-41. This template serves as the model APA. A taxpayer is required to produce the “redline” comparison by following the instructions below to edit this template with tracked changes. The draft APA and “redline” comparison are then to be included in Word format in the complete APA request. (Before editing the template with tracked changes, a taxpayer should remove this introduction and the instructions below from the Microsoft Word file.)

The assigned APMA team will review the APA’s terms proposed in the draft APA. If the APMA team accepts the proposed terms in light of its review of the taxpayer’s complete APA request and other information obtained during the APA process, then the text of the draft APA, edited as needed to fill in any information not available at the time of the APA Request, will be adopted as the text of a finally executed APA. If the APMA team does not accept the proposed terms, it will discuss modifications to the draft APA with the taxpayer during the APA process. For bilateral and multilateral APAs, the terms of the executed APA will of necessity be consistent with the terms of the underlying mutual agreement between the United States and one or more treaty partners.

The template is designed to minimize editing by using an options-based format for selecting from terms presented in certain sections of the model APA. The options presented are those which APMA considers standard and which it has accepted in final APAs. These options are not binding on APMA, however. APMA reserves the right to modify the option selections, the specific option language used, or any other terms before executing an APA with the taxpayer.

Options are indicated by square brackets (“[]”). An “x” should be inserted between the brackets to indicate the selected option (“[x]”). Options that are not selected should not be deleted, but instead should be left in the text of the draft APA. The options to which APMA and the taxpayer ultimately agree for the final APA will be indicated by the presence or absence of an “x”. The term associated with the “x” will be given operative effect in the executed APA.

Certain options are flagged with an asterisk after the square brackets (“[]*”). To facilitate the APMA team’s subsequent review of the draft APA, the asterisks should not be deleted. Taxpayers that select flagged options are required to specifically provide justification for the selection in the APA request. See section 1.02, Part 5, of the Appendix to Rev. Proc. 2015-41.

The template contains placeholder phrases consisting of a hashtag followed by one or more words in block capital letters (e.g., “#COUNTRY”). Generally, the taxpayer should replace a placeholder phrase with appropriate text, subject to the following conventions:

The APA Term will be expressed as dates certain, e.g., “January 1, 2017 to December 31, 2022, inclusive”, rather than as particular tax years.

Taxpayers may need to draft custom text for situations or options not included in the template. For example, a taxpayer may propose additional critical assumptions to address specific regulatory contingencies or conditions the taxpayer is expected to face during the term of the APA. As another example, the provision titled “Limitation on Assistance” at the end of the Recitals might be modified based on an understanding reached in the prefiling stage of the APA process. In some cases, a particular critical assumption might facilitate reaching an agreement on an APA. Taxpayers that include custom text are required to specifically provide justification for the inclusion in the APA request, just as selecting an option with an asterisk requires justification. Any custom text must also be evident in the “redline” comparison of the proposed draft APA.

The template contains certain tables that the taxpayer should edit. Entries in the tables will not contain hashtags, but taxpayers nevertheless should fill in the information and add additional rows to the tables if needed. Taxpayers also should fill in the “APA Information” in the table in Appendix D, to the extent available or proposed.

Appendix A of this template contains the description of the APA’s covered issue(s) and covered method(s). Taxpayers should note the following points in completing Appendix A:

Appendix A uses the term “Tested Party.” When applied in the context of methods that consider, or test, data from only one party to a transaction, this term is similar in concept to the term “tested party” as discussed in the OECD Guidelines at paragraphs 3.18 and 3.19, and as defined in the U.S. Treasury Regulations section 1.482-5(b)(2). However, some methods consider, or test, data from both parties to a transaction, where there is no singular “tested” party. Even in applying such methods, however, it is typically the case that one particular party’s results are formally tested for compliance with the method. For purposes of this template, in such circumstances, the party whose results are formally tested in applying any particular method is the “Tested Party”, even if that party is not strictly a “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, or as defined in the U.S. Treasury Regulations section 1.482-5(b)(2).

between

#SIGNATORY

and

THE INTERNAL REVENUE SERVICE

[] Bilateral with #COUNTRY

[] Multilateral with #COUNTRIES

[] Unilateral

Term: #DATE to #DATE, inclusive

[] This APA is commonly referred to as #APA NAME.

The Covered Issue(s) may relate to one or more countries which (i) have an income tax convention with the United States, but (ii) are not a party to a mutual agreement whose terms are implemented by this APA. U.S. Taxpayer acknowledges that the IRS may decline to provide competent authority assistance concerning taxation by such country(ies) that relates to the Covered Issue(s). See section 2.02(4)(d) of Rev. Proc. 2015-41.

The Parties agree as follows:

 

13. Deadline References. If a deadline under this APA falls on a Saturday, Sunday, or a legal holiday in the District of Columbia, the deadline is extended to the next succeeding day that is not a Saturday, Sunday, or legal holiday in the District of Columbia.

14. Entire Agreement and Severability. This APA is the complete statement of the Parties’ agreement. The Parties will sever, delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.

15. Successor in Interest. This APA binds, and inures to the benefit of, any successor in interest to U.S. Taxpayer.

16. Notice. Any notices required by this APA or Rev. Proc. 2015-41 must be in writing. U.S. Taxpayer will send notices to the IRS at:

Commissioner, Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, NW SE:LB:TTPO:APMA:NCA534-01 Washington, DC 20224 (Attention: APMA)

The IRS will send notices to:

#NAME AND ADDRESS (phone: #PHONE)

The IRS also will send notices to, if applicable:

[] #REPRESENTATIVE’S NAME AND ADDRESS (phone: #PHONE)

provided that a valid IRS Form 2848 “Power of Attorney and Declaration of Representative” for that person was included in the most recent Annual Report (or, if no Annual Report has been filed, was included in the APA Request).

17. U.S. Effective Date and Counterparts. This APA is effective starting on the date, or later date of the dates, upon which all Parties execute this APA (“U.S. Effective Date”). The Parties may execute this APA in counterparts, with each counterpart constituting an original.

WITNESS,

The Parties have executed this APA on the dates below.

#SIGNATORY NAME IN BOLD FACE BLOCK CAPITAL LETTERS

By: __________________________Date: _________________, 20____

#NAME

#TITLE

INTERNAL REVENUE SERVICE

By: __________________________Date: _________________, 20____

Nicole L. Welch

Acting Director, Advance Pricing and Mutual Agreement Program

The U.S. Covered Entity(ies) are:

#LIST OF EACH U.S. ENTITY INVOLVED IN ONE OR MORE COVERED ISSUE(S), AND ALSO (LISTED FIRST) ANY CONSOLIDATED RETURN PARENT FOR ANY SUCH ENTITY. FOR EACH ENTITY, NAME, ADDRESS, PHONE, AND EIN.

The term “U.S. Taxpayer” includes collectively all U.S. Covered Entities and any other entities that are in a consolidated return group with a U.S. Covered Entity.

The Non-U.S. Covered Entity(ies) are:

# LIST OF EACH NON-U.S. ENTITY INVOLVED IN ONE OR MORE COVERED ISSUE(S), AND ALSO (LISTED FIRST) ANY COMMON TAX REPORTING PARENT FOR ANY SUCH ENTITY. FOR EACH ENTITY, NAME, ADDRESS, AND PHONE.

The term “Non-U.S. Taxpayer” includes collectively all Non-U.S. Covered Entities and any other entities that are in a common tax reporting group with a Non-U.S. Covered Entity.

The term “Covered Entities” includes both the U.S. Covered Entities and the Non-U.S. Covered Entities.

The APA applies to the period from #DATE to #DATE, inclusive (the “APA Term”).

[] The APA Term does not include a Rollback.

[] The APA Term includes a Rollback, which covers from #DATE to #DATE, inclusive (the “Rollback Period”).

A tax year of U.S. Taxpayer that is wholly or partly contained in the APA Term is called an “APA Tax Year.” For a particular APA Tax Year, the portion of such APA Tax Year that is contained in the APA Term is called an “APA Covered Year.” Such APA Tax Year and APA Covered Year are said to “correspond” to each other or to be “corresponding.”

The Covered Issue(s) are as described below.

Covered Issue 1:

#DESCRIPTION OF COVERED ISSUE.

Each Covered Method applies to one or more Covered Issues. A Covered Method and the Covered Issue(s) to which the Covered Method applies are said to “correspond,” or to be “corresponding”.

The Covered Methods are summarized in the following table and are described in detail below. In case of conflict with this table, the detailed descriptions of the Covered Methods below, and the descriptions in section 3 above of the Covered Issues, control.

 

This Appendix A uses the term “Tested Party.” When applied in the context of methods that consider, or test, data from only one party to a transaction, this term is similar in concept to the term “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, and as defined in the U.S. Treasury Regulations section 1.482-5(b)(2). However, some methods consider, or test, data from both parties to a transaction, where there is no singular “tested” party. Even in applying such methods, however, it is typically the case that one particular party’s results are formally tested for compliance with the method. For purposes of this template, in such circumstances, the party whose results are formally tested in applying any particular method is the “Tested Party”, even if that party is not strictly a “tested party” as discussed in the OECD Guidelines paragraphs 3.18 and 3.19, or as defined in the U.S. Treasury Regulations section 1.482-5(b)(2).

Covered Method for Covered Issue 1:

a. Tested Party

The Tested Party is #TESTED PARTY.

b. Financial Results Tested (Type of Method)

[] The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of the comparable uncontrolled price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are:

[] per unit price paid, defined as the total amount paid for #DESCRIPTION OF GOODS divided by the number of #DESCRIPTION OF A UNIT OF GOODS purchased.

[] per unit price received, defined as the total amount received for #DESCRIPTION OF GOODS divided by the number of #DESCRIPTION OF A UNIT OF GOODS sold.

[] The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of the comparable uncontrolled services price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are:

[] per unit price paid, defined as the total amount paid for #DESCRIPTION OF SERVICES divided by the number of #DESCRIPTION OF A UNIT OF SERVICES received.

[] per unit price received, defined as the total amount received for #DESCRIPTION OF SERVICES divided by the number of #DESCRIPTION OF A UNIT OF SERVICES provided.

[] The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of the comparable uncontrolled transaction method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the royalty paid for the license of #DESCRIPTION OF LICENSED INTANGIBLE PROPERTY divided by the Tested Party’s:

[] sales revenue from sales of #DESCRIPTION OF GOODS/SERVICES.

[] #OTHER ROYALTY BASE.

[] The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of the acquisition price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is an implementation of the comparable uncontrolled price method under the OECD Guidelines and of the market capitalization method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is an implementation of the resale price method under the OECD Guidelines and of the resale price method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross profit margin from the sale of #DESCRIPTION OF GOODS.

[] The Covered Method is an implementation of the resale price method under the OECD Guidelines and of the gross services margin method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross services margin from the provision of #DESCRIPTION OF SERVICES.

[] The Covered Method is an implementation of the cost plus method under the OECD Guidelines and of the cost plus method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross profit markup.

[] The Covered Method is an implementation of the cost plus method under the OECD Guidelines and of the cost of services plus method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the gross services profit markup from the provision of #DESCRIPTION OF SERVICES.

[] The Covered Method is based on the principles of the low value-adding intra-group services approach under the OECD Guidelines and of the services cost method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are the markup on total costs for providing #DESCRIPTION OF SERVICES.

[] The Covered Method is an implementation of the transactional net margin method under the OECD Guidelines and of the comparable profits method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested, as reflected in its net profit indicator (per OECD Guidelines) or profit level indicator (per U.S. Treasury Regulations), are its:

[] operating margin.

[] markup on total costs.

[] Berry ratio.

[] return on operating assets.

[] return on invested capital.

[]* #OTHER NET PROFIT INDICATOR OR PROFIT LEVEL INDICATOR, WITH DEFINITION.

[] The Covered Method is an implementation of the profit split (residual analysis) method under the OECD Guidelines and of the residual profit split method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is an implementation of the profit split (contribution analysis) method under the OECD Guidelines and of the comparable profit split method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is an implementation of an income based valuation technique as referenced in paragraph 6.153 of the OECD Guidelines and of the income method under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is an implementation of (i) a sharing of the cost of current contributions in proportion to overall expected benefits, within a cost contribution arrangement under the OECD Guidelines, and (ii) a sharing of intangible development costs in proportion to reasonably anticipated benefits, within a cost sharing arrangement under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

[] The Covered Method is a method that is not specified under the OECD Guidelines and not specified under the U.S. Treasury Regulations. The Tested Party’s financial results to be tested are described in subsection (c) below.

Such financial results are determined according to the Applicable Accounting Standard, with the proviso that in determining such results, accounting principles and conventions that are generally accepted in the trade or industry must be used.

Such financial results are tested against a point or range as described below. The test is carried out with a frequency, and for certain time periods, as described below. If and when these financial results do not satisfy the test, they must be adjusted as described in section 5 of this Appendix A.

c. Testing of Financial Results Against a Point or Range

The Tested Party’s financial results are tested as follows:

[] The financial results must equal #X.

[] The financial results must be within an Arm’s Length Range.

[] The Arm’s Length Range is from #X to #Y inclusive.

[] This Arm’s Length Range has an associated Median value of #Z.

[] This Arm’s Length Range has no associated Median value.

[] Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the annual test described in subsection (d) below. The second is from #Y to #Z inclusive and applies to the term test described in subsection (d) below.

[] The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an associated Median value of #Q.

[] These Arm’s Length Ranges have no associated Median value.

[] Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the subterm test described in subsection (d) below. The second is from #Y to #Z inclusive and applies to the annual test described in subsection (d) below.

[] The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an associated Median value of #Q.

[] These Arm’s Length Ranges have no associated Median value.

[] Two Arm’s Length Ranges apply. The first is from #W to #X inclusive and applies to the test for the first subterm described in subsection (d) below. The second is from #Y to #Z inclusive and applies to the test for the second subterm described in subsection (d) below.

[] The first Arm’s Length Range has an associated Median value of #P, and the second Arm’s Length Range has an associated Median value of #Q.

[] These Arm’s Length Ranges have no associated Median value.

[] #OTHER DESCRIPTION, FOR EXAMPLE THE EVALUATION AND TESTING MECHANICS FOR A PROFIT SPLIT, AN INCOME METHOD, AN UNSPECIFIED METHOD, OR A SHARING OF COSTS UNDER A COST CONTRIBUTION ARRANGMENT/COST SHARING ARRANGEMENT.

d. Testing Frequency and Testing Periods

The Tested Party’s financial results are tested as of certain APA Covered Years, and for certain time periods, as follows:

[] The results are tested annually, meaning that they are tested as of each APA Covered Year, for a period consisting of that APA Covered Year.

[] There is no additional term test.

[] There is an additional term test. For this test, the results are tested as of the Last Effective APA Covered Year, for the period consisting of the Last Effective APA Covered Year and all prior APA Covered Years.

The application of the annual test and the application of the additional term test are coordinated as described in section 5 of this Appendix A.

[]* The results are tested on a term basis, meaning that they are tested only once, as of the Last Effective APA Covered Year, for a period consisting of the Last Effective APA Covered Year and all prior APA Covered Years.

[]* The results are tested on the basis of two subterms. For this purpose, the APA Term is divided into two subterms. The first subterm consists of all APA Covered Years ending on or before #DATE, and the second subterm consists of all other APA Covered Years. For each subterm, the results are tested as of the Last Effective APA Subterm Covered Year, for a period consisting of the Last Effective APA Subterm Covered Year and all prior APA Covered Years in the subterm.

[]* The results are tested on a subterm basis for all APA Covered Years ending on or before #DATE (the “subterm”), and are tested annually for each other APA Covered Year, as follows:

The results are tested as of the Last Effective APA Subterm Covered Year, for a period consisting of the Last Effective APA Subterm Covered Year and all prior APA Covered Years in the subterm.

The results are tested as of each APA Covered Year that is not in the subterm, for a period consisting of that APA Covered Year.

[]* The results are tested on a cumulative basis, meaning that (except as provided in the following sentence) they are not tested as of the first APA Covered Year but they are tested as of each other particular APA Covered Year for a period consisting of such particular APA Covered Year and all prior APA Covered Years. However, if the Last Effective APA Covered Year is the first APA Covered Year, then the results are tested as of the first APA Covered Year, for a period consisting of such APA Covered Year.

[]* The results are tested on a three-year rolling average basis, meaning that the results are tested as of each APA Covered Year, for a period consisting of the APA Tax Year corresponding to the APA Covered Year (but excluding any portion of that APA Tax Year that is after the APA Term), and the Tested Party’s two preceding tax years.

e. Other Provisions

The Tested Party’s financial results, to be tested as described above, are for:

[] The Tested Party as a whole.

[] Only a segment of the Tested Party’s activity. #DETAILED DESCRIPTION OF THE SEGMENT AND OF THE ALLOCATION AND APPORTIONMENT METHODS USED, INCLUDING ANY APPLICABLE FORMULAS AND DEFINITIONS OF QUANTITIES USED IN THOSE FORMULAS. THIS DESCRIPTION SHOULD BE DETAILED ENOUGH TO ENABLE A STRAIGHTFORWARD VERIFICATION OF COMPLIANCE BY THE IRS EXAMINATION TEAM.

When the Tested Party’s financial results are tested as of a given APA Covered Year, those results shall reflect, to the extent relevant, any APA Primary Adjustment for this Covered Method made under section 5 of this Appendix A for the APA Tax Year corresponding to any prior APA Covered Year.

For this Covered Method, if applicable:

[]* For APA Covered Years ending on or before #DATE, it is agreed that this Covered Method, yields financial results as shown below, and that any APA Primary Adjustments under section 5 of this Appendix A are as shown below. #TEXT AND/OR TABLES SHOWING THE FINANCIAL RESULTS, THE TESTING OF THOSE FINANCIAL RESULTS UNDER THE COVERED METHOD, AND ANY RESULTING APA PRIMARY ADJUSTMENTS.

For this Covered Method, if applicable:

[] This Covered Method addresses the pricing for a transfer of intangible property (which does not constitute a platform contribution transaction as defined in U.S. Treasury Regulations section 1.482-7(b)(1)(ii)) within the meaning of U.S. Treasury Regulations section 1.482-4. That pricing will not be subject to periodic adjustments by the IRS, during or after the APA Term, under U.S. Treasury Regulations section 1.482-4(f)(2) or (6).

[] This Covered Method addresses the pricing for a platform contribution transaction (“PCT”). That PCT will not be treated as a Trigger PCT within the meaning of U.S. Treasury Regulations section 1.482-7(i)(6)(i) for purposes of making periodic adjustments, during or after the APA Term, under U.S. Treasury Regulations section 1.482-7(i)(6).

For each APA Tax Year, and for each Covered Method and corresponding Covered Issue(s), the amounts reported by U.S. Taxpayer and Non-U.S. Taxpayer for income tax purposes under the laws of the United States and #COUNTRY(IES) must clearly reflect the Tested Party’s actual transactions, allocations, and/or recordkeeping, as applicable, that relate to such Covered Issue(s), adjusted as necessary to conform with section 4 of this Appendix A. Accordingly, for each particular APA Tax Year and corresponding APA Covered Year, and for each such Covered Method:

i. If the Tested Party’s financial results are tested as of such APA Covered Year and do not conform with section 4 of this Appendix A, then the tax reporting for such APA Tax Year must clearly reflect an adjustment that brings such results into conformance (an “APA Primary Adjustment”). If section 4 of this Appendix A specifies conformance to an Arm’s Length Range, then the adjustment shall be to:

[] the Median.

[]* the near edge of the Arm’s Length Range.

[]* the Median for Covered Issues #SPECIFY WHICH ONES, and the near edge of the Arm’s Length Range for Covered Issues #SPECIFY WHICH ONES.

ii. If an adjustment is not required under paragraph (i) above, then the tax reporting must clearly reflect the Tested Party’s financial results, with no adjustment. In this case there is no APA Primary Adjustment.

iii. If both an annual test and an additional term test apply under such Covered Method, and such APA Covered Year is the Last Effective APA Covered Year, so that as of such APA Covered Year the Tested Party’s financial results are tested under both the annual test and the term test, then paragraphs (i) and (ii) above are modified by this paragraph (iii), which coordinates the application of both tests. As explained in more detail below, the annual test is applied first, followed by the term test. Specifically, the need for and amount of any APA Primary Adjustment for such APA Covered Year will be determined as follows:

A. First apply paragraphs (i) and (ii) above under the assumption that only the annual test applies. Any required adjustment will be referred to as the “annual adjustment” rather than an “APA Primary Adjustment.” If there is no required adjustment, the annual adjustment is considered to be zero.

B. Next, apply paragraphs (i) and (ii) above to the Tested Party’s financial results as adjusted by any nonzero annual adjustment, under the assumption that only the term test applies to those results. Any required adjustment under this application of paragraphs (i) and (ii) will be referred to as the “term adjustment” rather than an “APA Primary Adjustment.” If there is no such required adjustment, the term adjustment is considered to be zero.

C. Add the annual adjustment and term adjustment, taking account of the magnitude and (if nonzero) direction of each. If this sum is zero, there is no APA Primary Adjustment for such APA Covered Year. If this sum is nonzero, this sum gives the magnitude and direction of the APA Primary Adjustment for such APA Covered Year. Any APA Primary Adjustment, or the lack of an APA Primary Adjustment, must be clearly reflected in the tax reporting for such APA Tax Year (see paragraphs (i) and (ii) above).

iv. If this APA is unilateral and such APA Covered Year is within the Rollback Period, then:

[] Paragraphs (i)-(iii) above notwithstanding, an APA Primary Adjustment will not be made if that APA Primary Adjustment would decrease the income of U.S. Taxpayer for such APA Tax Year.

[]* Paragraphs (i)-(iii) above apply without modification.

If indicated, the above provisions on APA Primary Adjustments are modified as follows:

[]* Any APA Primary Adjustment that would be made under the above provisions for an APA Tax Year ending before #DATE will instead be made for the APA Tax Year ending #THE SAME DATE (the “Telescoping Year”). For each particular Covered Method, all APA Primary Adjustments that are made for the Telescoping Year (including any APA Primary Adjustments that are moved to the Telescoping Year as just described, as well as any APA Primary Adjustment originally made for the Telescoping Year) are netted.

[] The foregoing provision applies without modification.

[] The foregoing provision applies with the following modification. An APA Primary Adjustment that is thus moved from a particular APA Tax Year (the “Original Year”) to the Telescoping Year shall be increased in amount to reflect the time value of money. That increase will consist of multiplication by a factor that is an annual rate raised to a power. The annual rate is 1.#XY. The power is the quotient of (i) the average of the number of months by which the end of the Telescoping Year is later than the end of the Original Year, and the number of months by which the start of the Telescoping Year is later than the start of the Original Year (with any fractions of months rounded to whole months), (ii) divided by twelve.

For U.S. tax purposes, the generally applicable Code rules will apply with respect to APA Primary Adjustments, except as otherwise provided in Rev. Proc. 2015-41 or in this APA.

The provisions in this section 6 apply to “Repatriable Issues,” which are Covered Issues that concern transactions between associated enterprises that fall under Article 9 of the OECD Model Tax Convention. Such transactions correspond to transactions that under U.S. law are subject to application of Code section 482, as modified by any applicable treaty provision.

If the application of a Covered Method to a Repatriable Issue requires an APA Primary Adjustment under section 5 of this Appendix A for a given APA Tax Year, then for U.S. tax purposes there generally must be a corresponding conforming adjustment as specified in U.S. Treasury Regulations section 1.482-1(g)(3) as amplified by Rev. Proc. 99-32 or any successor revenue procedure. However, for this purpose, all APA Primary Adjustments for such APA Tax Year arising from the application of a Covered Method to a Repatriable Issue are first netted to yield a net APA Primary Adjustment for such APA Tax Year. Only if the net APA Primary Adjustment is nonzero is a conforming adjustment required.

For each APA Tax Year with a nonzero net APA Primary Adjustment, for U.S. tax purposes the conforming adjustment will be accomplished in the following steps:

i. The conforming adjustment will be accomplished between #U.S. ENTITY and #NON-U.S. ENTITY, which will be referred to here as “U.S. Entity” and “Non-U.S. Entity”, respectively. An intercompany payable will be established between U.S. Entity and Non-U.S. Entity in the amount and direction of the net APA Primary Adjustment, as of the last day of such APA Tax Year. This payable will be denominated in #CURRENCY. The payable will be treated as indebtedness for all U.S. federal tax purposes; provided, however, that the payable will not be treated as indebtedness for purposes of Code section 956 if the payable is satisfied within 90 days of the close of the APA Tax Year with respect to which it is established.

ii. [] The intercompany payable will bear interest at an arm’s length rate.

[] Such arm’s length rate is not specified in this APA and will be determined under applicable legal principles.

[] Such arm’s length rate is determined as follows. #DESCRIPTION OF ARM’S LENGTH RATE (FOR EXAMPLE, FOR A U.S. DOLLAR PAYABLE, A CERTAIN APPLICABLE FEDERAL RATE UNDER U.S. TREASURY REGULATIONS SECTION 1.482-2(a)(2)(iii)(C)).

[] This APA is bilateral or multilateral. As agreed between the United States and #COUNTRY(IES), the intercompany payable will not bear interest.

iii. The intercompany payable must be satisfied, in a manner permitted under Rev. Proc. 99-32 or any successor revenue procedure, within 90 days of the later of (1) the date for timely filing (with extensions) of the U.S. return for such APA Tax Year, and (2) the APA’s U.S. Effective Date. If any amount of the intercompany payable is not otherwise so satisfied within that 90-day period, such amount, on the last day of such period, will be deemed (1) to be paid between U.S. Entity and Non-U.S. Entity in satisfaction of the payable, and (2) to be paid (directly or indirectly, as specified below) between U.S. Entity and Non-U.S. Entity in the opposite direction (that is, from the deemed recipient of the intercompany payable to the deemed payor of the intercompany payable). These two deemed payments on the same day will cancel and thus yield no net cash flow between these two entities. The second of these deemed payments will be referred to as the “reverse payment.” The reverse payment will be deemed to be as follows:

A. If the net APA Primary Adjustment increases U.S. income:

[] The reverse payment will be deemed to be a contribution to capital from U.S. Entity to Non-U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

[] The reverse payment will be deemed to be a distribution from U.S. Entity to Non-U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

[] The reverse payment will be deemed to be a distribution from U.S. Entity to #COMMON PARENT, either directly, or indirectly through the corporate chain, as the case may be, followed by a contribution by #COMMON PARENT to non-U.S. Entity, either directly or indirectly through the corporate chain, as the case may be.

B. If the net APA Primary Adjustment decreases U.S. income:

[] The reverse payment will be deemed to be a contribution to capital from non-U.S. Entity to U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

[] The reverse payment will be deemed to be a distribution from non-U.S. Entity to U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

[] The reverse payment will be deemed to be a distribution from non-U.S. Entity to #COMMON PARENT, either directly, or indirectly through the corporate chain, as the case may be, followed by a contribution by #COMMON PARENT to U.S. Entity, either directly, or indirectly through the corporate chain, as the case may be.

This situation is generally described in paragraph 4.66 of the OECD Guidelines, and in U.S. Treasury Regulations section 1.482-1(g) and Rev. Proc. 99-32.

In this APA, if applicable:

[]* For the APA Tax Year(s) ending on or before #DATE, it is agreed that the net APA Primary Adjustment(s), if any, from the application of the Covered Methods are as follows: #FOR EACH SUCH APA TAX YEAR, DESCRIPTION OF WHETHER THERE IS A NET APA PRIMARY ADJUSTMENT, AND IF SO THE AMOUNT AND DIRECTION. IF THERE IS MORE THAN ONE COVERED METHOD FOR A REPATRIABLE ISSUE, ALSO PROVIDE A TABLE SHOWING THE DERIVATION, FOR EACH SUCH APA TAX YEAR, OF THE NET APA PRIMARY ADJUSTMENT FROM THE APA PRIMARY ADJUSTMENT (OR LACK OF ONE) FOR EACH SUCH COVERED METHOD. #FOR ANY SUCH NET APA PRIMARY ADJUSTMENTS, DESCRIPTION OF THE MEANS BY WHICH THE CONFORMING ADJUSTMENT HAS BEEN OR WILL BE SATISFIED, WITH APPLICABLE DATES.

The definitions in the table below apply to this APA.

The defined terms in this table include certain measures of profitability (e.g., operating profit, operating margin). Most of these measures are ultimately defined in terms of sales revenue, operating expenses, and operating assets (defined terms), and cogs and non-interest-bearing liabilities (undefined terms). The definitions of sales revenue, operating expenses, and operating assets contain a limitation to the relevant business activity. Similarly, each use of the terms “cogs” and “non-interest-bearing liabilities” is accompanied by a limitation to the relevant business activity. Therefore, the measures of profitability based on these five terms all are defined with a limitation to the relevant business activity. (Certain other measures of profitability in this table relate to the provision of services and are defined with reference to those services. Therefore, those measures as well contain a limitation to the relevant business activity.)

The APA Records will consist of all documents listed below for inclusion in the Annual Report, as well as all documents, notes, work papers, records, or other writings that support the information provided in such documents.

An Annual Report must be submitted for each APA Tax Year in accordance with paragraph 6(e) of the APA and section 7.02 of Rev. Proc. 2015-41.

For each APA Tax Year, the Annual Report (and each copy or version as required by paragraph 6(e) of the APA) will include:

 

Date Annual Report Filed (to be filled in by APMA):

¹ In 2017, Transfer Pricing Operations became Treaty & Transfer Pricing Operations ("TTPO").

² In late 2020, TTPO's Treaty Assistance and Interpretation Team (TAIT) joined APMA, bringing the total number of groups in APMA to four. The three legacy APMA groups have primary responsibility for cases arising under the business profits and associated enterprises articles of U.S. tax treaties. TAIT endeavors to resolve competent authority issues arising under all other articles of U.S. tax treaties including issues arising under U.S. tax treaties relating to estate and gift taxes. As such, TAIT is separate from APMA's APA program, and the total numbers of team leaders and managers handling APA cases do not include TAIT analysts and managers.

³ The first APA Statutory Report, which compiled APA data from 1991-1999, did not report the cumulative number of applications for those years by submission type, so the cumulative totals cannot be reported in that manner.

⁴ Executed APAs refers to all APAs finalized or renewed.

⁵ The number of renewals executed is included in the total number of APAs executed during the year.

⁶ The number of renewals still pending as of year-end is also included in the total number of pending APAs.

⁷ The first APA Statutory Report, which compiled APA data from 1991-1999, did not report the cumulative number of applications for those years by submission type, so the cumulative totals cannot be reported in that manner.

⁸ See supra note 7.

⁹ Industries in the Miscellaneous Manufacturing subsector (NAICS Code 339) make a wide range of products that cannot readily be classified in specific NAICS manufacturing subsectors.

¹⁰ APAs often cover more than one type of transaction.

¹¹ Not all the executed APAs involve a tested party.

¹² See Treas. Reg. § 1.482-5(b)(4)(ii)(A).

¹³ See Treas. Reg. § 1.482-5(b)(4)(ii)(B).

¹⁴ The majority of APAs that covered services transactions also included tangible/intangible transactions and are not tested under a separate PLI.

¹⁵ As a result, almost all occurrences of the hashtag in the template will be replaced with a caret or other text in the taxpayer's draft APA. The few remaining occurrences of the hashtag will mark a placeholder phrase that cannot yet be replaced with appropriate text (see, for example, the placeholder phrase in paragraph 6(e) for a date that cannot be determined until the APA nears execution). Searching the draft APA for the hashtag will locate all placeholder phrases that still need replacement.

¹⁶ As used in this APA, "income allocation" includes allocation of loss.

This document sets forth proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 413(c) of the Code and proposed regulations under section 413(e) of the Code. This document also withdraws proposed regulations under section 413(c) that were published in the Federal Register on July 3, 2019 (84 FR 31777) (section 413(c) proposed regulations).

These regulations are proposed to apply beginning on the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Pursuant to section 413(e)(4)(B), until the final regulations are published, an employer or pooled plan provider may rely on a good faith, reasonable interpretation of the provisions of section 413(e) to which the final regulations relate. Compliance with these proposed regulations is considered reliance on a good faith, reasonable interpretation of the provisions of section 413(e) to which the final regulations relate.

For copies of recently issued revenue procedures, revenue rulings, notices and other guidance published in the Internal Revenue Bulletin, please visit the IRS Web site at www.irs.gov or contact the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in the preamble under the “ADDRESSES” section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. Comments are specifically requested on what (if any) guidance would be helpful regarding whether employers have a common interest other than having adopted a plan, as described in Part I.A of the Explanation of Provisions, titled “Overview.” Comments are also specifically requested on the rules for mandatory distributions for employees of an unresponsive participating employer, as described in Part II.F of the Explanation of Provisions, titled “Required Actions Following Employer’s Failure to Meet Deadline.”

Any electronic comments submitted, and to the extent practicable any paper comments submitted, will be made available at www.regulations.gov or upon request.

A telephonic public hearing has been scheduled for June 22, 2022, beginning at 10 a.m. EST. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments by telephone at the hearing must submit electronic or written comments and an outline of the topics to be addressed and the time to be devoted to each topic by Friday, May 27, 2022 as prescribed in the preamble under the ADDRESSES section.

A period of 10 minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available at www.regulations.gov, search IRS and REG-121508-18. Copies of the agenda will also be available by emailing a request to publichearings@irs.gov. Please put “REG-121508-18 Agenda Request” in the subject line of the email.

The principal authors of these regulations are Jamie Dvoretzky and Pamela Kinard, Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes (EEE)). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations.

Under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking that was published in the Federal Register on Wednesday, July 3, 2019 (84 FR 31777) is withdrawn.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Amend § 1.413-2 by revising paragraph (a)(2), (a)(3)(iv), (a)(4), and (c) to read as follows:

§1.413-2 Special rules for plans maintained by more than one employer.

(a) * * *

(2) Section 413(c) plan—(i) Definition of section 413(c) plan. A plan (and each trust which is part of such plan) is a section 413(c) plan if—

(A) The plan is a single plan (which for a qualified plan is a single plan within the meaning of section 413(a) and §1.413-1(a)(2)); and

(B) The plan is maintained by more than one employer.

(ii) Determining the number of employers maintaining the plan. For purposes of paragraph (a)(2)(i)(B) of this section, the number of employers maintaining a plan is determined by treating any employers described in section 414(b) (relating to a controlled group of corporations), any employers described in section 414(c) (relating to trades or businesses under common control), or any employers described in section 414(m) (relating to affiliated service groups), whichever is applicable, as if such employers are a single employer.

(iii) Master or prototype plans and common trust funds. A master or prototype plan is not a section 413(c) plan unless such a plan is described in this paragraph (a)(2). Similarly, the mere fact that a plan, or plans, utilize a common trust fund or otherwise pool plan assets for investment purposes does not, by itself, result in a particular plan being treated as a section 413(c) plan.

(3) * * *

(iv) Whether a section 413(c) plan complies with the requirements of section 401(a), 403(a), or 408 is determined with respect to all participating employers. Consequently, the failure by one participating employer (or by the plan itself) to satisfy an applicable requirement of those sections will result in the section 413(c) plan failing to satisfy that requirement with respect to all employers maintaining the section 413(c) plan. However, the rules in this paragraph (a)(3)(iv) do not apply to the extent provided in section 413(e) and §1.413-3.

(4) Applicability dates—(i) General applicability date. Except as otherwise provided in paragraph (a)(4)(ii) of this section, section 413(c) and this section apply to a plan for plan years beginning after December 31, 1953.

(ii) Special applicability date. Paragraphs (a)(2), (a)(3)(iv), and (c) of this section apply beginning on the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. For earlier periods, the rules of paragraphs (a)(2), (a)(3)(iv), and (c) of 26 CFR 1.413-2 (revised as of April 1, 2021) apply.

* * * * *

(c) Exclusive benefit. In the case of a plan subject to this section, in determining whether the plan of an employer is for the exclusive benefit of its employees (and their beneficiaries) for purposes of sections 401(a) and 408(c), all of the employees participating in the plan shall be treated as employees of the employer.

* * * * *

Par. 3. Section 1.413-3 is added to read as follows:

§1.413-3 Special Rules for Section 413(e) Plans

(a) Exception to unified plan rule for section 413(e) plans—(1) In general. Notwithstanding §1.413-2(a)(3)(iv), a section 413(e) plan will not be treated as failing to meet the requirements under the Code applicable to a plan described in section 401(a) or to a plan that consists of individual retirement accounts described in section 408 (including accounts described in section 408(c), 408(k), or 408(p)), whichever is applicable, merely because of a participating employer failure, provided that the conditions in paragraph (a)(2) of this section are satisfied.

(2) Conditions for exception to general rule. The conditions for the exception to the unified plan rule in paragraph (a)(1) of this section are set forth in paragraphs (a)(2)(i) through (iii) of this section.

(i) Plan language. The terms of the section 413(e) plan must set forth the procedures that will be followed to address a participating employer failure, including:

(A) A description of the notices that the section 413(e) plan administrator will send in the case of a participating employer failure, pursuant to paragraph (b) of this section;

(B) A statement that the section 413(e) plan administrator will send the first notice described in paragraph (b)(1) of this section (or, if applicable, the combined first and second notice described in paragraph (d)(1)(ii) of this section) by a specified deadline (which, for a failure to provide information, is 12 months following the end of the plan year for which the information is necessary to determine whether the section 413(e) plan is in compliance with a requirement of section 401(a) or 408 and which, for a failure to take action, is 24 months following the end of the plan year in which the failure to satisfy a requirement of section 401(a) or 408) occurs;

(C) A description of the actions that the section 413(e) plan administrator will take if, by the final deadline described in paragraph (c)(1) of this section, an unresponsive participating employer does not either take appropriate remedial action pursuant to paragraph (c)(2) of this section or initiate a spinoff pursuant to paragraph (c)(3) of this section; and

(D) A statement that if an unresponsive participating employer does not either take appropriate remedial action or initiate a spinoff by the final deadline described in paragraph (c)(1) of this section, participants who are employees of the unresponsive participating employer have a nonforfeitable right to the amounts credited to their accounts that are attributable to employment with the unresponsive participating employer, determined in the same manner as if the plan had terminated pursuant to section 411(d)(3).

(ii) Section 413(e) plan administrator obligations. A section 413(e) plan administrator must—

(A) Satisfy the notice requirements described in paragraph (b) of this section with respect to the participating employer failure (taking into account the rules for a combined first and second notice described in paragraph (d)(1)(ii) of this section);

(B) Implement a spinoff in accordance with paragraph (d)(2) of this section if an unresponsive participating employer initiates a spinoff pursuant to paragraph (c)(3) of this section; and

(C) Take the actions required in paragraph (e) of this section if an unresponsive participating employer fails either to take appropriate remedial action with respect to the participating employer failure (as described in paragraph (c)(2) of this section) or initiate a spinoff (as described in paragraph (c)(3) of this section) by the final deadline described in paragraph (c)(1) of this section.

(iii) Pooled plan providers. If the section 413(e) plan has a pooled plan provider during the plan year of the participating employer failure, the pooled plan provider must perform substantially all of the administrative duties that are required of the pooled plan provider pursuant to paragraph (a)(3)(ii) of this section for the plan year.

(3) Section 413(e) plans administered by pooled plan providers—(i) Requirements to be a pooled plan provider. With respect to a section 413(e) plan, for purposes of this section, a pooled plan provider is a person who—

(A) Registers as a pooled plan provider with the Commissioner by satisfying the registration requirements in section 3(44)(A)(ii) of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829), as amended (ERISA), in accordance with guidance issued by the Department of Labor,

(B) Is designated by the terms of the plan as a named fiduciary (within the meaning of section 402(a)(2) of ERISA), as the plan administrator, and as the person required to perform the administrative duties described in paragraph (a)(3)(ii) of this section,

(C) Acknowledges in writing that, with respect to the plan, it is a named fiduciary and the plan administrator, and

(D) Is responsible for ensuring that all persons who handle assets of, or who are fiduciaries of, the plan are bonded in accordance with section 412 of ERISA.

(ii) Administrative duties required of pooled plan provider—(A) In general. A pooled plan provider is required to perform all administrative duties that are reasonably necessary to ensure that the plan meets any applicable requirement under ERISA or the Code for a plan described in section 401(a) or for a plan that consists of individual retirement accounts described in section 408 (including accounts described in section 408(c), 408(k), or 408(p)), whichever is applicable, and each participating employer takes actions, including providing any disclosures or other information, that are necessary for the plan to meet the requirements described in this paragraph (a)(3)(ii)(A).

(B) Administrative duties. The administrative duties of a pooled plan provider include, but are not limited to, the following:

(1) Monitoring compliance with the terms of the plan, and Code and ERISA requirements;

(2) Maintaining accurate plan data, including up-to-date participant and beneficiary information;

(3) Performing and conducting coverage, top-heavy, and discrimination testing under sections 401(a)(4), (k), and (m), 408(k), 410, and 416, if applicable;

(4) Processing all employee transactions (such as investment changes, loans, and distributions);

(5) Satisfying Code and ERISA reporting and notice requirements (such as reporting requirements under sections 6047 and 6058 and notice requirements under sections 401(k)(12)(D) and (13)(E) and 402(f)); and

(6) Updating the plan to reflect statutory changes to the Code and ERISA, to the extent the responsibility for updating the plan document has been delegated to the section 413(e) plan administrator.

(iii) Aggregation rules. In determining whether a person meets the requirements to be a pooled plan provider with respect to any section 413(e) plan, all persons who perform services for the plan and who are treated as a single employer under section 414(b), (c), (m), or (o) are treated as one person.

(4) Definitions. The following definitions apply for purposes of this section:

(i) Amounts attributable to the employees of the unresponsive participating employer. Amounts attributable to the employees of the unresponsive participating employer are plan assets and account balances held by a section 413(e) plan on behalf of employees of an unresponsive participating employer that are attributable to their employment with the unresponsive participating employer. If there is no separate accounting for amounts that are attributable to employment with the unresponsive participating employer and with other participating employers, and a participant’s account balance includes amounts that are attributable to current employment with the unresponsive participating employer and to previous employment with one or more other participating employers, the entire account balance is treated as attributable to employment with the unresponsive participating employer. On the other hand, if a participant’s account balance includes amounts that are attributable to current employment with a participating employer that is not the unresponsive participating employer and to previous employment with the unresponsive participating employer, none of the account balance is treated as attributable to employment with the unresponsive participating employer. For purposes of this paragraph (a)(4)(i), a participant’s most recent employment with a participating employer in the section 413(e) plan will be treated as the participant’s current employment.

(ii) Beneficiary. A beneficiary is a beneficiary of a deceased employee or an alternate payee (as defined in section 414(p)) with respect to an employee.

(iii) Employee. An employee is a current or former employee of a participating employer.

(iv) Failure to provide information. A failure to provide information is a failure of a participating employer (or any person that is treated as a single employer with that employer under section 414(b), (c), (m), or (o)) to respond in a timely manner to a reasonable request by the section 413(e) plan administrator for data, documents, or any other information that the plan administrator reasonably believes is necessary to determine whether a section 413(e) plan is in compliance with a requirement of section 401(a) or 408 as it relates to the participating employer.

(v) Failure to take action. A failure to take action is a failure of a participating employer (or any person that is treated as a single employer with that employer under section 414(b), (c), (m), or (o)) to comply in a timely manner with a reasonable request by a section 413(e) plan administrator to take action needed for the section 413(e) plan to satisfy a requirement of section 401(a) or 408 as it relates to the participating employer.

(vi) Participating employer. A participating employer is one of the employers maintaining a section 413(e) plan.

(vii) Participating employer failure. A participating employer failure in a section 413(e) plan is a failure to provide information (as defined in paragraph (a)(4)(iv) of this section) or a failure to take action (as defined in paragraph (a)(4)(v) of this section).

(viii) Section 413(e) plan. A section 413(e) plan is a defined contribution plan described in section 401(a) or a plan that consists of individual retirement accounts described in section 408 (including accounts described in section 408(c), (k), or (p)) that—

(A) Is a section 413(c) plan (as defined in § 1.413-2(a)(2)), and

(B) Is maintained by employers that all have a common interest other than having adopted the plan or has a pooled plan provider as described in paragraph (a)(3) of this section.

(ix) Section 413(e) plan administrator. A section 413(e) plan administrator is the plan administrator, within the meaning of section 414(g), of a section 413(e) plan.

(x) Unresponsive participating employer. An unresponsive participating employer is a participating employer that has a participating employer failure.

(b) Notice. The section 413(e) plan administrator satisfies the notice requirements with respect to a participating employer failure if it satisfies the requirements of this paragraph (b).

(1) First notice. The section 413(e) plan administrator must provide notice to the unresponsive participating employer describing the participating employer failure, the actions the employer must take to remedy the failure, and the employer’s option to initiate a spinoff of amounts attributable to the employees of the unresponsive participating employer to a separate single-employer plan that is maintained by the employer. In addition, the notice must explain the consequences under the terms of the plan if the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, including that participants who are employees of the employer will not have any further contributions made to the plan on their behalf and that individuals who are responsible for the failure may have adverse tax consequences.

(2) Second notice. If, by the end of the 60-day period following the date the first notice described in paragraph (b)(1) of this section is provided, the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, then the section 413(e) plan administrator must provide a second notice to the employer. The second notice must be provided no later than 30 days after the expiration of the 60-day period described in the preceding sentence. The second notice must include the information required to be included in the first notice. The second notice must also state that if, within 60 days following the date the second notice is provided, the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, then a final notice describing the participating employer failure and the consequences of not correcting the failure will be provided to participants who are employees of the employer (and their beneficiaries) and to the Department of Labor.

(3) Final notice. If, by the end of the 60-day period following the date the second notice described in paragraph (b)(2) of this section is provided, the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, then the section 413(e) plan administrator must provide a final notice to the employer. The final notice must be provided no later than 30 days after the expiration of the 60-day period described in the preceding sentence. Within this time period, the final notice must also be provided to participants who are employees of the unresponsive participating employer (and their beneficiaries) and to the Office of Enforcement of the Employee Benefits Security Administration in the Department of Labor (or its successor office). The final notice must include the information required to be included in the first notice and specify the final deadline for an unresponsive participating employer to take action set forth in paragraph (c)(1) of this section. The final notice must also state that the notice is being provided to participants who are employees of the unresponsive participating employer (and their beneficiaries) and to the Department of Labor.

(c) Actions by unresponsive participating employer—(1) In general. An unresponsive participating employer takes appropriate remedial action with respect to a participating employer failure if it satisfies the requirements of paragraph (c)(2) of this section. Alternatively, an unresponsive participating employer initiates a spinoff for purposes of paragraph (a)(2) of this section if the employer satisfies the requirements of paragraph (c)(3) of this section. The final deadline for an unresponsive participating employer to take one of these actions is 60 days after the final notice described in paragraph (b)(3) of this section is provided to the employer.

(2) Appropriate remedial action—(i) Appropriate remedial action with respect to a failure to provide information. If a participating employer failure is a failure to provide information, the unresponsive participating employer takes appropriate remedial action with respect to that failure if the employer provides the data, documents, or other information requested by a section 413(e) plan administrator (or arranges for that information to be provided to the section 413(e) plan administrator).

(ii) Appropriate remedial action with respect to a failure to take action. If a participating employer failure is a failure to take action, the unresponsive participating employer takes appropriate remedial action with respect to the failure if the employer (or any person that is treated as a single employer with the employer under section 414(b), (c), (m), or (o)), takes all actions requested by the section 413(e) plan administrator, such as making corrective contributions, needed for the section 413(e) plan to satisfy the applicable requirements of section 401(a) or 408.

(3) Employer-initiated spinoff. After receiving a notice described in paragraph (b) of this section, an unresponsive participating employer initiates a spinoff pursuant to this paragraph (c)(3) by directing the section 413(e) plan administrator to spin off amounts attributable to the employees of the unresponsive participating employer to a separate single-employer plan that is maintained by the employer in a manner consistent with the terms of the section 413(e) plan. If the section 413(e) plan is described in section 401(a), then the spun-off plan must also be a section 401(a) plan. If the section 413(e) plan consists of individual retirement accounts described in section 408 (including accounts described in section 408(c), 408(k), or 408(p)), then the spun-off plan must also consist of individual retirement accounts described in section 408.

(d) Section 413(e) plan administrator’s response to employer’s remedial action—(1) Rules for a failure to provide information that becomes a failure to take action—(i) In general. This paragraph (d)(1) provides rules that apply if a failure to provide information becomes a failure to take action. This situation could occur if the unresponsive participating employer takes appropriate remedial action by providing the information described in paragraph (c)(2)(i) of this section and, based on this information, the section 413(e) plan administrator determines that there is a failure to satisfy a requirement of section 401(a) or 408 as it relates to that employer’s participation in the section 413(e) plan. If the section 413(e) plan administrator makes a reasonable request for the employer to take the actions needed to satisfy the requirement, and the employer does not comply in a timely manner with that request, then, in accordance with paragraph (a)(4)(v) of this section, the failure to provide information becomes a failure to take action. In that case, the section 413(e) plan will be eligible for the exception in paragraph (a)(1) of this section with respect to the failure to take action by satisfying the conditions set forth in paragraph (a)(2) of this section with respect to that failure, taking into account the rules of this paragraph (d)(1).

(ii) Ability to combine first and second notices in certain circumstances. For purposes of applying paragraph (a)(2)(ii)(A) of this section in the case of a failure to provide information that becomes a failure to take action, notices provided during the period that the failure was a failure to provide information are not taken into account. For example, a final notice that the section 413(e) plan administrator provided in connection with the failure to provide information would not satisfy the final notice requirement with respect to the failure to take action. However, if the section 413(e) plan administrator had provided the second notice described in paragraph (b)(2) of this section with respect to a failure to provide information before it became a failure to take action, then the section 413(e) plan administrator may satisfy the requirement to send a first and second notice with respect to the failure to take action by sending a combined first and second notice that includes the information described in paragraph (d)(1)(iii) of this section to the unresponsive participating employer, provided that—

(A) The section 413(e) plan administrator’s request to take action described in paragraph (d)(1)(i) of this section is made as soon as reasonably practicable after the determination of the failure to satisfy a requirement of section 401(a) or 408 as it relates to that employer’s participation in the section 413(e) plan; and

(B) The section 413(e) plan administrator provides the combined first and second notice with respect to the failure to take action not later than 24 months following the end of the plan year in which the failure to satisfy a requirement of section 401(a) or 408 occurs.

(iii) Contents of combined first and second notice. To satisfy the requirements of a combined first and second notice described in paragraph (d)(1)(ii) of this section, the notice must—

(A) Describe the participating employer failure, the actions the unresponsive participating employer would need to take to remedy the failure, and the employer’s option to initiate a spinoff of amounts attributable to the employees of the unresponsive participating employer to a separate single-employer plan that is maintained by the employer,

(B) Explain the consequences under the terms of the plan if the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, including that participants who are employees of the employer will not have any further contributions made to the plan on their behalf and that individuals who are responsible for the failure may have adverse tax consequences, and

(C) Specify that if, within 60 days following the date the combined first and second notice is provided, the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, then a notice describing the participating employer failure and the consequences of not correcting the failure will be provided to participants who are employees of the employer (and their beneficiaries) and to the Department of Labor.

(2) Implementing employer-initiated spinoff. If an unresponsive participating employer initiates a spinoff pursuant to paragraph (c)(3) of this section by directing the section 413(e) plan administrator to spin off amounts attributable to the employees of the unresponsive participating employer to a separate single-employer plan established and maintained by the employer, or to a separate plan sponsored by the employer that consists of individual retirement accounts, then the section 413(e) plan administrator must implement and complete the spinoff as soon as reasonably practicable after the employer initiates the spinoff. The section 413(e) plan administrator is treated as satisfying the requirement of the prior sentence if the spinoff is completed within 180 days of the date on which the unresponsive participating employer initiates the spinoff.

(e) Required actions following employer’s failure to meet deadline—(1) In general—(i) Deadline for action. If, by the final deadline described in paragraph (c)(1) of this section, the unresponsive participating employer neither takes appropriate remedial action pursuant to paragraph (c)(2) of this section nor initiates a spinoff pursuant to paragraph (c)(3) of this section, then the requirements of paragraph (e)(1)(ii) and (iii) of this section must be satisfied.

(ii) Requirements for section 413(e) plan administrator. As soon as reasonably practicable after the final deadline described in paragraph (e)(1)(i) of this section, the section 413(e) plan administrator must—

(A) Stop accepting contributions from the unresponsive participating employer and its employees;

(B) Provide notice to participants who are employees of the unresponsive participating employer (and their beneficiaries) as described in paragraph (e)(2) of this section; and

(C) Provide participants who are employees of the unresponsive participating employer (and their beneficiaries) with an election regarding treatment of their plan accounts to the extent provided in paragraph (e)(3) or (4) of this section.

(iii) Timing of distributions. The section 413(e) plan administrator must distribute benefits as soon as administratively feasible following an individual’s election that is made pursuant to paragraph (e)(3) or (4) of this section or following the section 413(e) plan administrator’s determination that it is not required to provide an individual with an election pursuant to paragraph (e)(4)(iv) of this section.

(2) Contents of notification. The notice required under paragraph (e)(1)(ii)(B) of this section must include the information described in this paragraph (e)(2).

(i) No contributions. The notice must state that no further contributions will be made to the section 413(e) plan on behalf of participants who are employees of the unresponsive participating employer.

(ii) Full vesting. The notice must state that participants who are employees of the unresponsive participating employer have a nonforfeitable right to amounts credited to their accounts that are attributable to employment with the unresponsive participating employer.

(iii) Information about disposition of accounts. The notice must state that a participant who is an employee of the unresponsive participating employer (or, if applicable, any beneficiary of the participant) will receive additional information regarding the disposition of the participant’s or beneficiary’s account.

(3) Election for direct rollover or to remain in section 413(e) plan—(i) General rule. Except as provided in paragraph (e)(4) of this section, a section 413(e) plan administrator must provide participants who are employees of the unresponsive participating employer (and their beneficiaries) with an election to have amounts attributable to the employees of the unresponsive participating employer—

(A) Subject to the rules of paragraph (e)(5) of this section, directly rolled over to an eligible retirement plan within the meaning of section 402(c)(8); or

(B) Remain in the section 413(e) plan.

(ii) Default. An individual who fails to make an affirmative election described in paragraph (e)(3)(i)(A) of this section is treated as having elected to have the amounts described in paragraph (e)(3)(i) of this section remain in the section 413(e) plan.

(iii) Individuals remaining in section 413(e) plan. If, pursuant to paragraph (e)(3)(i)(B) of this section, an individual elects to have the amounts described in paragraph (e)(3)(i) of this section remain in the section 413(e) plan, those amounts must remain in the section 413(e) plan until a distribution is made under the terms of the plan without regard to section 413(e). To determine whether a participant is entitled to a distribution upon severance from employment under the terms of the plan without regard to section 413(e), a section 413(e) plan administrator may rely on the participant’s representation that the participant has experienced a severance from employment unless the plan administrator has actual knowledge to the contrary.

(4) Rules for individuals subject to mandatory distributions—(i) No election to remain in plan. The option to remain in the plan described in paragraph (e)(3)(i)(B) of this section with respect to amounts described in paragraph (e)(3)(i) of this section is not available to an individual if the terms of the plan would have provided for a mandatory distribution of those amounts had the participant experienced a severance from employment. Instead, those amounts must be distributed from the section 413(e) plan.

(ii) Mandatory distributions subject to automatic rollover. The portion of the mandatory distribution that is an eligible rollover distribution subject to section 401(a)(31)(B) must be directly rolled over to an eligible retirement plan. In accordance with section 401(a)(31)(B), the section 413(e) plan administrator must provide the individual with an election for the eligible retirement plan to be—

(A) An eligible retirement plan chosen by the individual, or

(B) An individual retirement plan of a designated trustee or issuer.

(iii) Mandatory distributions not subject to automatic rollover. For the portion of the mandatory distribution that is an eligible rollover distribution subject to section 401(a)(31)(A) (but not section 401(a)(31)(B)), the section 413(e) plan administrator must provide the individual with an election in accordance with section 401(a)(31)(A) for that portion to be—

(A) Rolled over directly to an eligible retirement plan chosen by the individual; or

(B) If no eligible retirement plan is chosen pursuant to paragraph (e)(4)(iii)(A) of this section, paid directly to the individual.

(iv) Individuals who are ineligible for direct rollover. For any portion of a mandatory distribution that is not subject to the requirement to offer a direct rollover option under section 401(a)(31), the section 413(e) plan administrator must pay the individual. For example, a section 413(e) plan administrator is not required to provide an election to an individual with an account balance of less than $200 if, consistent with section 411(a)(11) and §1.401(a)(31)-1, Q&A-11, plan terms require that mandatory distributions of less than $200 be paid directly to distributees.

(5) Amounts not eligible for rollover. If an individual makes an election to have an amount described in paragraph (e)(3)(i) of this section directly rolled over to an eligible retirement plan pursuant to paragraph (e)(3) or (4) of this section, and a portion of the amount is not an eligible rollover distribution described in section 402(c)(4), then that portion must be paid directly to the individual. For example, the portion of a distribution that would be a required minimum distribution under section 401(a)(9) must be paid directly to the individual.

(6) Effective opportunity to make election. Any election that is provided to an individual pursuant to paragraph (e)(3) or (4) of this section must include an effective opportunity for the individual to make the election. Whether an individual has an effective opportunity to make an election is determined based on all the relevant facts and circumstances, including the adequacy of notice of the availability of the election, the period of time during which the election may be made, and any other conditions on the election.

(f) Other rules—(1) Form of notices and elections. Any notice provided or election made pursuant to paragraph (b) or (e) of this section must be in written or electronic form. For notices and elections provided to or made by participants and beneficiaries, see generally §1.401(a)-21 for rules permitting the use of electronic media to provide applicable notices and make participant elections with respect to retirement plans.

(2) Status of spun-off plan. In the case of any plan that is spun off in accordance with paragraph (d)(2) of this section, any participating employer failure that would have caused the section 413(e) plan to fail to meet the requirements of section 401(a) or 408, as applicable, but for the application of the exception set forth in paragraph (a)(1) of this section, will result in the spun-off plan failing to meet those requirements.

(3) Responsible parties. A participating employer demonstrates a lack of commitment to compliance if the participating employer fails to take appropriate remedial action pursuant to paragraph (c)(2) of this section or initiate a spinoff pursuant to paragraph (c)(3) of this section by the final deadline described in paragraph (c)(1) of this section. The IRS reserves the right to pursue appropriate remedies under the Code against any party (such as the owner of the participating employer) who is responsible for the failure to satisfy the requirements of section 401(a) or 408, as applicable, even in the party’s capacity as a participant or beneficiary (such as by not treating a section 413(e) plan distribution made with respect to the owner of a participating employer as an eligible rollover distribution).

(g) Applicability date. This section applies beginning on March 28, 2022.

Douglas W. O’Donnell,

Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on February 25, 2021, 8:45 a.m., and published in the issue of the Federal Register for March 28, 2022, 87 F.R. 17225)

¹ Section 210 of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406 (88 Stat. 829), as amended (ERISA), also provides rules relating to plans maintained by more than one employer. Similar to section 413(c) of the Code, section 210(a) of ERISA states that the minimum participation standards, minimum vesting standards, and benefit accrual requirements under sections 202, 203, and 204 of ERISA, respectively, shall be applied as if all employees of each of the employers were employed by a single employer. Under section 101 of Reorganization Plan No. 4 of 1978 (5 U.S.C. App.), the Secretary of the Treasury has interpretive jurisdiction over section 413 of the Code, as well as ERISA section 210.

² Although section 403(b) plans are defined contribution plans, they are not plans described in section 401(a) or 408. Therefore, section 413(e)(1) does not apply to section 403(b) plans.

³ Prior to the SECURE Act, section 413(c)(2) of the Code provided, “For purposes of section 401(a), in determining whether the plan of an employer is for the exclusive benefit of his employees and their beneficiaries all plan participants shall be considered his employees.” Section 101(a)(2) of the SECURE Act amended section 413(c)(2) of the Code so that it applies for purposes of section 408(c) of the Code in addition to section 401(a) of the Code.

⁴ Section 101(c) of the SECURE Act also amended title I of ERISA to introduce the term “pooled plan provider,” as well as the term “pooled employer plan” for a plan with a pooled plan provider. See ERISA sections 3(44) and 3(43), respectively. These ERISA provisions do not address compliance under the Code for plans described in section 401(a) or 408, but the requirements for pooled plan providers and pooled employer plans are otherwise similar to the requirements in section 413(e).

⁵ The Department of Labor has issued guidance on the application of the bonding provision in its final rule on registration requirements for pooled plan providers. See 85 FR 72934, 72936 n.5 (November 16, 2020).

⁶ For rules relating to section 413(c) plans, see §1.413-2.

⁷ The Department of Labor has advised the Treasury Department and the IRS that an arrangement with a pooled plan provider can qualify as a pooled employer plan under section 3(43)(A) of ERISA without regard to whether the arrangement could be structured as a plan maintained by employers that have a common interest other than having adopted the plan. See also 86 FR 51488, 51490, n.12.

⁸ Section 1.416-1, Q&A G-2, includes a rule similar to the unified plan rule, providing that a failure by a MEP to satisfy section 416 with respect to employees of one participating employer means that all participating employers in the MEP are maintaining a plan that is not a qualified plan. This rule is based on the unified plan rule in §1.413-2(a)(3)(iv). Therefore, if a section 413(e) plan has an unresponsive employer that fails to satisfy section 416 and the section 413(e) plan meets the conditions for the exception to the unified plan rule, the section 413(e) plan will not be disqualified for the section 416 failure. The rules in §1.416-1 are outside the scope of these proposed regulations, but the Treasury Department and the IRS intend to address the topic in a broader guidance project updating the regulations under section 416.

⁹ In defining the amounts attributable to the employees of the unresponsive participating employer, the references in these proposed regulations to circumstances in which there is no “separate accounting” are not intended to address the recordkeeping obligations under Title I of ERISA, including sections 107 and 209 of ERISA, of an employer, plan administrator, or other plan fiduciary.

¹⁰ In determining whether a person meets the requirements to be a pooled plan provider with respect to any section 413(e) plan, all persons who perform services for the plan and who are treated as a single employer under section 414(b), (c), (m), or (o) are treated as one person.

¹¹ As described in Part II.E.2 of this Explanation of Provisions, titled “Failure to Provide Information that Becomes a Failure to Take Action,” if the notices relate to a failure to provide information that becomes a failure to take action, then a new series of notices may be required.

¹² The notice to the Department of Labor should be mailed to the Employee Benefits Security Administration’s Office of Enforcement (or its successor office). The Office of Enforcement is currently located at 200 Constitution Ave. NW, Suite 600, Washington, DC 20210.

¹³ Whether an action is taken as soon as administratively feasible is determined under all the facts and circumstances. See Rev. Rul. 89-87, 1989-2 CB 81 (Whether a distribution is made as soon as administratively feasible after the date of plan termination specified by an employer is to be determined under all the facts and circumstances of a given case but, generally, a distribution that is not completed within one year following the date of termination will be presumed not to have been made as soon as administratively feasible.)

¹⁴ Section 414(l) does not apply to a plan that consists of individual retirement accounts described in section 408. Therefore, in §1.413-2(a)(2)(i)(A), the proposed regulations limit the cross references to section 413(a) and §1.413-1(a)(2) to apply only to qualified plans.

¹⁵ The Employee Plans Compliance Resolution System (EPCRS) is a comprehensive system of correction programs for sponsors of certain retirement plans, including plans that are intended to satisfy the requirements of sections 401(a), 408(k), and 408(p). EPCRS provides procedures for an employer to correct a plan’s failure to satisfy an applicable qualification requirement so that the failure does not result in disqualification of the plan. EPCRS has been updated and expanded several times, most recently in Rev. Proc. 2021-30, 2021- I.R.B. 324. The discussion in this Part VI of this Explanation of Provisions is limited to the application of EPCRS to qualified plans under section 401(a). See Rev. Proc. 2021-30 for rules under sections 408(k) and 408(p).

¹⁶ See section 4.03 of Rev. Proc. 2021-30.

¹⁷ Section 9 of Rev. Proc. 2021-30 addresses the period for correcting significant operational failures under SCP, including some exceptions to this general rule.

¹⁸ Under examination is defined in section 5.08 of Rev. Proc. 2021-30.

¹⁹ If correction has been substantially completed (as described in section 9.03 of Rev. Proc. 2021-30) before the end of the correction period, correction is permitted to be completed after the end of the correction period.

²⁰ See section 14 of Rev. Proc. 2021-30.

²¹ This calculation uses data from the 2018 Form 5500, “Annual Return/Report of Employee Benefit Plan.” These filings indicate that there are approximately 4,523 defined contribution MEPs. See 2018 Form 5500 Annual Reports Abstract (dol.gov). We estimate that 4,500 defined contribution MEPs will satisfy the requirements to be a section 413(e) plan.

²² This estimate was informed by the Department of Labor’s estimate of the number of pooled employer plans expected to commence operations. See 85 FR 72952-3