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Responding to the request of a Framingham, Mass., attorney, the Internal Revenue Service (IRS) reversed its long-standing position preventing hotel management companies from letting workers take their 401(k) accounts with them when there is a change of management, but the employees work the same job. Employee-benefits attorneys in Massachusetts say that although the IRS decision, known as a “private letter ruling,” is specific to the hotel that petitioned the IRS, it has broad implications for the hotel industry and others that have a transfer of service providers. “This is an important ruling for hotel companies,” said Thomas R. Kolb, of Kolb & Associates in Framingham, who petitioned the IRS. “The people at these companies who run their 401(k) plans have wanted this to happen for a long time.” Kolb was not allowed by his client to identify the hotel chain. The IRS is also not releasing the name of the hotel at this time. LONG HELD VIEW The IRS had long held the position that hotel workers should not be allowed to roll over their 401(k) accounts to a new employer’s plan when they remained at the same job at the same hotel despite a change of management. Known as the “same desk rule,” the IRS position was based on its interpretation of a tax code provision that prevented 401(k) payouts in a variety of business transactions, including mergers and acquisitions, Kolb said. Boston lawyer Brenda G. Levy, a member of the Boston Bar Association’s Tax Section, said the ruling could potentially have a broad effect beyond the hotel industry. “Many people who work in this area say ‘goodbye and good riddance’ to the old rule,” Levy said. “Our most fervent hope is that there will be some clear set of [IRS] guidelines on this issue.” Employee-benefits attorney Carol C. Brown of Boston said the hotel decision is “consistent with the new IRS view” of employee benefits, noting that the agency has issued a “rash of private letter rulings” allowing distributions of 401(k) plans. “The IRS seems to be taking a fresh look at the same desk rule,” she said. HUNDREDS BENEFIT According to Kolb, an estimated $23 million in pension assets will be made immediately available for withdrawal or rollover by hundreds of workers at just the seven hotels involved in the ruling. Kolb fist applied to the IRS for a change to the rule in January 1997. His request, however, was denied in December of that year. Still determined to persuade the IRS to change its position, he applied again this year and successfully argued to IRS officials in Washington, D.C., that they had been too strict in interpreting the tax law and their own prior rulings on the subject. According to David Wray, president of Chicago-based industry group Profit Sharing/401(k) Council of America, an estimated 34 million workers are covered by 401(k) plans nationally, with an aggregate of $1.7 trillion in assets in those plans. If even a small fraction of that money has been affected by the same desk rule in the past, however, it could amount to hundreds of millions of dollars in retirement assets, he said.

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