Transcript IRS Determination Letter Process

IRS Determination Letter
Process
The ESOP Association
2013 Las Vegas Conference & Trade Show
November 7-8, 2013
Victor Alam, Esq.
Menke & Associates, Inc.
San Francisco, CA
Susan Lenczewski, Esq.
Moss & Barnett, P.A.
Minneapolis, MN
Types of IRS Submissions for Qualified
Retirement Plans
• Prototype / Volume Submitter – Opinion Letter
– IRS is considering developing a pre-approved plan program
for ESOPs
– Will likely be in volume submitter format to allow for
sufficient flexibility in plan design
• Individually Designed – Determination Letter
– Currently, an ESOP may be documented only as an
individually designed plan
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Opinion & Advisory Letters
• Cycles - Revenue Procedures 2005-16; 2007-44 and 2011-14
– Six-year cycle
– M&P and VS plans
– Distinct from “determination letter” process for
individually designed plans
– IRS website lists all preapproved 401(k), defined
contribution and defined benefit plans by vendor
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Determination Letters
• Cycles – Revenue Procedure 2007-44
– Five-year cycle
– Cycle determined by the last digit of the ESOP sponsor’s
“Employer Identification Number” (“EIN”)
– Cycles run on a fiscal year that begins February 1 and ends
January 31 (e.g., current Cycle C began February 1, 2013 and
ended January 31, 2014)
– Special rules for newly adopted plans and members of a
controlled group of corporations
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Determination Letters
Cycle
Last Digit of Plan
Sponsor’s EIN
Submission
Date Ends
A
1 or 6
January 31, 2012
B
2 or 7
January 31, 2013
C
3 or 8
January 31, 2014
D
4 or 9
January 31, 2015
E
5 or 0
January 31, 2016
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Preparing the Application
• Process
– Gather all plan documents
– Insert plan amendments to create “restatement”
– Check compliance/identify problems
– Prepare any required amendments, VCP filing, if required
– Prepare Notice to Interested Parties
– Prepare Form 5300
– Prepare Power of Attorney (newly revised Form 2848)
– Prepare check for the filing fee in the amount of $2,500 or
prepare exemption
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Preparing the Application
• Documents Needed for Filing:
– Restated Plan document signed by officer of sponsor
and/or trustee or with adoption documented
– All amendments to prior restated plan signed and dated or
with adoption documented
– The plan’s latest favorable determination letter
– A copy of the plan’s latest restated trust document with
any amendments
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Timing to Obtain Determination Letter
• On-cycle vs. off-cycle submissions
– On-cycle based on EIN
• Company EIN
• Controlled group
• Off-cycle filing not reviewed until all on-cycle plans are
reviewed
• Practitioners filing plans on different cycles can request
amendment applicable to one plan be approved (early) for
others
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Status of Current IRS Submissions
• Check the status of current submissions on the IRS website:
– http://www.irs.gov/Retirement-Plans/Determination,Opinion-and-Advisory-Letter-for-Retirement-Plans--Check-the-Status-of-Your-Letter
• ESOP Form 5300s, as of September 18, 2013:
– Cycles A, B and C: all cases assigned
– Cycle D: not assigned if postmarked after January 2010
– Cycle E: not assigned if postmarked after February 2010
– Cycles A2, B2 and C2: no cases assigned
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IRS Update and Guidance
• Review period for ESOP submissions has increased; in some
cases, ESOPs receive a determination letter months before
having to file again
• IRS initiatives to reduce review time
– ESOP Cadre formed
– Development of ESOP prototype under consideration
– Most recent development announced September 18, 2013
• D-letter will no longer include dates of adoption for
plan or amendments (for plans meeting “updated
review criteria”)
• “does not affect the scope of or reliance” on the letter
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IRS ESOP Review Process
• IRS explained two-step process for ESOP determination letter
review in Employee Plans Newsletter Issue 2013-2, June 24, 2013
– Step 1: review by an ESOP specialist, who checks
completeness of the application and reviews the plan using:
• the Cumulative List,
• the “Memoranda” (Technical Assistance Responses)
• a standardized “ESOP worksheet (rev. 08/11),” and
• feedback from ESOP Technical Managers
– Step 2: a different ESOP team specialist will contact the
applicant or authorized representative about any technical
issues identified in Step 1 and obtain additional information
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IRS Update and Guidance
• IRS webpage for ESOPs launched in June 2013:
– http://www.irs.gov/Retirement-Plans/Employee-StockOwnership-Plans-(ESOPs)
– Links on this page to Responses to Technical Assistance
Requests #1 through #5 (issued in 2009 and 2010) and other
IRS guidance
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Hot-button issues
• Dual purpose plans
– S corporation/C corporation language
• Debt forgiveness
• Distribution provisions
– Language in plan vs. separate policy
• 409(p) prevention language
– Transfer from ESOP to non-ESOP plan or portion
– Transfer back from non-ESOP plan or portion to ESOP
• Diversification
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Does a Determination Letter Expire?
• Interim amendments (document changes required by IRS)
• Discretionary amendments
• Options if you do not timely amend
– VCP
– Audit cap
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Pros and Cons of Obtaining a
Determination Letter (5300)
• Do I really need a determination letter?
– Required in order to use IRS’ Employee Plans Compliance
Resolution System
– Provided a relatively inexpensive form of insurance for the
employer that the IRS has ruled that the plan is qualified
– Not required for plan qualification
– Common request by auditors, lenders and possible
purchasers of company
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Pros and Cons of Obtaining a
Determination Letter (5300)
• A determination letter applies to qualification requirements
regarding the form of the plan and not the operation of the
plan (unless plan elects to file Schedule Q)
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Plan Termination and Determination
Letter Process (5310)
• Similar process as 5300 filing
– Additional participant data required
– Notice requirements
• Plan must be updated to include interim amendments that are
effective prior to termination date
• IRS may require additional amendments before issuing
determination letter
• Restatement of plan document not required
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Should You File a 5310?
Pros and Cons
• Plans can be audited or investigated even after termination –
provides assurance
• Degree of certainty of plan sponsor and participants that plan
will be treated as tax qualified
• Other issues raised - possibility that determination letter will
not issued
• Time
• Cost
• Quicker review: As of September 18, 2013, all Form 5310
submissions postmarked during or prior to February 2013 have
been assigned
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Questions?
Presenters:
Victor Alam
[email protected]
Susan Lenczewski
[email protected]
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