IRS Revenue Ruling
2000-20

  Code Sec. 412

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Amortization bases; Taxpayer Relief Act of 1997. This revenue ruling
provides questions and answers relating to the establishment and
maintenance of certain amortization bases under section 412 of the Code as
amended by section 1521(c) of the Taxpayer Relief Act of 1997.


REV. RUL. 2000-20

PURPOSE

This revenue ruling provides questions and answers relating to the
establishment and maintenance of certain amortization bases under section
412(b) of the Internal Revenue Code (the "Code"), as amended by section
1521(c) of the Taxpayer Relief Act of 1997 ("TRA '97").


BACKGROUND

Section 412 of the Code imposes minimum funding requirements with
respect to defined benefit and money purchase pension plans. Under section
412(a), a plan will have satisfied the minimum funding requirements for a
plan year if as of the end of the plan year, the plan does not have an
accumulated funding deficiency in the funding standard account. Section
412(b)(1) provides that each plan to which section 412 applies shall
establish and maintain a funding standard account. Sections 412(b)(2) and
(3) provide for charges and credits to the funding standard account.

Section 412(c)(7) provides a full funding limitation for defined
benefit plans for purposes of the minimum funding requirements. Section
412(c)(7)(A)(i)(I) provides that one component of the full funding
limitation is the applicable percentage of current liability (including
the expected increase in current liability due to benefits accruing during
the plan year). Section 412(c)(6)(A) provides for a credit to the funding
standard account for contributions that would be required but for the full
funding limitation.

Prior to TRA '97, the current liability component of the full funding
limitation was 150 percent of current liability (including the expected
increase in current liability due to benefits accruing during the plan
year), and section 412(c)(7)(D)(iii) provided that the Secretary may
provide for the treatment under section 412 of contributions that would be
required to be made under the plan but for the provisions of
412(c)(7)(A)(i)(I).

Section 1521(c)(1) of TRA '97 added section 412(b)(2)(E) to the Code to
provide that contributions that would have been required under section 412
but for the provisions of section 412(c)(7)(A)(i)(I) are to be amortized
over a 20 year period. Section 1521(c)(3) of TRA '97 repealed section
412(c)(7)(D)(iii) of the Code. Section 1521(d)(1) of TRA '97 provides that
the amendments made by section 1521 apply to plan years beginning after
December 31, 1998.

Section 1521(d)(2) of TRA '97 provides that the unamortized balance (as
of the close of the plan year preceding the plan's first plan year
beginning in 1999) of any amortization base established under section
412(c)(7)(D)(iii) of the Code (prior to its repeal by section 1521(c)(3)
of TRA '97) is amortized in equal annual installments (until fully
amortized) over a period of years equal to the excess of (A) 20 years,
over (B) the number of years since the amortization base was established.


QUESTIONS AND ANSWERS RELATING TO SECTION 412(B)(2)(E) OF THE CODE

Q-1. How are contributions that would have been required under section
412 but for the provisions of section 412(c)(7)(A)(i)(I) treated?

A-1. In general, for purposes of section 412, an amortization base is
established for contributions that would have been required under section
412 but for the provisions of section 412(c)(7)(A)(i)(I). The amortization
base is established for the plan year following the plan year for which
the contributions would have been required under section 412 but for the
provisions of section 412(c)(7)(A)(i)(I). For amortization bases that were
established for plan years beginning before January 1, 1999, the
amortization period is 10 years. For amortization bases established for
plan years beginning after December 31, 1998, the amortization period is
20 years. Any such amortization base is maintained in the same manner as
other amortization bases established under section 412. No corresponding
amortization base is established for purposes of section 404.

Q-2. How are amortization bases described in Q&A-1 that were
established for plan years beginning before January 1, 1999, treated for
the first plan year beginning after December 31, 1998?

A-2. In general, under section 1521(d)(2) of TRA '97, the remaining
amortization period for any amortization base described in Q&A-1 that was
established for plan years beginning before January 1, 1999, ("existing
10-year base") is increased as of the first plan year beginning after
December 31, 1998, by adding 10 to the number of years that was otherwise
remaining in the amortization period, provided that the amortization base
has not been combined with other amortization bases. For the first plan
year beginning after December 31, 1998, the amortization charge for such
existing 10-year base is redetermined as the amount necessary to amortize
the unamortized balance (as of the close of the plan year preceding the
plan's first plan year beginning in 1999) in equal annual installments
(until fully amortized) over this increased amortization period.
Thereafter, these amortization bases are maintained in the same manner as
other amortization bases established under section 412 of the Code.

Q-3. Are there any special rules with respect to funding methods that
do not provide for amortization bases?

A-3. Yes. If the funding method does not provide for amortization
bases, no amortization base is established for plan years beginning after
December 31, 1998, for contributions that would have been required under
section 412 but for the provisions of section 412(c)(7)(A)(i)(I). Also,
except as provided in Q&A-4, existing 10-year bases are treated as fully
amortized for the first plan year beginning after December 31, 1998. For
purposes of this revenue ruling, a funding method does not provide for
amortization bases if the funding method is a spread gain method that does
not use an unfunded liability in determining the normal cost. A spread
gain method is any funding method that does not directly calculate an
accrued liability. See Rev. Rul. 81-13, 1981-1 C.B. 229, for whether a
funding method directly calculates an accrued liability.

Q-4. Is there a transition rule for the first plan year beginning after
December 31, 1998, for plans using a funding method that does not provide
for amortization bases?

A-4. Yes, as an optional transition rule, for plans using a funding
method described in Q&A-3, any existing 10-year bases may be continued for
the first plan year beginning after December 31, 1998, but the
amortization period is increased as described in Q&A-2. Furthermore, in
such a case, a new 20-year amortization base as described in Q&A-1 is
permitted to be established for that plan year. However, in any event, if
the transition rule described in this Q&A-4 is used for the first plan
year beginning after December 31, 1998, the existing 10-year bases (and
any amortization base described in Q&A-1 established for that plan year)
are treated as fully amortized pursuant to Q&A-3 for the next plan year.


DRAFTING INFORMATION

The principal author of this revenue ruling is James Holland of the Tax
Exempt and Government Entities Division. For further information
concerning this revenue ruling, call (202) 622-6076 between 2:30 and 3:30
Eastern time (not a toll free number) Monday through Thursday. Mr.
Holland's number is (202) 622-6730 (also not a toll free number).

<<END RULING>>

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