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Part 4. Examining Process

Chapter 76. Exempt Organizations Examination Guidelines

Section 27. Black Lung Benefit Trusts - IRC Section 501(c)(21)

4.76.27  Black Lung Benefit Trusts - IRC Section 501(c)(21)

4.76.27.1  (05-15-2003)
Introduction

  1. This IRM section contains specific examination guidelines for an organization recognized as exempt from income tax under IRC section 501(a) as an organization described in IRC section 501(c)(21). It provides examination techniques effective in identifying and developing issues commonly encountered during the examination of an IRC section 501(c)(21) organization.

  2. These guidelines provide specific assistance for the examination of an IRC section 501(c)(21) organization and are not all-inclusive. The purpose is to supplement the guidelines contained in IRM sections 4.75.10 through 4.75.13. The intent is not to restrict the examiner in identifying issues or using examination techniques not included herein.

  3. This IRM section does not contain detailed technical information regarding IRC section 501(c)(21) organizations.The examiner should review the technical information contained in IRM 7.8.2, Chapter 21.

4.76.27.2  (05-15-2003)
Background Information

  1. IRC section 501(c)(21) provides exemption to qualifying black lung benefit trusts. The code section was enacted pursuant to the Black Lung Benefits Revenue Act of 1977, which established a liability on the part of coal mine construction and transportation employers, as well as coal mine operators to pay benefits for their employees who work in and around coal mines and are exposed to coal dust. These employers are eligible to establish a trust to fund the payment of black lung benefits to satisfy their liability.

  2. Black lung disease (pneumoconiosis) is defined as a chronic dust disease of the lung arising out of coal mine employment.

  3. Black Lung Trusts are required to file a Form 990BL, Black Lung Benefit Trusts and Certain Related Persons by the 5th day of the fifth month following the end of their accounting period.

4.76.27.3  (05-15-2003)
Examination Guidelines

  1. Examine the trust instrument to verify that the trust:

    1. Was created or organized in the United States and established pursuant to a written instrument. An oral trust is insufficient, even if valid under state law;

    2. Does not permit a diversion or improper use of trust assets;

    3. Is irrevocable, with no right or possibility of reversion of either corpus or income to the coal mine operator, except for the recovery of excess contributions by the operator;

    4. Was not established by an insurance company, even though an insurance company may be liable for the payment of benefits, as its liability stems from a contract with the coal mine operator and not from any mining activities it conducts.

4.76.27.4  (05-15-2003)
Income Analysis

  1. Analyze the receipts journal and supporting documents to:

    1. Verify the accuracy of the amounts reported on the return; and

    2. Identify any unusual sources of income. Income received from any source other than the employer or permitted investments should be considered unusual.

4.76.27.5  (05-15-2003)
Expense Analysis

  1. Review disbursement journals and supporting documents, including invoices and cancelled checks, in order to:

    1. Verify the accuracy of the amounts reported on the return; and

    2. Identify any unusual disbursements. Disbursements for other than benefits and administrative expenses, including legal, accounting, actuarial, and trustee expenses, should be considered unusual.

  2. Test benefit payments to determine whether they are permitted benefits. The trust cannot make benefit payments that are unrelated to black lung disease.

    Example:

    Workers compensation payments for injuries or death resulting from coal mine accidents.

  3. The trust may purchase insurance, in whole or in part, that exclusively covers liability for black lung benefits.

  4. Reasonable expenses may include payment of excise tax imposed on the trust:

    1. By reason of a taxable expenditure, and/or;

    2. In connection with an assertion against the trust of liability for a taxable expenditure.

4.76.27.6  (05-15-2003)
Balance Sheet Analysis

  1. Verify that the trust’s assets have been used for investments only to the extent that trust assets exceed current year obligations.

  2. Verify that the trust’s assets are only invested in the following types of permitted investments:

    1. "Public debt" securities of the United States, obligations guaranteed as to principal and interest by the United States;

    2. Obligations of a State or local government which are not in default as to principal or interest; or

    3. Time or demand deposits in a bank or an insured credit union located in the United States.

4.76.27.7  (05-15-2003)
Excise Taxes

  1. Black Lung Benefits Trusts are subject to excise taxes on certain acts of self-dealing, IRC section 4951, and taxable expenditures, IRC section 4952. These excise taxes are similar to those imposed upon private foundation self-dealing and taxable expenditures; therefore, Treas. Regs. under IRC sections 4941, 4945, and 4946 generally correspond and apply to IRC sections 4951 and 4952.

    Example:

    A self dealing arrangement is when a bank or a credit union is a trustee of the trust or is a disqualified person , such as a bank that is owned by or that owns the coal mine operator, and some or all of the trust assets are held or invested in that bank or credit union. The deposit to the bank or credit union would constitute an act of self-dealing under IRC 4951.

  2. IRM 7.27.15 and 7.27.19 contain information relating to excise taxes on private foundations for self-dealing and taxable expenditures.

  3. An excise tax imposed on the trustee, or other disqualified persons, for acts of self-dealing or making excess contributions cannot be paid by the trust, nor may any expenses incurred in connection with the assertion of these kinds of taxes be paid by the trust.

  4. The trust may purchase insurance covering the liability of a trustee for excise taxes to the extent that such purchases, including any other compensation, to the trustee are reasonable.

  5. The trust may pay expenses that the trustee incurs in sucessfully defending himself/herself in a judicial or administrative proceeding involving excise taxes or State laws relating to mismanagement of charitable assets, providing that such expenses and any other compensation the trustee receives is reasonable.

4.76.27.8  (05-15-2003)
Requests for Assistance Concerning Black Lung Benefit Trusts

  1. Contributions by coal mine operators are deductible within certain limits under IRC section 192 if made to Black Lung Benefit Trusts that are described in IRC section 501(c)(21). Questions concerning the exempt status under IRC section 501(c)(21) of a Black Lung Benefit Trust may arise during the course of the Large & Mid-Size Business Operating Division’s (LMSB) examination of a coal mine operator’s income tax return.

  2. Therefore, contact points between LMSB and the Tax Exempt and Government Entities Operating Division (TE/GE), Exempt Organizations (EO), EO Area Manager, or designee, in the geographically located EO Area Manager’s office will be established as local conditions warrant to handle any requests for assistance from LMSB concerning Black Lung Benefit Trusts.

  3. If TE/GE (EO)’s, assistance concerning Black Lung Benefit Trusts is necessary, a copy of Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust under Section 4953 and Coal Mine Operator’s Worksheet for Section 192 Deduction, and a copy of the trust instrument will be routed to TE/GE (EO) to the attention of the Chief, TE/GE (EO) Mandatory Review Staff requesting assistance.

  4. If Form 6069 is required and has not been filed or prepared by the coal mine operator, the required data will be obtained by LMSB and forwarded to the Chief, TE/GE (EO) Mandatory Review Staff.

  5. Upon receipt of LMSB’s request, Form 6069, a copy of the organization’s trust instrument and written request for assistance, the Chief, TE/GE (EO) Mandatory Review Staff, or designee, will:

    1. Review the request for completeness;

    2. If the request is not complete, the request will be returned to LMSB for further information. The Chief, TE/GE (EO) Mandatory Review Staff should specify the information missing from the request;

    3. If additional information is needed from the coal mine operator, LMSB and TE/GE (EO) personnel who were previously designated as contact points, will coordinate to determine the most practical way to obtain information.

  6. After receipt of all necessary information, TE/GE (EO) will determine whether the Black Lung Benefit Trust involved is exempt under IRC 501(c)(21). This determination of exempt status may be made on the basis of:

    1. Information provided by LMSB and/or;

    2. Checking the Exempt Organization Business Master File (EOMF) and/or;

    3. Through an examination if necessary. If an examination is necessary, TE/GE (EO) will obtain the Black Lung Benefit Trust’s Form 990-BL under existing procedures.

  7. If TE/GE (EO)’s consideration results in a determination that the trust is not exempt:

    1. TE/GE (EO) will secure Form 1041, US Fiduciary Income Tax Return for Estates and Trusts.

    2. The return will be forwarded to the appropriate service center for processing.

    3. A copy of the return will be attached to Form 5346 (Examination information Report) and forwarded to LMSB for consideration of any required examination action.

    4. If TE/GE (EO) is unable to secure Form 1041, Form 5346 will be prepared explaining the delinquency and forwarded to LMSB for consideration of any required examination action.

    5. TE/GE (EO) will provide assistance in developing any necessary information.

    .

  8. When TE/GE (EO) has finished its consideration of the issues referred by LMSB, TE/GE (EO)’s determination and any supporting data will be returned to LMSB. Any additional reports necessary to convey the results of TE/GE (EO)’s action will be attached.

  9. In order to provide timely processing, the consideration of requests for assistance concerning Black Lung Benefit Trusts from LMSB should be completed:

    1. Within 30 days of the receipt of all information requested; or

    2. If consideration of the request for information cannot be completed within the 30-day period, the Chief, TE/GE (EO) Mandatory Review Staff will prepare a memorandum to LMSB giving the status of the referred request, reasons for delay, and anticipated completion date.

  10. LMSB is responsible for protecting the Statute of Limitations on the coal mine operator’s income tax return while its request for assistance is under consideration by TE/GE (EO).

  11. EO Examiners should be aware that the Specialist Referral System (SRS) which may be accessed from the TE/GE website homepage automates the referral request process for LMSB and other field Specialists. Examiners can generate a referral request online which will automatically notify the appropriate Field Specialist Manager of the request. The manager can then assign an Examiner to the case at his/her discretion


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