Rev. Rul. 55-81

Advice has been requested whether a pension plan of an employer for the benefit of his employees will meet the requirements of section 165(a) of the Internal Revenue Code of 1939 if it covers only the employer's one employee.

An employer provides a pension plan for the benefit of his employees at a time when he has but one employee. The pension plan otherwise meets all the requirements of section 165(a) of the Code and the one employee is covered by the plan. Provision for the coverage of additional employees is made in the plan when, and if, they are later employed.

Section 165(a) of the Code refers to a plan of an employer for the exclusive benefit of his employees. Other references in the Code and Regulations 118 pertaining thereto, concerning employees' trusts, are with regard to `employees.' This is not considered significant. To attribute such significance to that section of the Code, so as to preclude the establishment by an employer of a plan for his one employee, would be placing a strained interpretation upon those parts of section 165(a) which refer to `employees.'

It should be observed, however, that section 39.165-1(a)(4) of Regulations 118 provides in part that if a plan is so designed as to amount to a subterfuge for the distribution of profits to shareholders, even if other employees who are not shareholders are included under the plan, it will not qualify as a plan for the exclusive benefit of employees. All of the surrounding and attendant circumstances and the details of the plan will be indicative of whether it is a bona fide stock bonus, pension, or profit-sharing plan for the exclusive benefit of employees in general. The law is concerned not so much with the form of any plan as it is with its effects in operation. If, therefore, a plan covering only one employee at a particular time is not designed, or is not operated, as a means of siphoning profits to a shareholder-employee, or otherwise limiting participation to an employee within the enumerations with respect to which discrimination is prohibited, it may satisfy the requirement that it be for the exclusive benefit of employees in general.

Accordingly, it is held that where a pension plan meets all other requirements of section 165(a) of the Code, the mere fact that it covers, at a particular time, only the employer's one employee will not, for that reason alone, cause the plan to fail of qualification under that section