[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR54.4977-1T]

[Page 275-276]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 54_PENSION EXCISE TAXES--Table of Contents
 
Sec.  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 4977 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 132(a) (1) and (2):
    Q-1: What does section 4977 provide with respect to the exclusion 
from gross income of certain fringe benefits?
    A-1: In general, section 4977 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

[[Page 276]]

of one of those lines of business for purposes of section 132(a) (1) and 
(2), but not for purposes of section 132(g)(2).
    Q-2: Under what circumstances does the elective grandfather rule of 
section 4977 apply?
    A-2: If:
    (a) An election under section 4977 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 
132(a) (1) and (2) (but not for purposes of section 132(g)(2)) 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 
4977?
    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 4977 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 132(a) (1) and (2) an individual but for the 
election under section 4977 would not be treated as an employee for 
purposes of section 132(a) (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 4977 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 4977 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 4977 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 4977 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 4977 election, is the employer 
entitled to elect the application of section 4977 for subsequent years?
    A-8: No.

[T.D. 8004, 50 FR 758, Jan. 7, 1985]