
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document affected by Public Law 107-16 Section 611(c)(1)]
[CITE: 26USC505]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter F--Exempt Organizations
 
                          PART I--GENERAL RULE
 
Sec. 505. Additional requirements for organizations described in 
        paragraph (9), (17), or (20) of section 501(c)
        

(a) Certain requirements must be met in the case of organizations 
        described in paragraph (9) or (20) of section 501(c)

       (1) Voluntary employees' beneficiary associations, etc.

        An organization described in paragraph (9) or (20) of subsection 
    (c) of section 501 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.

         (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.

(b) Nondiscrimination requirements

                           (1) In general

        Except as otherwise provided in this subsection, a plan meets 
    the requirements of this subsection only if--
            (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
            (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.

                 (2) Exclusion of certain employees

        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)).

    (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.

                        (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.

                  (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)).

                          (6) Compensation

        For purposes of this subsection, the term ``compensation'' has 
    the meaning given such term by section 414(s).

                       (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 $150,000. 
    The Secretary shall adjust the $150,000 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.

(c) Requirement that organization notify Secretary that it is applying 
        for tax-exempt status

                           (1) In general

        An organization shall not be treated as an organization 
    described in paragraph (9), (17), or (20) of section 501(c)--
            (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
            (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.

             (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; amended Pub. L. 99-514, title XI, Secs. 1114(b)(16), 
1151(e)(2)(B), (g)(6), (j)(3), title XVIII, Secs. 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, Secs. 203(a)(1), (2), 204(c), 
Nov. 8, 1989, 103 Stat. 830, 833; Pub. L. 103-66, title XIII, 
Sec. 13212(c), Aug. 10, 1993, 107 Stat. 472.)


                               Amendments

    1993--Subsec. (b)(7). Pub. L. 103-66 substituted ``Compensation 
limit'' for ``$200,000 compensation limit'' in heading and ``exceed 
$150,000. The Secretary shall adjust the $150,000 amount at the same 
time, and by the same amount, as any adjustment under section 
401(a)(17)(B).'' for ``exceed $200,000. The Secretary shall adjust the 
$200,000 amount at the same time and in the same manner as under section 
415(d).'' in text.
    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 1993 Amendment

    Amendment by Pub. L. 103-66 applicable, except as otherwise 
provided, to benefits accruing in plan years beginning after Dec. 31, 
1993, see section 13212(d) of Pub. L. 103-66, set out as a note under 
section 401 of this title.


                    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.''


                               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.


 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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 414, 419A, 4976 of this 
title.
