IRS Determination Letter Process

IRS Determination Letter
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
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
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
Determination Letters
Last Digit of Plan
Sponsor’s EIN
Date Ends
1 or 6
January 31, 2012
2 or 7
January 31, 2013
3 or 8
January 31, 2014
4 or 9
January 31, 2015
5 or 0
January 31, 2016
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
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
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
• Practitioners filing plans on different cycles can request
amendment applicable to one plan be approved (early) for
Status of Current IRS Submissions
• Check the status of current submissions on the IRS website:
• 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
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
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
IRS Update and Guidance
• IRS webpage for ESOPs launched in June 2013:
– Links on this page to Responses to Technical Assistance
Requests #1 through #5 (issued in 2009 and 2010) and other
IRS guidance
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
Does a Determination Letter Expire?
• Interim amendments (document changes required by IRS)
• Discretionary amendments
• Options if you do not timely amend
– Audit cap
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
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)
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
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
Victor Alam
[email protected]
Susan Lenczewski
[email protected]

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