Pension & Benefits News IRS provides guidance, makes requests concerning ESOP determination letter filings and DB opinion letter applications
Wednesday, September 2, 2020

IRS provides guidance, makes requests concerning ESOP determination letter filings and DB opinion letter applications

By Pension and Benefits Editorial Staff

The IRS has provided guidance for the third cycle determination letter filings for employee stock ownership plans (ESOPs) under IRS Announcement 2020-7. In addition, the IRS is making requests from submitters of applications for opinion letters for third six-year remedial amendment cycle pre-approved defined benefit plans under IRS Rev. Proc. 2020-10.

ESOP determination letter filings. Announcement 2020-7 opened the third cycle submission period for employers with eligible defined contribution (DC) plans to apply for a determination letter using Form 5307 starting August 1, 2020 through July 31, 2022. The IRS notes that the third DC cycle includes ESOPs for the first time.

The IRS explains that Form 5307 is being updated for the addition of ESOPs to the program, but the updated form will not be available for the start of the third cycle. Therefore, ESOP applications will be submitted on the current Form 5307, making the following adjustments. For the form, Question 5a should be marked “6” - profit sharing plan. For the cover letter, the letter should state:

  • the submission is for an ESOP,
  • if the plan sponsor is a S or C corporation, and
  • if there was a change to the corporate status (from S to C or C to S revocation/election). If there was a change, filers should provide the effective date of the change.

The IRS states that these adjustments are limited to ESOP applications submitted on the current Form 5307 until the revised Form 5307 is available. Providing the information above will minimize the need for follow up correspondence when reviewing applications on the current Form 5307, according to the IRS.

Pre-approved DB plans. In Rev. Proc. 2020-10, the IRS provides that the on-cycle submission period for providers to submit applications for opinion letters for pre-approved defined benefit plans begins on August 1, 2020 and ends on July 31, 2021.

The IRS asks that applications be submitted by thumb or flash drive instead of submitting large paper files. In addition, the IRS wants submitters to save the documents in Microsoft Word or Adobe Acrobat PDF format. The IRS strongly encourage submitters to take advantage of this electronic submission method. However, the IRS asks that paper checks and paper Form 8717-A be submitted for application fees.

The IRS is also requesting a redline copy of plan documents for changes made since the last cycle. The IRS says that this will assist in quicker reviews.

The IRS notes that the Cumulative List for the third cycle in IRS Notice 2020-14 will be the basis for the IRS review of third cycle submissions and that the List of Required Modifications (LRM) for defined benefit plans can be helpful in drafting plans.

If submitters have questions or concerns that cannot be answered from a review of Rev. Proc. 2017-41, the IRS advises contacting either Angelo Noe at [email protected], or Milo Atlas at [email protected].

Source: IRS Employee Plans News.

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