.03 An exemption application which does not contain the required information will be classified as an "incomplete application case." The applicant will be advised in writing why a determination will not be made.

SEC. 5. EFFECT OF EXEMPTION RULINGS OR DETERMINATION LETTERS.

.01 An exemption ruling or determination letter is usually effective as of the date of formation of an organization if its purposes and activities during the period prior to the date of the ruling or determination letter were consistent with the requirements for exemption. If the organization is required to alter its activities or to make substantive amendments to its enabling instrument in order to qualify for exemp tion, the exemption ruling or determination letter will be effective only for the period specified therein.

.02 An exemption ruling or determination letter may not be relied upon if there is a material change inconsistent with exemption in the character, the purpose, or the method of operation of the organization. SEC. 6. NATIONAL OFFICE REVIEW OF DETERMINATION LETTERS.

The National Office will review determination letters to assure uniformity in the application of the established principles and precedents of the Service. Where the National Office takes exception to a determination letter, the District Director will be advised. If the organization protests the exception taken, the file and protest will be returned to the National Office. The referral will be treated as a request for technical advice and the procedures of Revenue Procedure 67-2 will be followed.

SEC. 7. PROTEST OF ADVERSE DETERMINATION LETTERS.

.01 Upon the issuance of a determination letter adverse to the applicant the District Director will advise the organization of its right to protest the determination by submitting a statement of the facts, law, and arguments in support of its application for exemption, and of its right to a district office conference.

.02 The organization may waive its right to a district office conference and request referral of the matter directly to the National Office. The District Director will advise the organization in writing that the matter will be referred to the National Office in accordance with its request only after a statement is filed setting forth the facts, law, and arguments in support of its application for exemption. In addition, the organization will be requested to specify whether it desires a conference in the National Office in the event an adverse decision is indicated.

.03 If, after considering the organization's protest and any information developed in conference, the District Director maintains his position and the organization does not agree, the case will be referred to the National Office. The referral will be considered a request for technical advice and the procedures of Revenue Procedure 67-2 will be followed.

.04 The adverse determination letter will serve to inform the organization of the pertinent facts and the question or questions proposed for submission to the National Office, and will be deemed to satisfy the requirements of section 4.05 of Revenue Procedure 67-2 .05 The organization will not be afforded protest and conference rights if the determination letter is based on technical advice.

SEC. 8. REVOCATION OR MODIFICATION OF EXEMPTION RULINGS OR DETERMINATION LETTERS.

.01 An exemption ruling or determination letter may be revoked or modified by a ruling or determination letter addressed to the organization, or by a Revenue Ruling or other statement published in the Internal Revenue Bulletin. The revocation or modification may be retroactive if the organization omitted or misstated a material fact, operated in a manner materially different from that originally represented, or engaged in a prohibited transaction of the type described in paragraph .07 of this section.

02 If a District Director concludes, as a result of examining an information return or considering information from any other source, that a ruling or determination letter should be revoked or modified, the organization will be advised in writing of the proposed action and the reasons therefor. The District Director will also advise the organization of its right to protest the proposed action by submitting a statement of the facts, law, and arguments in support of its continued exemption, and of its right to a district office conference.

.03 The organization may waive its right to a district office conference and request referral of the matter directly to the National Office. The District Director will advise the organization in writing that the matter will be referred to the National Office in accordance with its request only after it files a statement setting forth the facts, law, and arguments in support of continued exemption. In addition, the organization shall be requested to specify whether it desires a conference in the National Office in the event an adverse decision is indicated.

.04 If the organization agrees with the proposed action, either before or after a district office conference, or if no protest is filed, the District Director will issue a determination letter revoking or modifying the organization's exemption.

05 If, after considering the organization's protest and any information developed in conference, the District Director maintains his position and the organization does not agree, the file and protest will be referred to the National Office. The referral will be considered a request for technical advice and the procedures of Revenue Procedure 67-2 will be followed.

.06 The letter advising the organization of the proposed revocation or modification action will serve to inform the organization of the pertinent facts and the question or questions proposed for submission to the National Office, and will be deemed to satisfy the requirements of section 4.05 of Revenue Procedure 67-2.

.07 If it is concluded that an organization entered into a prohibited transaction for the purpose of diverting corpus or income from its exempt purpose and if the transaction involved a substantial part of the corpus or income of the organization, its exemption is revoked effective as of the beginning of the taxable year during which the prohibited transaction was commenced. An organization is ordinarily notified of such revocation of exemption by regular mail.

.08 In all other prohibited transaction cases, the exemption is revoked effective as of the beginning of the first taxable year after the date of the revocation letter. In these cases the organization will be notified of the revocation of exemption by registered or certified mail, sent to its last known address.

.09 While the organization, in a prohibited transaction case, will usually be permitted to submit its brief and to be heard in conference before the revocation notice is issued, the Service may, at its discretion, issue the revocation notice by registered or certified mail prior to the receipt of the brief or prior to granting a conference. If it is later determined that the revocation was in error, it will be rescinded as of the date it was issued.

.10 The provisions of this section relating to protest and conference before à revocation notice is issued are not applicable to matters where delay would be prejudicial to the interests of the Internal Revenue Service (such as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Government).

SEC. 9. PROHIBITED TRANSACTIONS.

.01 Section 503 of the Code denies exemption to certain organizations which engage in transactions of the type described therein. The National Office may issue a ruling as to whether an organization has entered into, or proposes to enter into, a prohibited transaction: but, except as provided in paragraph .02 of this section, a ruling will not be issued where the determination is primarily one of fact, eg market value of property, reasonableness of compensation, etc. Also, no rulings will be issued with respect to such transactions as sales and leasebacks, gifts and leasebacks, and other rental transactions of real or personal property directly or indirectly with the creator or a related or controlled interest.

02 Where the adequacy of the security of a loan is involved, a ruling may be issued, but only if there is a clear indication of value which can be established by reference to recognized sources without requiring physical valuation or appraisal. The following are examples of transactions where the adequacy of security can be established by reference to recognized sources:

1. A surety bond issued by a recognized surety company doing a surety bond business under applicable state law;

2. An assignment of an insurance contract having a cash surrender value sufficent to cover the loan, interest, and possible costs of collection;

3. A first mortgage on real property in an amount not in excess of 50 percent of its assessed value for local tax purposes; or, 4. Collateral represented by securities listed on a recognized exchange of an aggregate value equal to twice the amount of the loan.

.03 An organization whose exemption is revoked by reason of sec tion 503 of the Code may file a new application in any taxable year following the taxable year in which the notice of revocation was issued. But the exempt status of an organization may not be renewed before the beginning of the first taxable year following the year in which its new application is filed. Thus, if a revocation notice was issued in 1966, the organization may not file a new application for exemption until 1967, and the new exemption may not be granted for a taxable year prior to 1968. If the organization does not file a new application

until 1968, the new exemption may not be recognized for a year prior to 1969.

SEC. 10. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 62–30, C.B. 1962-2, 512, and Revenue Procedure 63-30, C.B. 1963-2, 769, are superseded.

SEC. 11. EFFECTIVE DATE.

This Revenue Procedure is effective January 3, 1967, the date of its publication in the Internal Revenue Bulletin.

26 CFR 601.201: Rulings and determination letters.

(Also Part I, Sections 401, 405; 1.401-1, 1.405-1.)

Rev. Proc. 67-4

Outline of procedures of the Internal Revenue Service applicable to requests for determinations on the qualification of pension, annuity, profit-sharing, and stock bonus plans under section 401(a) of the Internal Revenue Code of 1954, bond purchase plans under section 405 (a), and the status for exemption of related trusts under section 501(a).

Revenue Procedure 62-31, C.B. 1962-2, 517, superseded.

SECTION 1. PURPOSE.

This Revenue Procedure sets forth the general procedures of the various offices of the Internal Revenue Service pertaining to the issuance of determination letters on the qualification of pension, annuity, profit-sharing, and stock bonus plans under section 401(a) of the Internal Revenue Code of 1954, bond purchase plans under section 405(a), and for the issuance of rulings and determination letters on the status for exemption of related trusts under section 501 (a). For plans covering self-employed individuals, see Revenue Procedure 64– 30, C.B. 1964-2, 944.

SEC. 2. BACKGROUND AND GENERAL INFORMATION.

.01 A trust created or organized in the United States and forming part of a pension, profit-sharing, or stock bonus plan of an employer for the exclusive benefit of his employees or their beneficiaries, which meets the requirements of section 401(a) of the Code, is a qualified trust and is exempt from Federal income tax under section 501 (a) unless the exemption is denied under section 502, relating to feeder organizations, or section 503, relating to prohibited transactions.

02 An exempt employees' trust is required to file an annual return as provided by section 6033 of the Code. Form 990-P, return of Employees' Trust Exempt from Tax, is used for this purpose. An exempt trust may, however, be subject to tax under section 511 of the Code on unrelated business income. Unrelated business income is reported on Form 990-T, Exempt Organization Business Income Tax Return.

.03 A nontrusteed annuity plan which meets the requirements of Section 401 (a) (3), (4), (5), (6), (7), and (8) of the Code may confer special tax treatment provided for under other sections of the Code, such as section 403 (a) (2) (long term capital gain treatment) and section 404(a) (2) (deductions for employer contributions for the

purchase of retirement annuities), if the additional provisions of such other sections are also met.

.04 A favorable determination letter on a pension, annuity, profitsharing, stock bonus, or bond purchase plan, and the exempt status of a related trust, if any, is not required as a condition for obtaining the benefits pertaining to the plan or trust. However, section 4.05 of Revenue Procedure 67-1, page 544, this Bulletin, permits District Directors to issue determination letters on the qualification of plans and the exempt status of related trusts.

SEC. 3. DETERMINATION LETTERS.

.01 Determination letters authorized by section 4.05 of Revenue Procedure 67-1 are limited to the qualification of plans or trusts under section 401 (a) of the Code, bond purchase plans, under section 405 (a). and to the exempt status of trusts under section 501 (a). This includes consummated and proposed transactions relating to the following:

1. The initial qualification of a plan and, if trusteed, the status for exemption of a trust;

2. Compliance with the applicable requirements of foreign situs trusts as to taxability of beneficiaries (section 402 (c)) and deductions for employer contributions (section 404 (a) ((4)); 3. Amendments to plans and trusts;

4. Curtailment of plans;

5. Termination of plans and trusts; and

6. The effect on the qualification of the plan, and status for exemption of the trust, of an investment of trust funds in the stock or securities of the employer or controlled corporation (ownership of 50 percent or more of all voting stock or 50 percent or more of the total value of shares of all classes of stock).

.02 Determination letters authorized in the preceding paragraph do not include determinations on other inquiries concerning plans or trusts. Thus, except as provided in section 3.012, above, District Directors may not issue determination letters relating to issues under other sections of the Code, such as sections 72, 402 through 404, 502, 503, and 511 through 515, unless such determination letters are otherwise authorized under section 4 of Revenue Procedure 67-1.

.03 Employees' trusts must be maintained and operated for the exclusive benefit of employees or their beneficiaries, and investments by such trusts must be consistent with that purpose. See part 2 (k) (1) of Revenue Ruling 65-178, C.B. 1965-2, 94, at 104. District Directors are authorized to issue determination letters as to the effect on qualifi cation of trust investments in the stock or securities of corporations described in section 3.016 above. However, they may not issue determination letters concerning the fair market value of the investment, or the adequacy of security behind a loan. These issues are within the prohibited transactions area. See section 8 of this Revenue Procedure. SEC. 4. INSTRUCTIONS TO TAXPAYERS.

.01 All of the provisions of section 6 of Revenue Procedure 67-1 are applicable to requests for determination letters of the type dis cussed in this Revenue Procedure. In addition, the information required by paragraphs .02 through .06 below, together with the identification number of a participating trust, must also be furnished in