By Pension and Benefits Editorial Staff
The IRS has released the Tax Exempt and Government Entities (TE/GE) report on fiscal year (FY) 2018 accomplishments, which includes actions taken by Employee Plans (EP). The report covers EP’s accomplishments under the six portfolio programs of TE/GE’s compliance program: compliance strategies, data-driven approaches, referrals, claims, and other casework, compliance contacts, determinations, and voluntary compliance and other technical programs.
General highlights of EP program and processing changes listed by Acting TE/GE Commissioner David W. Horton and Acting TE/GE Deputy Commissioner Robert S. Choi are:
- Business Systems Planning and Information Technology teamed together to develop the infrastructure needed to convert the submission process of (1) Form 8950 (Application for Voluntary Correction Program (VCP) Submission Under the Employee Plans Compliance Resolution System (EPCRS)) and (2) Form 8951 (User Fee for Application for Voluntary Correction Program (VCP) Under the Employee Plans Compliance Resolution System (EPCRS)) to Pay.gov, an online site to make secure electronic payments to federal government agencies.
- Online guidance was provided to the public regarding practices that facilitate quick closures of voluntary compliance (VC) applications, with the expectation that more taxpayers and practitioners will use this information to perfect their applications before submission.
- The Determinations program partnered with the Examinations program on retirement plan audits, with determination specialists providing resources for the plan document review and examination agents focusing on operational compliance.
- Determination approval letters for defined benefit pre-approved plans were issued in the second quarter.
- The majority of determination-trained employees were cross-trained in examinations and VC work.
Overall, TE/GE used its Compliance Units to address potential noncompliance, primarily using correspondence contacts known as “compliance checks,” which limited the burden of each taxpayer contacted and allowed TE/GE to establish a presence in the taxpayer community in a way that reduced the cost to the IRS.
In addition, TE/GE made a significant hiring push in FY 2018, partnering with the Human Capital Office to select a total of 111 employees, including new hires, promotions, and laterals.
Compliance strategies. TE/GE explained that compliance strategies were issues approved by TE/GE’s Compliance Governance Board to identify, prioritize and allocate resources within the TE/GE filing population. For EP, new starts totaled 808 and closures totaled 253. The strategies pursued by EP during FY 2018 covered discrimination, participation/coverage, trust investments in small plans, benefit accruals, and elective deferrals. The specific issues under these topics are:
- Discrimination: examined plans that failed to comply with the gateway test or the exception under IRS Reg. Sec. 1.401(a)(4)-8(b), failed both the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, failed to properly provide timely notice to participants, and/or failed to provide the required safe harbor contribution to all eligible participants.
- Participation/coverage: examined plans that failed to satisfy the minimum age and/or service requirements, met statutory requirements in form but failed eligibility in operation, and/or allowed ineligible participants to participate.
- Trust investments in small plans: examined plans that failed to properly value all assets at fair market value and/or failed to properly reflect all plan assets in the name of the trust (for example, real estate investments).
- Benefit accruals: examined plans that failed to satisfy Code Sec. 411(b) accrual rules.
- Elective deferrals: examined plans that failed to withhold the proper amount of elective deferrals per plan terms.
Data-driven approaches. TE/GE noted that data-driven approaches used data, models, and queries to select work based on quantitative criteria, which allowed TE/GE to allocate resources that focused on issues that have the greatest impact. EP, using Research, Applied Analytics & Statistics (RAAS) collaboration, sampled the results of data queries and models that tested indicators of noncompliance for various plan types (for example, profit sharing, money purchase, 401(k), and defined benefit). For EP, the new starts were 1,378 and closures were 762.
Referrals, claims, and other casework. EP’s activities under this portfolio program cover referrals, claims, multiemployer plans, Code Sec. 402(b)/457 plans, IRAs, and other casework. For EP, the new starts totaled 4,482 and the closures totaled 5,305. Specifically, EP’s activities included the following:
- Referrals: continued to pursue referrals received from internal and external sources that alleged possible noncompliance by a retirement plan.
- Claims: continued to address requests for refunds or credits of overpayments of amounts already assessed and paid. These claims included tax, penalties, and interest or a request for an adjustment of tax paid or credit not previously reported or allowed.
- Multiemployer plans: continued to examine plans that failed to properly calculate retirement benefits affecting service crediting and/or allocation/accruals, failed to make required minimum distributions, and/or failed to adjust benefits when retirement is delayed beyond the normal retirement age.
- Code Sec. 403(b)/457 plans: continued to examine plans that failed to meet universal availability requirements (in other words, coverage for salary deferrals), failed to meet contribution limitations (in other words, Code Sec. 414(v) - age 50 and/or 15-year special catch-up contributions), and/or made improper hardship withdrawals.
- IRA plans: continued to examine plans that violated maximum participant rules, failed to meet statutory and matched employer contribution requirements, and/or failed to meet Code Sec. 416(i)(6) top-heavy requirements.
- Other casework: continued to address requests from plan sponsors to waive their minimum funding requirement for a plan year, investigated non-bank trustees (NBT) to verify that they have satisfied the NBT regulations, and pursued promoter investigations.
Compliance contacts. TE/GE explained that compliance units are used to address potential noncompliance, primarily through correspondence contacts known as “compliance checks” and “soft letters.” A compliance check is correspondence with organizations to inquire about an item on a filed return, to determine if specific reporting requirements have been met, or to determine whether an organization’s activities are consistent with its stated tax-exempt purpose. A compliance check is not considered an examination, because it does not involve a review of an organization’s books and records.
A soft letter is correspondence with organizations that provides notification of changes in tax-exempt law or compliance issues. A direct response to these letters is not requested.
In FY 2018, TE/GE continued contacting taxpayers via compliance checks and soft letters to determine whether retirement plans were adhering to recordkeeping and information reporting requirement, including plans with partial terminations, plans with nonparticipant loans, plans with minimum funding requirements, Code Sec. 457(b) plans with excess deferrals, data analysis verification regarding returns with missing entries, and SIMPLE IRA plans sponsored by employers with more than 100 employees.
During FY 2018, 2,741 compliance contacts were initiated and 2,768 compliance contacts were closed.
Determinations. Overall, EP’s receipts in FY 2018 for determination letters were 1,886 and closures were 6,268.
Individually Designed Plan (IDP). Receipts for the EP Determinations IDPs for FY 2018 were 1,651, consisting of 775 for individually designed plans - Form 5300, 10 for adopters of modified volume submitter plans - Form 5307, 815 for terminations - Form 5310, and 51 for group or pooled trust ruling - Form 5316.
TE/GE noted that the total numbers for the prior two fiscal years were higher and explained that the decline in receipts over this three-year period was due to FY 2016 being the last year of the cycle system, FY 2017 being the transition year, and FY 2018 being the first year where only initial and terminating plans were accepted. Total receipts for FY 2016 and FY 2017 were 11,353 and 4,680, respectively.
Pre-Approved Plan (PAP). For the EP Determinations PAPs, total receipts for FY 2018 were 235: specifically, seven for lead plans, five for minor modifications, and 223 for word-for-word adopters. Here, too, the numbers are lower than the prior two fiscal years. Total receipts for FY 2016 and FY 2017 were 593 and 286, respectively.
Voluntary compliance and other technical programs. The FY 2018 EP Voluntary Compliance Program (VCP) receipts were 3,190 and closures totaled 3,848. In addition, EP focused on actuarial letter rulings, 60-day rollover waivers, and technical assistance work for its taxpayers.
SOURCE: Tax Exempt and Government Entities FY 2018 Accomplishments Letter.
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