66228 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

regulations contained amendments to

the regulations previously proposed

under sections 6042 and 6044.

In the Rules and Regulations section

of this issue of the Federal Register, the

IRS is issuing final regulations relating

to backup withholding that were

proposed in INTL–52–86 and IA- 224–

82. Those final regulations do not

include proposed §§ 1.6042–5 and

1.6044–6. Further, when the IRS issues

additional final regulations that were

proposed under INTL–52–86, those

additional final regulations will not

include proposed §§ 1.6042- 5 and

1.6044–6. Accordingly, this document

withdraws those proposed regulations

sections. See §§ 1.6042–4 and 1.6044–5

of the final regulations for substantive

rules proposed under the withdrawn

sections.

List of Subjects 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Withdrawal of Portion of Notice of

Proposed Rulemaking

Accordingly, under the authority of

26 U.S.C. 7805, proposed §§ 1.6042–5

and 1.6044–6 that were published in the

Federal Register on February 29, 1988

(53 FR 5991) and amended in the

Federal Register on September 27, 1990

(55 FR 39427) are withdrawn.

Margaret Milner Richardson,

Commissioner of Internal Revenue

[FR Doc. 95–30735 Filed 12–20–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Part 1

[EE–53–95]

RIN 1545–AT95

Requirements for Tax Exempt Section

501(c)(5) Organizations

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of Proposed Rulemaking.

SUMMARY: This document contains

proposed regulations clarifying certain

requirements of section 501(c)(5). The

requirements are being clarified to

provide needed guidance to

organizations as to the requirements an

organization must meet in order to be

exempt from tax as an organization

described in section 501(c)(5).

DATES: Written comments and requests

for a public hearing must be received by

March 20, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:T:R (EE–53–95), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:T:R (EE–53–95),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW.,

Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Robin Ehrenberg, (202) 622–6080 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This notice of proposed rulemaking

clarifies the scope of the exemption

provided in section 501(c)(5) of the

Internal Revenue Code for labor,

agricultural and horticultural

organizations.

An income tax exemption for labor

organizations was first provided in the

Corporation Excise Tax Act of 1909,

Public Law No. 61–5, 36 Stat. 11, 112–

118, and has been in effect continuously

since that time. A labor organization is

an entity that is organized ‘‘to protect

and promote the interests of labor.’’

Portland Cooperative Labor Temple

Association v. Commissioner, 39 B.T.A.

450 (1939), acq., 1939–1 C.B. 28. The

principal purpose of the organization

must be to better the working conditions

of people engaged in a common pursuit.

See, Treas. Reg. § 1.501(c)(5)–1.

Organizations meeting this requirement

have traditionally engaged in collective

action directed toward the workers’

common objective of improving working

conditions. They include labor unions

that negotiate with employers on behalf

of workers for improved wages, fringe

benefits, hours and similar working

conditions, and certain union-controlled

organizations, like strike funds, that

provide benefits to workers that

enhance the union’s ability to bargain

effectively. See Rev. Rul. 67–7 (1967–1

C.B. 137). They do not include strike

funds that provide income to union

members but are not controlled by

unions. See Rev. Rul. 76–420 (1976–2

C.B. 153). Such an organization will not

pay the strike benefits ‘‘with the

objective of bettering conditions of

employment, but by reason of its

contractual agreements with the

workers.’’

Labor organizations may also meet the

requirements of section 501(c)(5) by

providing benefits that directly improve

working conditions or compensate for

unpredictable hazards that interrupt

work. Examples of such benefits include

operating a dispatch hall to match union

members with work assignments and

providing industry stewards who

represent employees with grievances

against management. See Rev. Rul. 75–

473 (1975–2 C.B. 213); Rev. Rul. 77–5

(1977–1 C.B. 148). On the other hand,

managing saving and investment plans

for workers, including retirement plans,

does not bear directly on working

conditions. See Rev. Rul. 77–46 (1977–

1 C.B. 147). Accordingly, section

501(c)(5) has not been applied to

organizations that manage retirement

savings plans as their principal activity.

Nevertheless, in Morganbesser v.

United States, 984 F.2d 560 (2d Cir.

1993), the court held that a trust

managing a pension benefit plan

pursuant to a collective bargaining

agreement qualified as a labor

organization described in section

501(c)(5). The IRS and the Treasury

Department believe that this decision is

contrary to existing law, and the IRS is

issuing an action on decision reflecting

its view that the Morganbesser court

erred in its holding. These proposed

regulations are a clarification of the

existing legal standard.

Like labor organizations, agricultural

and horticultural organizations must

also better the conditions of those

engaged in a common pursuit in order

to be described in section 501(c)(5). See

§ 1.501(c)(5)–1. There is no authority

indicating that the law is to be

interpreted differently for agricultural

and horticultural organizations than for

labor organizations. Accordingly, the

proposed regulations clarify the law as

it applies to all section 501(c)(5)

organizations.

Certain organizations have taken the

position in refund actions that they are

labor organizations described in section

501(c)(5) even though their principal

activity was to manage retirement

savings plans for workers. In addition,

some such foreign organizations have

claimed exemption from withholding on

dividend, interest and similar income

that they have earned. The IRS will

continue to oppose these claims for

refund and exemption from

withholding.

A health plan is not a retirement

savings plan. Thus, the IRS will

continue to follow Rev. Rul. 62–17

(1962–1 C.B. 87) (regarding a labor

organization providing health benefits)

even in circumstances where a majority

of the organization’s members are

retired. Furthermore, the IRS will

continue to recognize that negotiating

the terms of a retirement plan and other

postretirement benefits and designating

one or more representatives to the board

of a multiemployer pension trust are

proper activities for a labor

organization. The proposed regulations

are not intended to apply to or affect
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66229

any other provision of federal law,

including provisions of the Employee

Retirement Income Security Act of 1974

(ERISA) administered by the Secretary

of Labor.

Explanation of Provisions

The proposed regulations add a new

paragraph to § 1.501(c)(5)–1 providing

that an organization is not an

organization within the meaning of

section 501(c)(5) if the organization’s

principal activity is to manage savings

or investment plans or programs,

including retirement savings plans.

Proposed Effective Date

These regulations are proposed to be

effective December 21, 1995.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments (a signed original and

eight (8) copies) that are submitted

timely to the IRS. All comments will be

available for public inspection and

copying. A public hearing may be

scheduled if requested in writing by a

person that timely submits written

comments. If a public hearing is

scheduled, notice of the date, time, and

place for the hearing will be published

in the Federal Register.

Drafting Information

The principal author of these

regulations is Robin Ehrenberg, Office of

Associate Chief Counsel (Employee

Benefits and Exempt Organizations).

However, other personnel from the IRS

and Treasury Department participated

in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Proposed Amendments to the

Regulations

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. Section 1.501(c)(5)–1 is

amended by:

1. Redesignating paragraph (b) as

paragraph (c).

2. Adding a new paragraph (b) to read

as follows:

§ 1.501(c)(5)-1 Labor, agricultural, and

horticultural organizations.

* * * * *

(b)(1) An organization is not an

organization described in section

501(c)(5) if the principal activity of the

organization is to receive, hold, invest,

disburse, or otherwise manage funds

associated with savings or investment

plans or programs, including pension or

other retirement savings plans or

programs.

(2) Example. Trust A is organized in

accordance with a collective bargaining

agreement between a labor union and

multiple employers. Representatives of both

the employers and the union serve as

trustees. Trust A receives funds from the

employers who are subject to the agreement,

invests the funds and uses the funds and

accumulated earnings to pay pension benefits

to union members as specified in the

agreement. It also provides information to

union members about their retirement

benefits and assists them with administrative

tasks associated with the benefits. Most of

Trust A’s activities are devoted to these

functions. From time to time, Trust A also

participates in the renegotiation of the

collective bargaining agreement. Because

Trust A’s principal activity is to manage

funds associated with a pension plan, it is

not an organization described in section

501(c)(5).

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95–30830 Filed 12–20–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Part 1

[EE–20–95]

RIN 1545–AT47

Effect of the Family and Medical Leave

Act on the Operation of Cafeteria Plans

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to

cafeteria plans that reflect changes made

by the Family and Medical Leave Act of

1993. The proposed regulations provide

the public with guidance needed to

comply with the Act and affect

employees who participate in cafeteria

plans.

DATES: Written comments and requests

for a public hearing must be received by

March 20, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (EE–20–95), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:R (EE–20–95),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW.,

Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Catherine

Fuller, (202) 622–6080; concerning

submissions and the hearing, Mike

Slaughter, (202) 622–8452 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

additions to the Income Tax Regulations

(26 CFR Part 1) under section 125 of the

Internal Revenue Code of 1986 (Code).

These additions are proposed to

conform the regulations to the Family

and Medical Leave Act of 1993 (FMLA),

Public Law 103–3. FMLA imposes

certain requirements on employers

regarding coverage, including family

coverage, under group health plans for

employees taking FMLA leave, and

regarding the restoration of benefits to

employees who return from FMLA

leave. This notice of proposed

rulemaking addresses a number of the

principle questions that have been

raised about how these FMLA

requirements affect the operation of

cafeteria plans (including flexible

spending arrangements) maintained

under section 125 of the Code. The rules

in this notice of proposed rulemaking

supplement the proposed Income Tax

Regulations under section 125 of the

Code. Except as otherwise provided in

this notice of proposed rulemaking, all

of the existing rules governing cafeteria

plans, including the nondiscrimination

rules, continue to apply.

The requirements pertaining to FMLA

leave, including the employer’s

obligation to maintain coverage under a

group health plan during FMLA leave

and to restore benefits upon return from

FMLA leave, are established by FMLA,