Bloomberg Bloomberg
Comprehensive Tax Research. Practitioner to Practitioner. ®

Internal Revenue Code, § 505. Additional Requirements For Organizations Described In Paragraph (9) Or (17) Of Section 501(c)

I.R.C. § 505(a) Certain Requirements Must Be Met In The Case Of Organizations Described In Section 501(c)(9)
I.R.C. § 505(a)(1) Voluntary Employees' Beneficiary Associations, Etc.
An organization described in section 501(c)(9) which is part of a plan shall not be exempt from tax under section 501(a) unless such plan meets the requirements of subsection (b) of this section.
I.R.C. § 505(a)(2) Exception For Collective Bargaining Agreements
Paragraph (1) shall not apply to any organization which is part of a plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that such plan was the subject of good faith bargaining between such employee representatives and such employer or employers.
I.R.C. § 505(b) Nondiscrimination Requirements
I.R.C. § 505(b)(1) In General
Except as otherwise provided in this subsection, a plan meets the requirements of this subsection only if—
I.R.C. § 505(b)(1)(A)
each class of benefits under the plan is provided under a classification of employees which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated individuals, and
I.R.C. § 505(b)(1)(B)
in the case of each class of benefits, such benefits do not discriminate in favor of employees who are highly compensated individuals.
A life insurance, disability, severance pay, or supplemental unemployment compensation benefit shall not be considered to fail to meet the requirements of subparagraph (B) merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan.
I.R.C. § 505(b)(2) Exclusion Of Certain Employees
For purposes of paragraph (1), there may be excluded from consideration—
I.R.C. § 505(b)(2)(A)
employees who have not completed 3 years of service,
I.R.C. § 505(b)(2)(B)
employees who have not attained age 21,
I.R.C. § 505(b)(2)(C)
seasonal employees or less than half-time employees
I.R.C. § 505(b)(2)(D)
employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and 1 or more employers which the Secretary finds to be a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining between such employee representatives and such employer or employers, and
I.R.C. § 505(b)(2)(E)
employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
I.R.C. § 505(b)(3) Application Of Subsection Where Other Nondiscrimination Rules Provided
In the case of any benefit for which a provision of this chapter other than this subsection provides nondiscrimination rules, paragraph (1) shall not apply but the requirements of this subsection shall be met only if the nondiscrimination rules so provided are satisfied with respect to such benefit.
I.R.C. § 505(b)(4) Aggregation Rules
At the election of the employer, 2 or more plans of such employer may be treated as 1 plan for purposes of this subsection.
I.R.C. § 505(b)(5) Highly Compensated Individual
For purposes of this subsection, the determination as to whether an individual is a highly compensated individual shall be made under rules similar to the rules for determining whether an individual is a highly compensated employee (within the meaning of section 414(q)).
I.R.C. § 505(b)(6) Compensation
For purposes of this subsection, the term “compensation" has the meaning given such term by section 414(s).
I.R.C. § 505(b)(7) Compensation Limit
A plan shall not be treated as meeting the requirements of this subsection unless under the plan the annual compensation of each employee taken into account for any year does not exceed $200,000. The Secretary shall adjust the $200,000 amount at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B). This paragraph shall not apply in determining whether the requirements of section 79(d) are met.
I.R.C. § 505(c) Requirement That Organization Notify Secretary That It Is Applying For Tax-Exempt Status
I.R.C. § 505(c)(1) In General
An organization shall not be treated as an organization described in paragraph (9) or (17) of section 501(c)
I.R.C. § 505(c)(1)(A)
unless it has given notice to the Secretary, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of such status, or
I.R.C. § 505(c)(1)(B)
for any period before the giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection.
I.R.C. § 505(c)(2) Special Rule For Existing Organizations
In the case of any organization in existence on July 18, 1984, the time for giving notice under paragraph (1) shall not expire before the date 1 year after such date of the enactment.
(Added Pub. L. 98-369, div. A, title V, Sec. 513(a), July 18, 1984, 98 Stat. 863, and amended Pub. L. 99-514, title XI, Sec. 1114(b)(16), 1151(e)(2)(B), (g)(6), (j)(3), title XVIII, Sec. 1851(c), 1899A(16), Oct. 22, 1986, 100 Stat. 2452, 2506-2508, 2863, 2959; Pub. L. 100-647, title I, Sec. 1011B(a)(27)(C), (31)(B), (32), Nov. 10, 1988, 102 Stat. 3487, 3488; Pub. L. 101-140, title II, Sec. 203(a)(1), (2), 204(c), Nov. 8, 1989, 103 Stat. 830, 833; Pub. L. 103-66, Sec. 13212(c), Aug. 10, 1993; Pub. L. 107-16, title VI, Sec. 611(c)(1), June 7, 2001, 115 Stat. 38; Pub. L. 115-141, Div. U, title IV, Sec. 401(b)(21)(D)(i)–(iv), Mar. 23, 2018, 132 Stat. 348.)
BACKGROUND NOTES
AMENDMENTS
2018 - Pub. L. 115-141, Div. U, Sec. 401(b)(21)(D)(i), amended Sec. 505 by substituting “PARAGRAPH (9) OR (17)” for “PARAGRAPH (9), (17), OR (20)” in the heading.
Subsec. (a). Pub. L. 115-141, Div. U, Sec. 401(b)(21)(D)(ii), amended subsec. (a) by substituting “Section 501(c)(9)” for “Paragraph (9) or (20) of Section 501(c)”.
Subsec. (a)(1). Pub. L. 115-141, Div. U, Sec. 401(b)(21)(D)(iii), amended par. (1) by substituting “section 501(c)(9)” for “paragraph (9) or (20) of subsection (c) of section 501”.
Subsec. (c)(1). Pub. L. 115-141, Div. U, Sec. 401(b)(21)(D)(iv), amended par. (1) by substituting “paragraph (9) or (17)” for “ paragraph (9), (17), or (20)”.
2001 - Subsec. (b)(7). Pub. L. 107-16, Sec. 611(c)(1), amended par. (7) by substituting “$200,000” for “$150,000” each place it appeared.
1993 - Subsec. (b)(7). Pub. L. 103-66, Sec. 13212(c)(2), amended par. (7) by striking “$200,000” in the heading.
Subsec. (b)(7). Pub. L. 103-66, Sec. 13212(c)(1), amended par. (7) by substituting “$150,000” for “$200,000” in the first sentence and by amending the second sentence.
1989 - Subsec. (a)(1). Pub. L. 101-140, Sec. 203(a)(2), amended par. (1) to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(27)(C), had not been enacted, see 1988 Amendment note below.
Subsec. (b)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2) to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B), had not been enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if amendments by Pub. L. 99-514, Sec. 1151(g)(6), had not been enacted, see 1986 Amendment note below.
Subsec. (b)(7). Pub. L. 101-140, Sec. 204(c), inserted at end ‘This paragraph shall not apply in determining whether the requirements of section 79(d) are met.’
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1011B(a)(27)(C), inserted at end ‘This paragraph shall not apply to any organization by reason of a failure to meet the requirements of subsection (b) with respect to a benefit to which section 89 applies.’
Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B), substituted ‘there shall be’ for ‘there may be’ and ‘who are’ for ‘who may be’.
Subsec. (b)(7). Pub. L. 100-647, Sec. 1011B(a)(32), added par. (7).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1851(c)(1), struck out ‘of an employer’ before ‘shall’.
Subsec. (a)(2). Pub. L. 99-514, Sec. 1851(c)(4), amended par. (2) generally. Prior to amendment, par. (2) read as follows: ‘Paragraph (1) shall not apply to any organization which is part of a plan maintained pursuant to 1 or more collective bargaining agreements between 1 or more employee organizations and 1 or more employers.’
Subsec. (b)(1). Pub. L. 99-514, Sec. 1851(c)(2), (3), substituted ‘as otherwise provided in this subsection’ for ‘as provided in paragraph (2)’ in introductory provision, and in subpar. (B) substituted ‘highly compensated individuals’ for ‘highly compensated employees’.
Subsec. (b)(2). Pub. L. 99-514, Sec. 1151(g)(6), amended par. (2) generally. Prior to amendment, par. (2) read as follows: ‘For purposes of paragraph (1), there may be excluded from consideration -
‘(A) employees who have not completed 3 years of service,
‘(B) employees who have not attained age 21,
‘(C) seasonal employees or less than half-time employees,
‘(D) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and 1 or more employers which the Secretary finds to be a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining between such employee representatives and such employer or employers, and
‘(E) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).’
Subsec. (b)(4). Pub. L. 99-514, Sec. 1151(e)(2)(B), amended par. (4) generally. Prior to amendment, par. (4) read as follows: ‘For purposes of this subsection -
‘(A) Aggregation of plans. - At the election of the employer, 2 or more plans of such employer may be treated as 1 plan.
‘(B) Treatment of related employers. - Rules similar to the rules of subsections (b), (c), (m), and (n) of section 414 shall apply. For purposes of the preceding sentence, section 414(n) shall be applied without regard to paragraph (5).’
Subsec. (b)(5). Pub. L. 99-514, Sec. 1114(b)(16), amended par. (5) generally. Prior to amendment, par. (5) read as follows: ‘For purposes of this subsection, the term ‘highly compensated individual’ has the meaning given such term by section 105(h)(5). For purposes of the preceding sentence, section 105(h)(5) shall be applied by substituting ‘10 percent’ for ‘25 percent’.'
Subsec. (b)(6). Pub. L. 99-514, Sec. 1151(j)(3), added par. (6).
Subsec. (c)(2). Pub. L. 99-514, Sec. 1899A(16), substituted ‘July 18, 1984’ for ‘the date of the enactment of the Tax Reform Act of 1984’.
EFFECTIVE DATE OF 2018 AMENDMENTS
Amendments by Pub. L. 115-141, Div. U, Sec. 401(b)(21)(D)(i)–(iv), effective March 23, 2018.
Sec. 401(e) of Pub. L. 115-141, Div. U, provided the following savings provision:
“(e) General Savings Provision With Respect To Deadwood Provisions.—If—
“(1) any provision amended or repealed by the amendments made by subsection (b) or (d) applied to—
“(A) any transaction occurring before the date of the enactment of this Act,
“(B) any property acquired before such date of enactment, or
“(C) any item of income, loss, deduction, or credit taken into account before such date of enactment, and
“(2) the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by such subsection) affect the liability for tax for periods ending after such date of enactment,
“nothing in the amendments or repeals made by this section shall be construed to affect the treatment of such transaction, property, or item for purposes of determining liability for tax for periods ending after such date of enactment.”
EFFECTIVE DATE OF 2001 AMENDMENT
Amendment by section 611(c)(1) of Pub. L. 107-16 effective for years beginning after December 31, 2001.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”
PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 MADE PERMANENT
Section 811 of Pub. L. 109-280 provided that:
“Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to the provisions of, and amendments made by, subtitles A through F of title VI of such Act (relating to pension and individual retirement arrangement provisions).”
EFFECTIVE DATE OF 1993 AMENDMENTS
Amendments made by Sec. 13212(c)of Pub. L. 103-66 effective benefits accruing in plan years beginning after December 31, 1993. Sec. 13212(d)(2)-(3) provides the following special rule and transitional rule:
“(2) Collectively bargained plans. --
“In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before the date of the enactment of this Act, the amendments made by this section shall not apply to contributions or benefits pursuant to such agreements for plan years beginning before the earlier of --
“(A) the latest of --
“(i) January 1, 1994
“(ii) the date on which the last of such collective bargaining agreements terminates (without regard to any extension, amendment, or modification of such agreements on or after such date of enactment), or
“(iii) in the case of a plan maintained pursuant to collective bargaining under the Railway Labor Act, the date of execution of an extension or replacement of the last of such collective bargaining agreements in effect on such date of enactment, or
“(B) January 1, 1997.
“(3) Transition rule for state and local plans. --
“(A) In general. --
“In the case of an eligible participant in a governmental plan (within the meaning of section 414(d) of the Internal Revenue Code of 1986), the dollar limitation under section 401(a)(17) of such Code shall not apply to the extent the amount of compensation which is allowed to be taken into account under the plan would be reduced below the amount which was allowed to be taken into account under the plan as in effect on July 1, 1993.
“(B) Eligible participant. --
“For purposes of subparagraph (A), an eligible participant is an individual who first became a participant in the plan during a plan year beginning before the 1st plan year beginning after the earlier of --
“(i) the plan year in which the plan is amended to reflect the amendments made by this section, or
“(ii) December 31, 1995.
“(C) Plan must be amended to incorporate limits. --
“This paragraph shall not apply to any eligible participant of a plan unless the plan is amended so that the plan incorporates by reference the dollar limitation under section 401(a)(17) of the Internal Revenue Code of 1986, effective with respect to noneligible participants for plan years beginning after December 31, 1995 (or earlier if the plan amendment so provides).”
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 203(a)(1), (2) of Pub. L. 101-140 effective as if included in section 1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set out as a note under section 79 of this title.
Section 204(d)(4) of Pub. L. 101-140 provided that: ‘The amendment made by subsection (c) (amending this section) shall take effect as if included in the amendment made by section 1011B(a)(32) of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647).'
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(16) of Pub. L. 99-514 applicable to years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub. L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(e)(2)(B), (g)(6), (j)(3) of Pub. L. 99-514 applicable, with certain qualifications and exceptions, to years beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as amended, set out as a note under section 79 of this title.
Amendment by section 1851(c) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section 513(c) of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
‘(1) In general. - The amendments made by this section (enacting this section) shall apply to years beginning after December 31, 1984.
‘(2) Treatment of certain benefits in pay status as of january 1, 1985. - For purposes of determining whether a plan meets the requirements of section 505(b) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as added by subsection (a)), there may (at the election of the employer) be excluded from consideration all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. The preceding sentence shall not apply to any payment to the extent such payment is increased by any plan amendment adopted after June 22, 1984.'
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514 FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement or enforce section 1151 of Pub. L. 99-514 or the amendments made by such section, see section 528 of Pub. L. 101-136, set out as a note under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
ISSUANCE OF FINAL REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out as a note under section 401 of this title.