Reg. § 54.4977-1T Questions and answers relating to the election concerning lines of business in existence on January 1, 1984 (temporary).
The following questions and answers relate to the election by employers under section of the Internal Revenue Code of 1954, as added by section 531(e)(1) of the Tax Reform Act of 1984 (98 Stat. 886), to treat all employees of any line of business in existence on January 1, 1984, as employees of one of those lines of business for purposes of section (1) and (2):
Q-1: What does section provide with respect to the exclusion from gross income of certain fringe benefits?
A-1: In general, section provides an elective grandfather rule that allows an employer under certain circumstances to treat employees of all lines of business which were in existence on January 1, 1984, as employees of one of those lines of business for purposes of section (1) and (2), but not for purposes of section .
Q-2: Under what circumstances does the elective grandfather rule of section apply?
A-2: If:
(a) An election under section is in effect with respect to an employer for any calendar year, and
(b) On and after January 1, 1984, at least 85 percent of the employees of the employer in all of its lines of business which existed on January 1, 1984, were entitled to employee discounts or services provided by the employer in one line of business,
then all employees of any line of business of the employer which was in existence on January 1, 1984, are treated, for purposes of section (1) and (2) (but not for purposes of section ) as employees of the one line of business referred to in (b) of this Q/A-2.
Q-3: How does an employer make the election provided for in section ?
A-3: An employer must file a statement with the director of the service center with which the employer's tax returns are filed. The statement must indicate that the employer is electing to apply the provisions of section to one or more of the employer's lines of business and must contain the following information:
(a) The employer's name, address, and taxpayer identification number;
(b) A description of all of the employer's lines of business in existence on January 1, 1984; and
(c) For each lines of business which is to have as an employee for purposes of section (1) and (2) an individual but for the election under section would not be treated as an employee for purposes of section (1) and (2):
(1) A description of the no-additional-cost service or qualified employee discount (including, with respect to discounts, the percentage discount) to be offered to employees pursuant to section in such line of business, and
(2) With respect to employees in all of the employer's lines of business in existence on January 1, 1984, the number of such employees and the number entitled to the described fringe benefit. Such numbers may be determined as of a date which does not precede the date the election is filed by more than 30 days.
Q-4: In order to make a timely section election, when must an employer file the election statement?
A-4: Except as otherwise provided in the second sentence of this answer, the employer must file the election statement before the end of the calendar year preceding the year for which the election is to apply. For calendar year 1985, however, the employer has until March 31, 1985, to file the election statement. However, the Commissioner may, in his discretion, extend the March 31, 1985 deadline to a later date.
Q-5: Does section apply to all calendar years following the calendar year in which the election is made?
A-5: Yes, unless the employer revokes the election.
Q-6: When is a revocation effective?
A-6: A revocation is effective with respect to the calendar year following the calendar year in which it is filed.
Q-7: If an employer does not make a timely section election with respect to 1985, will the employer be entitled to make an election with respect to any subsequent year?
A-7: No.
Q-8: If an employer revokes a section election, is the employer entitled to elect the application of section for subsequent years?
A-8: No.
[T.D. 8004, 50 FR 758, Jan. 7, 1985]