Rev. Rul. 89-49

1989-1 C.B. 117, 1989-15 I.R.B. 10.

                       Internal Revenue Service

                                 Revenue Ruling

                   GOVERNMENTAL PLAN; VOLUNTEER FIRE COMPANY

                           Published: April 10, 1989

Section 414. - Definition and Special Rules

  Governmental plan; volunteer fire company. A retirement plan maintained by an organization is not a governmental plan within the meaning of section 414(d) of the Code since the governmental unit did not have sufficient control over the organization.

ISSUE

  Is a retirement plan, adopted under the circumstances described below, a governmental plan within the meaning of section 414(d) of the Internal Revenue Code?

FACTS

  The citizens of a municipality in State X organized a volunteer fire company to provide fire protection services to their community. The company was incorporated under State X's nonprofit corporation statute. Under its charter, the company is managed by a board of trustees elected by the volunteer firefighters. The company entered into contracts with several municipalities, including the municipality where it was created, under which the company agreed to provide fire protection services to the municipalities. Under the contracts, the municipalities agreed that the operations of the company would be under the exclusive control of the board of trustees. The funds for the company are provided in part by community donations from the residents of the municipalities served by the company and in part by payments made by municipalities under the contracts with the company. In May 1989, the company established a retirement plan for its employees. The municipalities do not make any direct contributions to the retirement plan. The employees were never treated by State X as employees of the state or a political subdivision thereof.

LAW AND ANALYSIS

  Section 414(d) of the Code provides that a governmental plan means a plan established and maintained for its employees by the Government of the United States, by the government of any state or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.

  A plan will not be considered a governmental plan merely because the sponsoring organization has a relationship with a governmental unit or some quasi-governmental power. One of the most important factors to be considered in determining whether an organization is an agency or instrumentality of the United States or any state or political subdivision is the degree of control that the federal or state government has over the organization's everyday operations. Other factors include: (1) whether there is specific legislation creating the organization; (2) the source of funds for the organization; (3) the manner in which the organization's trustees or operating board are selected; and (4) whether the applicable governmental unit considers the employees of the organization to be employees of the applicable governmental unit. Although all of the above factors are considered in determining whether an organization is an agency of a government, the mere satisfaction of one or all of the factors is not necessarily determinative.

  In this case, the degree of control which the municipalities exert over the fire company in its everyday operations is minimal. Although the company was incorporated under a nonprofit corporations statute, there was no specific legislation which affiliated the company with the state. Further, the company's expenses are, in part, paid by the community donations. In addition, the board of trustees which controls the company's basic operations is elected by the volunteer firefighters. Finally, State X has not treated the company's employees as employees of the state or political subdivision thereof.

HOLDING

  The retirement plan in this case is not a governmental plan within the meaning of section 414(d) of the Code.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Michael Rubin of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue ruling, call the Employee Plans Technical and Actuarial taxpayer assistance telephone service between 1:30 and 4:00 p.m. Eastern time, Monday through Friday, on (202) 566-6783 (not a toll-free call). Mr. Rubin's telephone number is (202) 343-0729.

Rev. Rul. 89-49, 1989-1 C.B. 117, 1989-15 I.R.B. 10.