§ 1.414(r)-3 Separate line of business.
(a) General rule. A separate line of business is a line of business (as determined under § 1.414(r)-2) that is organized and operated separately from the remainder of the employer. Paragraph (b) of this section sets forth the rules for determining whether a line of business is organized and operated separately from the remainder of the employer. Paragraph (c) of this section provides certain supplementary rules necessary to apply the requirements of paragraph (b) of this section, as well as examples illustrating the application of those requirements. Paragraph (d) of this section provides an optional rule for lines of business that are vertically integrated.
(b) Separate organization and operation—(1) In general. A line of business is organized and operated separately from the remainder of the employer for a testing year only if it satisfies all the requirements of paragraphs (b)(2) through (b)(5) of this section for the testing year.
(2) Separate organizational unit. The line of business must be formally organized as a separate organizational unit or group of separate organizational units within the employer. For this purpose, an organizational unit is a corporation, partnership, division, or other unit having a similar degree of organizational formality. This requirement must be satisfied on every day of the testing year.
(3) Separate financial accountability. The line of business must be a separate profit center or group of separate profit centers within the employer. This requirement must be satisfied on every day of the testing year. In addition, the employer must maintain books and records that provide separate revenue and expense information that is used for internal planning and control with respect to each profit center comprising the line of business.
(4) Separate employee workforce. The line of business must have its own separate employee workforce. A line of business has its own separate workforce only if at least 90 percent of the employees who provide services to the line of business, and who are not substantial-service employees with respect to any other line of business, are substantial-service employees with respect to the line of business. See paragraph (c)(2) of this section to determine how the percentage in the preceding sentence is calculated for the testing year.
(5) Separate management. The line of business must have its own separate management. A line of business has its own separate management only if at least 80 percent of the employees who are top-paid employees with respect to the line of business are substantial-service employees with respect to the line of business. See paragraph (c)(3) of this section to determine how the percentage in the preceding sentence is calculated for the testing year.
(c) Supplementary rules—(1) In general. This paragraph (c) provides certain supplementary rules necessary to apply the requirements of paragraph (b) of this section, as well as examples illustrating the application of those requirements.
(2) Determination of separate employee workforce. The percentage in paragraph (b)(4) of this section is the fraction (expressed as a percentage)—
(i) The numerator of which is the number of substantial-service employees with respect to the line of business within the meaning of § 1.414(r)-11(b)(2); and
(ii) The denominator of which is the total number of employees who provide services to the line of business within the meaning of paragraph (c)(5) of this section and who are not substantial-service employees with respect to any other line of business.
(3) Determination of separate management. The percentage in paragraph (b)(5) of this section is the fraction (expressed as a percentage)—
(i) The numerator of which is the number of employees who are both top-paid employees and substantial-service employees with respect to the line of business within the meaning of § 1.414(r)-11(b)(3) and (2), respectively; and
(ii) The denominator of which is the total number of top-paid employees with respect to the line of business within the meaning of § 1.414(r)-11(b)(3).
(4) Employees taken into account. For purposes of applying this paragraph (c), only employees who are employees on the first testing day are taken into account. For this purpose, there are no excludable employees except nonresident aliens described in section 410(b)(3)(C). Consequently, all other employees who are employees on the first testing day are taken into account, including collectively bargained employees. For the definition of first testing day, see § 1.414(r)-11(b)(7).
(5) Services taken into account—(i) Provision of services to a line of business. An employee provides services to a line of business if more than a negligible portion of the employee's services contributes to providing the property or services provided by the line of business to customers of the employer. All of the services of each employee who provides services to the employer contribute, whether directly or indirectly, to the provision of property or services to customers of the employer, and therefore each employee who provides services to the employer must be treated as providing more than a negligible portion of the employee's services to one or more lines of business operated by the employer.
(ii) Period for which services are provided. Only services performed by an employee during the testing year that contribute to providing the property or services provided by a line of business to customers are taken into account. An employee's services during the testing year are considered to contribute to providing the property or services provided by a line of business to customers of the employer if—
(A) The employee's services during the testing year contribute to providing such property or services to customers of the employer during the testing year; or
(B) It is reasonably anticipated that the employee's services during the testing year will contribute to providing such property and services to customers of the employer after the close of the testing year.
(iii) Optional rule for employees who change status—(A) In general. Solely for purposes of the separateness rules of this section and the assignment rules of § 1.414(r)-7, if an employee changes status as described in paragraph (c)(5)(iii)(B) of this section, an employer may, for up to three consecutive testing years after the base year (within the meaning of paragraph (c)(5)(iii)(B) (1) or (2) of this section), treat the employee as providing the same level of service to its lines of business as the employee provided in the base year.
(B) Change in employee's status. An employee changes status as described in this paragraph (c)(5)(iii)(B) if—
(1) For a testing year (the base year), the employee was a substantial-service employee with respect to a qualified separate line of business of the employer (prior line of business) and, for the immediately succeeding testing year, the employee is not a substantial-service employee with respect to that prior line of business; or
(2) For a testing year (the base year), the employee was a residual shared employee and, for the immediately succeeding testing year, the employee is a substantial-service employee with respect to a qualified separate line of business.
(6) Examples of the separate employee workforce requirement. The following examples illustrate the application of the separate employee workforce requirement in paragraph (b)(4) of this section and the supplementary rules of this paragraph (c). Unless otherwise specified, it is assumed that the employees and their services described in these examples are taken into account under paragraphs (c) (4) and (5) of this section for the testing year and that the employer does not use the option under § 1.414(r)-11(b)(2) to treat employees who provide less than 75 percent of their services to a line of business as substantial-service employees with respect to the line of business.
Example 1.
Employer A operates three
lines of business as determined under
§ 1.414(r)-2. One of
Employer A's
lines of business manufactures and sells tires and
other automotive
products.
Employee M is a tire press operator in
Employer A's tire factory.
Employee N is
the manager of
the tire factory. Under these
facts,
the services of
Employees M and N contribute to providing tires to
customers of
Employer A. Both
employees therefore provide services to
Employer A's tire and automotive
products line of
business within
the meaning of
paragraph (c)(5) of this section.
Example 2.
The facts are
the same as in
Example 1. In
addition, none of
the services of
Employees M and N that contribute to providing
property or services to
customers contribute to providing any
property or
service other than tires to
customers of
Employer A. Under these
facts,
Employees M and N provide at least 75 percent of their respective services to
Employer A's tire and automotive
products line of
business. Therefore
Employees M and N are substantial-service
employees with respect to
Employer A's tire and automotive
products line of
business within
the meaning of
§ 1.414(r)-11(b)(2), and do not provide any
services within
the meaning of
paragraph (c)(5) of this section to any of
Employer A's
other lines of business. Moreover, because
Employees M and N provide at least 75 percent of their services to
Employer A's tire and automotive
products line of
business and are substantial-service
employees with respect to that line, they are disregarded in applying
paragraph (b)(4) of this section to any
other line of
business, even if they provide services to
the other line.
Example 3.
The facts are
the same as in
Example 2. Employer A's second line of
business manufactures and sells construction machinery, and
Employer A's third line of
business manufactures and sells agricultural equipment. As part of these
lines of business,
Employer A operates a construction machinery factory and an agricultural equipment factory on
the same site as
the tire factory described in
Example 2. Employer A's
facilities at
the site include a health clinic and a fitness center that serve
the employees of
the construction machinery factory,
the agricultural equipment factory, and
the tire factory.
Employee O is a nurse in
the health clinic, and
Employee P is a fitness instructor in
the fitness center. Both
employees therefore provide
services within
the meaning of
paragraph (c)(5) of this section to
Employer A's tire and automotive
products line of
business, construction machinery line of
business, and agricultural equipment line of
business. In
addition, under these
facts,
Employer A determines that approximately 33 percent of
the services of
Employees O and P are provided to each of
Employer A's three
lines of business. As a
result, neither
Employee O or P provide at least 75 percent of their respective services to any of
Employer A's
lines of business. Therefore,
Employees O and P are not substantial-service
employees with respect to any of
Employer A's three
lines of business within
the meaning of § 1.414(r)-11(b)(2).
Example 4.
The facts are
the same as in
Example 3. Employee Q is
the president and chief executive
officer of
Employer A and is responsible for reviewing
the performance of all
Employer A's
lines of business. Under these
facts,
the services of
Employee Q contributes to providing
property and services to
customers of each of
Employer A's three
lines of business.
Employee Q therefore provides services to each of these three
lines of business.
Employer A determines that
Employee Q provides
the following percentages of his services to
Employer A's three
lines of business: tire and automotive
products—40 percent; construction machinery—40 percent, and agricultural equipment—20 percent.
Employee Q does not provide at least 75 percent of his services to any of
Employer A's
lines of business. Therefore,
Employee Q is not a
substantial-service employee with respect to any of
Employer A's three
lines of business within
the meaning of
§ 1.414(r)-11(b)(2).
Example 5.
The facts are
the same as in
Example 4, except that
Employer A also owns 75 percent of
Corporation X.
Corporation X is not treated as part of
Employer A within
the meaning of
§ 1.410(b)-9.
Employee R is an accountant in
the accounting department of
Employer A.
Employee R devotes all of his time to maintaining
the accounting
books and records of
the tire and automotive
products line of
business of
Employer A and
the accounting
books and records of
Corporation X.
Employer A determines that
Employee R provides 40 percent of his
services directly to
the tire and automotive
products line of
business.
Employer A also determines that
Employee R provides
the following percentages of
the remainder of
Employee R's
services (
i.e., his provision of
services of maintaining
the accounting
books and records of
Corporation X) indirectly to
Employer A's three
lines of business by virtue of
the services he provides to
Corporation X: tire and automotive
products—25 percent; construction machinery—20 percent, and agricultural equipment—15 percent. Therefore,
Employee R provides 65 percent of his services to
the tire and automotive
products line of
business of
Employer A (
i.e., 40 percent directly and 25 percent
indirectly). Under
the definition of
substantial-service employee in
§ 1.414(r)-11(b)(2),
Employer A may treat
Employee R as a
substantial-service employee with respect to
the tire and automotive
products line of
business because
Employee R provides at least 50 percent of his services to that line. In that case,
Employee R would be disregarded in applying
paragraph (b)(4) of this section to
the construction machinery and agricultural equipment
lines of business.
Example 6.
The facts are
the same as in
Example 5. Employee S is a lawyer in
the legal department located at
the headquarters who devotes all her time to
product liability suits filed against
the construction machinery line of
business. Under these
facts,
the services of
Employee S contribute to providing
property and services to
customers of
Employer A in
the construction machinery line of
business, and therefore
Employee S provides services to that line of
business. Because
Employee S's
services do not contribute to providing
property or
services in any
other of
Employer A's
lines of business within
the meaning of
paragraph (c)(5) of this section,
Employee S provides
more than 75 percent of her services to
the construction machinery line of
business and therefore is a
substantial-service employee with respect to
Employer A's construction machinery line of
business within
the meaning of § 1.414(r)-11(b)(2).
Example 7.
The facts are
the same as in
Example 6. Employer A also maintains a
separate facility that houses a centralized procurement, marketing, and billing operation for all of its
lines of business. None of
the procurement, marketing, or billing
employees specializes in any particular line of
business. Under these
facts,
the services of
the procurement, marketing, and billing
employees contribute to providing
property and services to
customers of
Employer A in each of
Employer A's three
lines of business.
Employer A determines that each of
the procurement, marketing, and billing
employees provides approximately an equal proportion of their services to each of
Employer A's three
lines of business. These
employees therefore provide services to all of
Employer A's
lines of business within
the meaning of
paragraph (c)(5) of this section. However, none of them provides at least 75 percent of his services to any line of
business. Therefore, these
employees are not substantial-service
employees with respect to any of
Employer A's three
lines of business within
the meaning of § 1.414(r)-11(b)(2).
Example 8.
The facts are
the same as in
Example 7. Employee T works for
the construction machinery line of
business. During
the testing year, he is temporarily detailed to
the agricultural equipment line of
business. His temporary detail lasts for one week, after which he returns to his regular duties with
the construction machinery line of
business. Under these
facts,
Employee T does not provide
more than a negligible portion of his
services during
the testing year to
the agricultural equipment line of
business. Accordingly,
Employee T does not provide services to
the agricultural equipment line of
business within
the meaning of
paragraph (c)(5) of this section. In
addition, because
Employee T provides at least 75 percent of his services to
the construction machinery line of
business,
Employee T is a
substantial-service employee with respect to
Employer A's agricultural equipment line of
business within
the meaning of § 1.414(r)-11(b)(2).
Example 9.
The facts are
the same as in
Example 8, except that, during
the testing year but before
the first testing day,
Employee T retires from
employment with
Employer A. Under
paragraph (c)(5)(ii) of this section,
Employee T is not taken into
account in determining whether
Employer A's construction machinery line of
business has its own separate
employee workforce within
the meaning of
paragraph (b)(4) of this section.
Example 10.
Employer B is a multinational
controlled group of corporations that engages in
the exploration,
production, refining, and marketing of
petrochemical products.
Employer B operates
two lines of business as determined under
§ 1.414(r)-2.
The first line of
business (
the “exploration,
production, and refining line of
business”) provides lubricating
oil, gasoline, and
other petrochemical products to wholesale
customers of
Employer B as well as to
the second line of
business.
The wholesale
customers of
Employer B include independent jobbers, independent franchisees that operate retail filling stations under
Employer B's trademark and tradename, as well as chemical and plastics
manufacturers.
The second line of
business (
the “retail marketing line of
business”) provides lubricating
oil and gasoline products to
retail customers of
Employer B through filling stations owned and operated by
Employer B.
Employee U is an attendant at a filling station owned and operated by
Employer B.
Employee U performs no
other services for
Employer B, Under these
facts,
Employee U provides at least 75 percent of his services to
Employer B's retail marketing line of
business and therefore is a
substantial-service employee with respect to that line of
business within
the meaning of
§ 1.414(r)-11(b)(2), and does not provide any
services within
the meaning of
paragraph (c)(5) of this section to any of
Employer B's
other lines of business.
Example 11.
The facts are
the same as in
Example 10. Employer B operates a refinery that produces lubricating
oil, gasoline, and
other petrochemical products.
Employee V is an operating engineer at
the refinery who is involved at a stage in
the refining
process before lubricating
oil and gasoline
products have been separated from
other types of
petrochemical products.
Employee V performs no
other services for
Employer B. Under these
facts,
Employee V's
services contribute to providing
property and services to
customers of
Employer B in both
the exploration,
production, and refining line of
business and
the retail marketing line of
business.
Employee V therefore provides services to both
lines of business within
the meaning of
paragraph (c)(5) of this section. See
paragraph (d) of this section, however, for an
optional rule for vertically integrated
lines of business.
Example 12.
The facts are
the same as in
Example 11. Employee W is a petroleum engineer who conducts geological studies of potential future drilling sites. Although
Employee W's
services during
the testing year will not contribute to providing lubricating
oil, gasoline, and
other petrochemical products to
customers of
Employer B during
the testing year, it is reasonably anticipated (in accordance with
paragraph (c)(5)(ii)(B) of this section) that her
services during
the testing year will contribute to providing such products to
customers of
Employer B after
the close of
the testing year. Under these
facts,
Employee W provides her services to both of
Employer B's
lines of business within
the meaning of
paragraph (c)(5) of this section.
(7) Examples of the separate management requirement. The following examples illustrate the application of the separate management requirement in paragraph (b)(5) of this section and the supplementary rules of this paragraph (c). Unless otherwise specified, it is assumed that employees who provide services to a line of business are not substantial-service employees with respect to any other line of business and that, in determining the top-paid employees with respect to a line of business, the employer is using the option under § 1.414(r)-11(b)(3) to disregard all employees who provide less than 25 percent of their services to that line of business.
Example 1.
(a) Employer C operates three
lines of business as determined under
§ 1.414(r)-2. One of its
lines of business is
the operation of a chain of athletic equipment and apparel stores. Of
Employer C's total workforce, 12,000
employees provide
more than a negligible
amount of
the services they provide to
Employer C to
the athletic equipment and apparel stores line of
business, within
the meaning of
paragraph (c)(5) of this section. Of
the 1,200
employees who constitute
the top ten percent by
compensation of those 12,000
employees, 930 are substantial-service
employees with respect to that line of
business. Because 930 is 77.5 percent of 1,200, less than 80 percent of
the top-paid
employees with respect to
the line of
business are substantial-service
employees with respect to that line of
business. Therefore,
Employer C's athletic equipment and apparel stores line of
business does not have its own separate management under
paragraph (b)(5) of this section.
(b) Assume that, in determining the top-paid employees with respect to the athletic equipment and apparel stores line of business, Employer C chooses to disregard all employees who provide less than 25 percent of their services to the line of business as permitted under the definition in § 1.414(r)-11(b)(3). Of the 12,000 employees who provide more than a negligible amount of their services to the athletic equipment and apparel stores line of business, 10,000 provide at least 25 percent of their services to that line. Of the 1,000 employees who constitute the top ten percent by compensation of those 10,000 employees, 930 are substantial-service employees with respect to the athletic equipment and apparel stores line of business. Because 930 is 93 percent of 1,000, at least 80 percent of the top-paid employees with respect to the line of business are substantial-service employees with respect to that line of business. Therefore, Employer C's athletic equipment and apparel stores line of business has its own separate management and satisfies the requirement of paragraph (b)(5) of this section.
Example 2.
The facts are
the same as in
Example 1. Employee X is a
vice president of
the accounting department located at
the headquarters, who devotes all of his time supervising
the staff of
Employer C's accounting department.
Employer C determines that 10 percent of
Employee X's
services contribute to providing
property and services to
customers of
Employer C's athletic equipment and apparel stores line of
business and 45 percent of
Employee X's
services contribute to providing
property and services to customers to each of
Employer C's
other two lines of business. Because
Employee X does not provide at least 25 percent of his services to
Employer C's athletic equipment and apparel stores line of
business,
Employee X is not one of
the 10,000
employees described in
Example 1 and therefore cannot be a
top-paid employee within
the meaning of
§ 1.414(r)-11(b)(3) with respect to
the athletic equipment and apparel stores line of
business. Therefore,
Employee X is not taken into
account in determining whether
the athletic equipment and apparel stores line of
business satisfies
the separate management
requirement of
paragraph (b)(5) of this section.
Example 3.
The facts are
the same as in
Example 2 except that
Employee X provides 60 percent of his services to
Employer C's second line of
business, an athletic equipment factory, and 30 percent of his service to
Employer C's third line of
business, a fast-food chain. Because
Employee X provides at least 50 percent of his services to
the athletic equipment factory line of
business,
Employer C chooses to treat him as a substantial-
service employee with respect to that line of
business, as permitted under
§ 1.414(r)-11(b)(2). Thus,
Employee X is taken into
account as a
substantial-service employee with respect to
the athletic equipment factory line of
business and is disregarded in applying
the separate workforce and separate management
requirements under paragraphs (b) (4) and (5) to
the fast-food chain line of
business.
Example 4.
Employer D operates four
lines of business as determined under
§ 1.414(r)-2. One of its
lines of business is a machine tool shop. Sixty of
Employer D's
employees provide at least 25 percent of their services to
the machine tool shop line of
business. Of
the six
employees who constitute
the top 10 percent by
compensation of those 60
employees, four are substantial-service
employees with respect to
the line of
business. Because four is 67 percent of six, 80 percent of
the top-paid
employees with respect to
the machine tool shop line of
business are not substantial-service
employees with respect to that line of
business. Therefore
the machine tool shop line of
business does not satisfy
the separate management
requirement of
paragraph (b)(5) of this section.
Example 5.
The facts are
the same as in
Example 4, except that, in
addition, another of
Employer D's
lines of business is an automotive repair shop, and 80 of
Employer D's
employees provide at least 25 percent of their services to that line of
business.
Employer D combines
the machine shop line of
business with
the automotive repair shop line of
business and treats them as a single line of
business. As a
result,
Employer D has three
lines of business as determined under
§ 1.414(r)-2. Assume that 150 of
Employer D's
employees provide
more than 25 percent of their services to
the machine tool shop/automotive repair shop line of
business within
the meaning of
paragraph (c)(5) of this section. Of
the 15
employees who constitute
the top 10 percent by
compensation of these 150
employees, 12 are substantial-service
employees with respect to that line of
business. Because 12 is 80 percent of 15, at least 80 percent of
the top-paid
employees with respect to
the machine tool shop/automotive repair shop line of
business are substantial-service
employees with respect to that line of
business. Therefore,
the machine tool shop/automotive repair shop line of
business satisfies
the separate management
requirement of
paragraph (b)(5) of this section.
(d) Optional rule for vertically integrated lines of business—(1) In general. If two lines of business satisfy the requirements of this paragraph (d) with respect to a type of property or service for a testing year, the employer is permitted to apply the optional rule in this paragraph (d) for the testing year.
(2) Requirements. Two lines of business satisfy the requirements of this paragraph (d) with respect to a type of property or service only if—
(i) One of the lines of business (the upstream line of business) provides a type of property or service to the other line of business (the downstream line of business);
(ii) The downstream line of business either—
(A) Uses, consumes, or substantially modifies the property or service in the course of itself providing property or services to customers of the employer; or
(B) Provides the same property or service to customers of the employer at a different level in the chain of commercial distribution from the upstream line of business (e.g., retail versus wholesale); and
(iii) The upstream line of business either—
(A) Provides the same type of property or service to customers of the employer, and at least 25 percent of the total number of units of the same type of property or service provided by the upstream line of business to all persons (including customers of the employer, the downstream line of business, and all other lines of business of the employer) are provided to customers of the employer by the upstream line of business, when measured on a uniform basis; or
(B) Provides to the downstream line of business property consisting primarily of a type of tangible property (i.e., goods, not services) that it produces or manufactures, and some entities outside the employer's controlled group that are engaged in a similar business as the upstream line of business provide the same type of tangible property to unrelated customers (i.e., customers outside those entities' respective controlled groups).
(3) Optional rule—(i) Treatment of employees. For purposes of determining the lines of business to which an employee provides services under paragraph (c)(5) of this section, an employee is not treated as providing services to the downstream line of business if—
(A) The employee is considered to provide services to the downstream line of business under paragraph (c)(5) of this section (applied without regard to the optional rule in this paragraph (d)); and
(B) The employee is so considered solely because the employee's services contribute to providing the property or service from the upstream line of business to the downstream line of business.
(ii) Purposes for which optional rule applies. If an employee applies the optional rule in this paragraph (d), the treatment specified in paragraphs (d)(3)(i) (A) and (B) of this section applies for all the following purposes and only for the following purposes—
(A) The separate employee workforce and separate management requirements of paragraphs (b)(4) and (b)(5) of this section;
(B) The 50-employee requirement of § 1.414(r)-4(b); and
(C) The determination of the employees of a qualified separate line of business under § 1.414(r)-7.
(4) Examples. The following examples illustrate the application of the optional rule in this paragraph (d).
Example 1.
Employer E operates
two lines of business as determined under
§ 1.414(r)-2, one engaged in upholstery textile
manufacturing and
the other in furniture
manufacturing. During
the testing year,
the upholstery textile line of
business provides its entire output of upholstery textiles to
the furniture line of
business.
The furniture line of
business uses
the upholstery textiles in
the manufacture of upholstered furniture
for sale to
customers of
Employer E.
The furniture line of
business thus substantially modifies
the upholstery textiles provided to it by
the upholstery textile line of
business in providing upholstered furniture products to
customers of
Employer E. In
addition, although
the upholstery textile line of
business does not provide upholstery textiles to
customers of
Employer E, some
entities engaged in upholstery textile
manufacturing provide upholstery textiles to
customers outside their
controlled groups. Under these
facts,
Employer E's
two lines of business satisfy
the requirements of this paragraph (d) with respect to upholstery textiles for
the testing year.
Example 2.
Employer B is a multinational
controlled group of corporations that engages in
the exploration,
production, refining, and marketing of
petrochemical products. See
Example 10 under
paragraph (c)(7) of this section.
Employer B operates
two lines of business as determined under § 1.414(r)-(2).
The first line of
business (“
the exploration,
production, and refining line of
business”) provides lubricating
oil, gasoline, and
other petrochemical products to wholesale
customers of
Employee B as well as
the second line of
business.
The wholesale
customers of
Employee B include independent jobbers, independent franchisees that operate retail filling stations under
Employee B's trademark and tradename, as well as chemical and plastics
manufacturers.
The second line of
business (
the “retail marketing line of
business”) provides lubricating
oil and gasoline products to
retail customers of
Employee B through filing stations owned and operated by
Employee B. During
the testing year,
the exploration,
production and refining line of
business provides 25,000 gallons of lubricating
oil, 100,000 gallons of unleaded and 150,000 gallons of leaded gasoline to
the retail marketing line of
business, and 75,000 gallons of lubricating
oil, 500,000 gallons of unleaded gasoline and 15,000 gallons of leaded gasoline to wholesale
customers of
Employer B. Thus,
the exploration,
production, and refining line of
business provides 75 percent of its output of lubricating
oil during
the testing year to wholesale
customers of
Employer B. In
addition, because unleaded and leaded gasoline is
the same type of
property (
i.e., gasoline),
the exploration,
production, and refining line of
business provides 67 percent of its output of gasoline
products during
the testing year to wholesale
customers of
Employer B. Furthermore,
the retail line of
business provides lubricating
oil and gasoline products to
customers of
Employer B at different levels in
the chain of commercial
distribution than
the exploration,
production, and refining line of
business. Under these
facts,
Employer B's
two lines of business satisfy
the requirements of this paragraph (d) with respect to both lubricating
oil and gasoline
products for
the testing year.
Example 3.
The facts are
the same as in
Example 2. Employer B operates a refinery that produces lubricating
oil, gasoline, and
other petrochemical products.
Employee V is an operating engineer at
the refinery who is involved at a stage in
the refining
process before lubricating
oil and gasoline
products have been separated from
other types of
petrochemical products.
Employee V performs no
other services for
Employer B. Absent application of
the optional rule in this paragraph (d),
Employee V would be considered to provide services to both of
Employer B's
lines of business. See
Example 11 under
paragraph (c)(7) of this section. However, because
Employee V's services to
the retail marketing line of
business contribute solely to providing lubricating
oil and gasoline
products from
the exploration,
production, and refining line of business to
the retail marketing line of
business, under
the optional rule in paragraph (d)(3)(i) of this section
Employee V is not treated as providing services to
the retail marketing line of
business.
Example 4.
The facts are the same as in Example 3. Employee W is a petroleum engineer who conducts geological studies of potential future drilling sites. Employee W performs no other services for Employer B. Absent application of the optional rule in this paragraph (d), Employee W would be considered to provide services to both of Employer B's lines of business. See Example 12 under paragraph (c)(7) of this Section. However, because Employee W's services to the retail marketing line of business contribute solely to providing lubricating oil and gasoline products from the exploration, production, and refining line of business to the retail marketing line of business, under the optional rule in paragraph (d)(3)(i) of this section Employee W is not treated as providing services to the retail marketing line of business.
Example 5.
The facts are
the same as in
Example 4. Employee Y is a
vice president in
Employer B's home office. As part of his senior management responsibilities,
Employee Y helps to set
the rate of
production at
Employer B's refineries in
the United States and also helps to set
the price charged at
the pump at
the retail filling stations owned and operated by
Employer B in this country. Absent application of
the optional rule in this paragraph (d),
Employee X would be considered to provide services to both of
Employer B's
lines of business within
the meaning of
paragraph (c)(5) of this section for purposes of satisfying
the separate workforce
requirement of
paragraph (b)(4) of this section. Because
Employee X helps to set
the price charged at
the pump by
Employer B's retail marketing line of
business,
Employee X's services to
the retail marketing line of
business are not limited to contributing solely to providing lubricating
oil and gasoline
products from
the exploration,
production, and refining line of business to
the retail marketing line of
business, as required under paragraph (d)(3)(i)(B) of this section. Accordingly, even though
Employer B's
two lines of business satisfy
the requirements of this paragraph (d) with respect to both lubricating
oil and gasoline
products for
the testing year, and even though
Employer B applies
the optional rule in this paragraph (d),
Employee X is still considered to provide services to both of
Employer B's
lines of business.
