Pension & Benefits News IRS requires validly executed plan document for proof of qualified plan adoption
Wednesday, February 26, 2020

IRS requires validly executed plan document for proof of qualified plan adoption

By Pension and Benefits Editorial Staff

The IRS has advised that for a qualified plan to be validly adopted, a proof of adoption of the plan must be provided, despite the ruling by the Tax Court in Val Lanes Recreation Center v. Commissioner (115 TCM 1517, Dec. 61,202(M), TC Memo. 2018-92).

In Val Lanes, the Tax Court had found that the IRS had abused its discretion by revoking the Code Sec. 401(a) qualification of the plan. The court found that, despite the lack of a signed restated plan in the record, there was credible evidence that the restated plan and amendments were adopted. The court based its decision in part on the “the credible explanation as to the absence of executed copies in the record.” The court noted the flooding of the employer’s premises and the seizure of the accountant’s computers by the Department of Labor and the IRS in a separate matter supported the credibility that it was uncertain whether the “purported administrative record contained all documents related to the petitioner.”

The IRS noted that, in order for a qualified plan to be validly adopted, the plan document needs to be signed by the employer or someone authorized by the employer to sign the document. The existence of a written plan document which is communicated to the employees is a core requirement for determining the qualification of a plan, according to the IRS. Pursuant to Code Sec. 6001, a signed copy of the plan document needs to be retained by the employer or its authorized agents.

According to the IRS, concerns have been raised that taxpayers might argue that Val Lanes supports the proposition that a taxpayer may attempt to meet the taxpayer’s burden to have an executed plan document based on the production of an unsigned plan and a pattern and practice of signing documents given by an advisor. The IRS explains, however, that the highly factual Val Lanes decision does not stand for this proposition. Instead, the taxpayer bears the burden of proof that it executed the document, which is ordinarily met by producing the signed document. Finally, the IRS stated that it is appropriate for IRS exam agents and others to pursue plan disqualification if a signed plan document cannot be produced by the taxpayer since, in normal circumstances, it is unlikely that a taxpayer could meet its burden of proof that a plan document had been executed without providing a signed document, and the decision in Val Lanes should be limited to its specific facts.

Source: IRS Chief Counsel Memorandum AM 2019-002.

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