The IRS has issued two revenue rulings as follows:
Revenue Ruling 2003-70 answers two questions in the COBRA arena:
1. If, as a result of a transfer of stock, two previously separate employers are treated as a single employer for purposes of COBRA, how is the number of employees who were employed by the combined entity during the preceding calendar year determined for purposes of applying to the combined entity the small employer plan exception under COBRA (fewer than 20 employees during the preceding calendar year)? Answer: The group health plan maintained by the combined entity ceases to be excepted from COBRA as a small-employer plan as of the date of the stock transfer.2. If one employer acquires substantial assets (such as a plant or division or substantially all the assets of a trade or business) of another employer, when are the employees associated with the acquired assets taken into account for purposes of applying the small employer plan exception to the acquiring employer? Answer: The group health plan maintained by the acquiring company continues to be excepted from COBRA as a small-employer plan for at least the remainder of the year of the asset acquisition.
Revenue Ruling 2003-85 answers the following question:
If a defined benefit plan is terminated, and an amount in excess of 25 percent of the maximum amount otherwise available for reversion is transferred from the terminating defined benefit plan to a defined contribution plan, what is the tax treatment of the amount transferred to the defined contribution plan and of any reversion to the employer from the terminating defined benefit plan? Answer: The direct transfer from Plan A to Plan B of $20X, an amount that is at least 25 percent of the maximum amount which the employer could receive as an employer reversion, is treated as follows: the amount transferred is not includible in the gross income of the employer, no deduction is allowable with respect to the amount transferred, and the amount transferred is not treated as an employer reversion for purposes of § 4980. The $40X that the employer receives is subject to the 20 percent excise tax under § 4980(a) and is includible in income under § 61.