Pension & Benefits News Tax Exempt and Government Entities issues FY 2019 EP accomplishments
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Monday, April 20, 2020

Tax Exempt and Government Entities issues FY 2019 EP accomplishments

By Pension and Benefits Editorial Staff

The IRS has released the Tax Exempt and Government Entities (TE/GE) report on fiscal year 2019 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 TE/GE Commissioner Tamera Ripperda and TE/GE Deputy Commissioner Edward T. Killen include:

  • Expanded use of Pay.gov to make payments easier.
  • Expanded Employee Plans (EP) Self-Correction Program under the Employee Plans Compliance Resolution System.
  • Expanded EP determination letter program.
  • Collaboration with IRS business partners, including the Small Business/Self Employed (SB/SE) Lead Development Center, to counter fraud and abuse.
  • Establishing an Employer Shared Responsibility Payment compliance program for Applicable Large Employers under the Affordable Care Act.
  • Expanded educational efforts, soft letters and compliance checks.
  • Release of additional educational videos and informational articles and participated in many outreach events.
  • Significantly increased hiring, invested in employee training and strengthened our Knowledge Management program.

In addition, TE/GE made a significant hiring push in fiscal year 2019, hiring 200 people during fiscal year 2019, consisting of 55 revenue agents, 19 tax compliance officers, 77 tax examiners and 49 other positions, bringing the staffing numbers to 1,521, a nearly 5% gain from the end of the prior year. TE/GE also continued to train these new hires—through on-the-job training—and all staff through specialized training needed to work compliance issues.

Examinations. Overall, EP closed 5,848 examinations in fiscal year 2019. They proposed revocation/disqualification for eight plans as a result of these examinations for issues including:

  • Failure to value all assets at fair market value;
  • Code Sec. 457(b) operational issues, including catch-up contributions, excess contributions and unforeseen emergency distributions;
  • Vesting issues for cash balance plans;
  • Salary Reduction Simplified Employee Pension (SARSEP) plan document noncompliance and having more than 25 participants; and
  • Savings Incentive Match Plan for Employees (SIMPLE) plan participation and/or coverage issues and late deposits of salary deferrals.

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 Examinations, new starts using compliance strategies totaled 959 and closures totaled 758.

Employee Plans’ examination compliance strategies during fiscal year 2019 covered include:

  • Distributions: industries that experience a decline in employment may also experience difficulties with compliance on plan distributions to participants. This strategy is designed to verify that participants received correct distribution amounts with a sample of cases in the oil and gas extraction and petroleum production industries.
  • Form 5500/Form 5500-SF stop filers: contacted plan sponsors that did not file one or more required returns.
  • Small plans with large assets: determined whether small plans with trusts holding large assets have correctly limited deductions on Form 1120 (U.S. Corporation Income Tax Return) in accordance with Code Sec. 404.
  • Terminated cash balance plans: examined terminated plans with cash balance features that may have exceeded Code Sec. 415 limitations or generated a reversion, which is subject to an excise tax.

TE/GE explained that, for the EP compliance strategy examinations that resulted in a change this past year, 56% were closed through self-correction (39%) or closing agreements (17%) during the examination. The most prominent issues found in these EP compliance strategy examinations include 401(k) operational issues, contributions/earnings/allocations, inadequate or no fidelity bonds, participation/coverage, and distributions.

Data-driven examinations. EP, continuing to use 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 1,756 and closures were 1607. Sixty-four percent of EP data-driven examinations that resulted in a change were closed as a closing agreement (33%) or through self-correction (31%) during the examination. The most significant issues found in these examination changes include contributions/earnings/allocations, failing to amend plan documents or amending late, 401(k) operational issues, distributions, and participation/coverage issues.

Referrals, claims, and other casework. EP’s activities under this portfolio program cover referrals, claims, and other casework. For EP examinations, the new starts totaled 2,460 and the closures totaled 3,483. EP verified that non-bank trustees (NBT) satisfied the NBT regulations and pursued promoter investigations. EP has two open promoter investigations: one is a defined benefit plan and the other is an employee stock ownership plan. In addition, EP is working client examinations to support SB/SE-led investigations. This examination portfolio also includes cases to train new agents or training for specialty areas.

Sixty-one percent of examination change cases were closed through a closing agreement (40%) or self-correction (21%) program during the examination. The most prominent issues found in EP’s referrals, claims and other casework include 401(k) operational issues, contributions/earnings/allocations, failing to amend plan documents or amending late, 403(b)/457 issues and participation/coverage issues. Additionally, all fiscal year 2019 EP revocations/disqualifications resulted from examinations in this portfolio.

Determinations. Overall, EP closed 1,514 determination applications in fiscal year 2019. EP explained that, for the determination letter program, the decline in receipts of Forms 5300 and 5307 over a three-year period of fiscal years 2017-2019 was because fiscal year 2016 was the last year of the cycle system, fiscal year 2017 was the transition year, and fiscal year 2018 was the first year where only initial and terminating plans were accepted. After the opening of the Form 5307 defined benefit program in May 2018, EP Determinations received few applications in fiscal year 2019.

Pre-approved plan receipts increased in fiscal year 2019 as the third amendment cycle for defined contribution plans closed on December 31, 2018. Application closures have decreased due to the decrease in application receipts. For fiscal year 2019, 132 applications were closed.

Voluntary compliance. EP reports that it implemented Pay.gov for payment of user fees with Voluntary Compliance Program (VCP) submissions, effective January 1, 2019. EP also converted the VCP submission process to an all-electronic format, allowing applicants to submit their VCP applications, supporting documents and user fee payments through Pay.gov. Paper submissions were accepted until March 31, 2019, and all VCP submissions after that date were required to be electronic. EP expanded the Self-Correction Program (SCP) under EPCRS to provide additional opportunities for employers to self-correct certain plan failures that would otherwise have to be addressed through the VCP or the Audit Closing Agreement Program (Audit CAP).

EP received 2,655 voluntary correction applications and closed 2,265 for fiscal year 2019. The types of failures corrected through the VCP in fiscal year 2019 include plan document, exclusion of employees, 401(k) errors, loans, required minimum distribution failures, matching contributions, SEP/SARSEP/SIMPLE plans, 403(b) plans, and waiver of certain excise taxes. The other compliance failures include issues related to contribution allocations, distributions, safe harbor, compensation, pension benefit determinations, vesting discrimination, and top-heavy issues. In addition, EP focused on actuarial letter rulings, 60-day rollover waivers, and technical assistance work for its taxpayers by closing 135 of these requests.

Compliance contacts. In fiscal year 2019, TE/GE continued contacting taxpayers via compliance checks and soft letters to improve return filings and filing accuracy on issues of noncompliance. EP conducted several compliance checks to determine whether retirement plans were adhering to recordkeeping and information reporting requirements, including deductions in excess of 25% of compensation, voluntary compliance 150-day compliance statement follow-ups, SEP-IRA plans with required minimum distribution failures, and stop filers of Form 5500/5500-SF.

During fiscal year 2019, 2,158 compliance contacts were initiated and 2,260 compliance contacts were closed (7% of which were referred to examination for further evaluation).

Outreach. In fiscal year 2019, TE/GE continued its education and outreach efforts. During the year, TE/GE employees attended 102 outreach events, such as tax law conferences and employee benefits conferences. Of the 102 events, 27 addressed employee plan sponsors, administrators and their representatives.

Source: Tax Exempt and Government Entities FY 2019 Accomplishments Letter.

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