A program letter from the heads of the IRS Tax Exempt & Government Entities (TE/GE) division provides an update on the compliance, data, process and casework strategies the division plans to focus on in the coming year.
Not surprisingly, implementing the Tax Cuts and Jobs Act (TCJA) will remain a priority in FY 2019, the letter explains. It notes that the division has completed numerous form revisions, as well as guidance and training related to TCJA and anticipates more developments in these areas going forward.
The letter also explains that the division continues to refine its compliance strategy approach by seeking to ensure that TE/GE’s examination programs are focused on the highest-priority compliance areas. The division also expects to expand its use of Pay.gov and secure messaging with taxpayers and practitioners in its Employee Plans (EP) program.
EP will continue to accept individually designed plan (IDP) applications for both initial plan and terminating plan submitters, according to the letter. In addition, EP also will review input from the qualified plans community on the potential expansion of the determination letter program for amended IDPs, as well as the self-correction of plan qualification failures.
The EP program also will seek to foster compliance through its voluntary corrections program, issue informal guidance through Lists of Required Modifications (LRMs), and continue to update its Fix-It Guides.
The Exempt Organizations (EO) program, meanwhile, expects a continued increase in determination applications, and will concentrate on identifying new strategies to reduce filing burden and case processing time. In addition, EO plans to hire 40 new revenue agents to process determination applications to help offset application increases and workforce attrition.
EP Areas of Interest
Listed below are more specific areas of compliance the division plans to review with respect to employee plans.
Distributions: verify that plans are following correct distribution processes and procedures and that participants are receiving correct distribution amounts.
Form 5500 and Form 5500-SF, stop filers: contact employers sponsoring plans that did not file one or more required returns.
403(b) and 457 plans: examine 403(b) plans for universal availability, excessive contributions and proper use of catch-up contributions under IRC Section 414(v); examine 457(b) plans for excessive contributions and proper use of the special three-year catch-up contribution rule.
Small plans with large assets: determine whether smaller plans with trusts holding large assets have taken deductions on Form 1120, U.S. Corporation Income Tax Return, exceeding IRC Section 404 limitations.
Simplified Employee Pension (SEP) plans: determine whether accounts violated maximum participant rules, failed to meet statutory and matched employer contribution requirements, and/or failed to meet the IRC Section 416(i)(6) top-heavy requirements.
Terminated cash balance plans: examine terminated plans with cash balance features that may have exceeded the IRC Section 415 limitations or generated a reversion that is subject to an excise tax.
RAAS collaboration: sample the results of data queries and models to test indicators of noncompliance for various plan types (e.g., profit sharing, money purchase, 401(k) and defined benefit).
The program letter also explains that TE/GE will continue to inform taxpayers via compliance checks and soft letters on issues of noncompliance, while seeking to improve return filings and filing accuracy.
The areas of review to determine whether a retirement plan is adhering to recordkeeping and information reporting requirements include:
- deductions in excess of 25% of compensation;
- voluntary compliance 150-day compliance statement follow-ups;
- SEP-IRA plans with RMD failures; and
- stop filers of Form 5500/5500-SF.