EP Rulings and Agreements
Internal Revenue Service
Determination Letter Process – Current Status and Future Ideas
EP Rulings and Agreements
Mission Statement
Ú The mission of the Tax Exempt and
Government Entities Operating Division is to provide our customers top quality service by helping them understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all.
EP Rulings and Agreements
Tax Exempt /Government Entities
Commissioner TE/GE Division Commissioner Director Employee Plans
Director EP Customer Education & Outreach
Director EP Rulings & Agreements Manager EP Determinations Quality Assurance Manager EP Technical Guidance and Quality Assurance
Director EP Examinations Manager Exam Programs and Review Area Managers EP Exam *6 Areas
Manager EP Determinations Manager EP Technical Manager EP Voluntary Compliance
EP – Rulings and Agreements
EP Rulings and Agreements
Director - EP Rulings & Agreements Paul Shultz 202-283-9660 email: Paul.T.Shultz@irs.gov Manager - EP Determinations Bruce Settell 513-263-3610 email: Bruce.A.Settell@irs.gov Manager Technical Screening Vickie Surguy 513-263-3582 email: Vickie.A.Surguy@irs.gov RAP Extension Coordinator Gary Runge 513-263-3546 email: Gary.L.Runge@irs.gov Manager - EP Voluntary Compliance Joyce Kahn 202-283-9586 email: Joyce.I.Kahn@irs.gov Acting Manager - EP Technical Fran Sloan 202-283-9626 email: James.E.HollandJr@irs.gov Master & Prototype Plans Coordinator Rick Wright 202-283-9602 email: Richard.M.Wright@irs.gov Manager - EP Technical Guidance & Quality Assurance Richard Wickersham 202-283-9627 email: Richard.J.Wickersham@irs.gov Volume Submitter Coordinator Angelo Noe 513-263-3536 email: Angelo.C.Noe@irs.gov Manager - EP Determinations Quality Assurance Robert Bell 513-263-3621 email: Robert.P.Bell@irs.gov
Technical Questions? Call our Customer Account Services on 1-877-829-5500
EP Rulings and Agreements
Key Features of Centralized Determinations (in Cincinnati)
Ø Clerical processing and depositing functions in one place
• Generates efficiency and cost savings
Ø Consistency in program nationwide
• Program direction and implementation • Technical and procedural guidance on determinations • Controls Volume Submitter & Technical Screening Programs
Ø Areas can focus on exams
• Six EP area managers Pacific Coast (LA) Great Lakes (Chicago) Gulf Coast (Dallas) Northeast (Brooklyn) Mid-Atlantic (Philadelphia) Central Mountain (Denver)
• Area agents also work on determinations
Determinations and Examinations
EP Rulings and Agreements
“at a Glance”
Determs Exams
500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
19 19 19 19 19 19 19 19 20 78 81 84 87 90 93 96 99 02
• 1978 ERISA Final Regulations •1986 TDR •1994 TRA ‘86 •2002 GUST
“GUST” Projected Receipts
EP Rulings and Agreements
50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
F5307 (Adopters of Pre-Approved Plans)
F5300
F5310
FY 2001
31,500
FY 2002
74,100
FY 2003
90,000
EP Rulings and Agreements
Receipts through May 24, 2002 (52,647)
33,223 13,909 5,515
Forms 5300/5303 Forms 5307/6406 Form 5310
Issues Affecting Receipts
EP Rulings and Agreements
ØCompletion of Volume Submitter/Master & Prototypes ØImpact of Streamlining Guidance (Announcement 2001-77)
• “Word-for-word” (plain vanilla) adopters • Making Nondiscrimination Test Optional
ØImpact of RAP Extension (Rev.Proc. 2001-55)
• Extension of Remedial Amendment Period for plans whose plan year ends by 2/28/02
IRS Pre-Approved Plans
EP Rulings and Agreements
(Listed at www.irs.gov/ep)
Ø Ø Ø Ø
Master & Prototype Specimens Ø 214 sponsors submitted plans by 12/31/00 for GUST Ø 955 plans total Ø Reviewed in Washington D. C. Ø Projected adopting employers seeking a determination letter – 35,000 Ø Number of adopting employers: More than one half million (primarily standardized plans)
Volume Submitter Plans 350 sponsors submitted plans by 12/31/00 for GUST 1,000 plans total Reviewed in Cincinnati and the areas Projected adopting employers seeking a determination letter – 45,000
Staffing for FY 2001 & 2002
EP Rulings and Agreements
FY 2001 Ø 150 Agents Total
• 50 Agents in Cincinnati
- (35 doing technical screening)
FY 2002 (Projected) Ø 288 Agents Total
• 60 Agents in Cincinnati
- (25 doing technical screening)
• 100 Agents working determinations in their respective geographic locations
• 228 Agents working determinations in their respective geographic locations
- (75 doing technical screening)
EP Rulings and Agreements
Determination Letter Application Workflow
Ø Processed at the Covington Processing Service
Center and forwarded to Cincinnati Ø Technically Screened
• Accepted as filed • Referred for further analysis
Ø Closed Ø Files stored at Federal Records Center (10 years)
EP Rulings and Agreements
Determination Letter Application Workflow Process
Close on Merit (after 60 days)
(Accepted as filed)
Tech. Screening --Review Application Request Additional Information (if necessary)
Make Decision
Case Selected for Quality Assurance Review?
Case Closed Favorable Determination Letter Issued
Referred for further analysis
EP Rulings and Agreements
Priority Focus - due to Increase in Receipts
Ø Emphasis on closing Volume Submitter/Master &
Prototype Plans (85% closed to date with 95% expected to be closed by the end of May.) Ø Streamline the Closing Agreement Program procedures for non-amenders -- Rev. Proc. due out soon. Ø Re-visit incorporation by reference (no promises). Ø Guidance affecting mergers of money purchase plans into profit sharing plans .
EP Rulings and Agreements
Priority Focus - due to Increase in Receipts continued
Ø Priority placed on technical screening to satisfy the
most customers as early as possible
Site Atlanta Los Angeles Chicago Baltimore Brooklyn Opened
Ø Five off-site screening centers established
October 2001 November 2001 January 2002 February 2002 February 2002
EP Rulings and Agreements
Priority Focus - due to Increase in Receipts continued
Ø “Soft Guidance on Hot Topics” Ø News articles cover the following issues of concern • Clarification of “word-for-word” adopters • Merged plans • GUST restatements, including “tack-on” amendments • Incomplete applications • Acceptable changes to Volume Submitter or Master & Prototype Plans • Non-discrim’n testing -- sampling allowed Ø IRC 415/417(e) LRMs revised – all three “old-law
benefits” methods allowed
Other Customer Service Steps
EP Rulings and Agreements
Ø Liaison with Customers Via Customer Education & Outreach Activities
• • • • • • •
Provide newsletter Attend benefit conferences Meet with associations & practitioner groups Post updates to web site: www.irs.gov/ep Participate in liaison group for determinations Provide updates to e-mail distribution list Review/make recommendations based on customer survey
Customer Survey Feedback
EP Rulings and Agreements
(Areas for Improvement - Based on the Likert Scale)
Courtesy of Staff Time Given to Respond Consideration of Your Information Showing the Right Attitude Ease of Understanding Letter Listening to your Concerns Fairness of Treatment Professionalism of Staff Explanation of Process Explanation of Taxpayer Rights Explanation of Records Required Knowledge of Staff Explanation of Amendments Length of Process Time Spent on Issue
1.00
3.00
5.00
7.00
9.00
Program Streamlining Steps Taken
EP Rulings and Agreements
Ø “Streamlined” the current program (Ann. 2001-77):
• Filing of application (5307) optional for “word for
word” adopters of pre-approved plans • Nondiscrimination proof (Schedule Q) optional • Requested highlight of changes in restated plans • Multiple employer plans – app. from one adopter OK
Program Streamlining Steps Taken
EP Rulings and Agreements
continued
Ø “Streamlined” the current program (Ann. 2001-77):
• Revised Schedule Q and Forms 5300, 5307 & 6406.
Form 5310 to be released soon. Internet forms can be used for submissions. • Eliminated Form 5303 • Discontinued coverage/nondiscrimination caveats • Simplified calculation of 12 month rule (end of RAP) for adopters of Pre-Approved Plans (12/31/02)
EP Rulings and Agreements
Creating an Electronic Application & Processing System
Ø Technology improvements to DL program: • Staged releases of new program starting with Forms 5307 in late 2002 (first release) • Later releases will include: - Imaging entire submission, including plan, application and supporting docs - Permitting electronic filing, fees and correspondence - Moving cases electronically - Retaining and retrieving up-to-date information - Providing customer self-service options: online access, complete forms, check status, obtain copies of letters, etc.
EP Rulings and Agreements
Helpful Hints on How to Help Processing
Ø To expedite processing of determination
applications:
• Include all attachments, schedules, and demonstrations with application • Include copy of last determination letter or prior plan document • Highlight language changes • Group “like” cases together
Common Recurring Issues
EP Rulings and Agreements
ØPlans are failing to:
• Provide the correct form adjustments when a benefit is subject to IRC 415(b)(2)(e) and failing to use the correct effective date • Specify if they intend to utilize top-paid group or calendar year elections for any or all years. See IRC section 414(q) and Notice 97-45 • Remove the requirements of family aggregation for purposes of the definition of HCE (IRC 414(q)) and for purposes of limiting compensation (IRC 401(a)(17))
Common Recurring Issues continued
EP Rulings and Agreements
Ø Plans are failing to provide: • the required amendments • the reason(s) for excess annual additions • the correct definition of Required Aggregation Group as required by IRC 416(g) • the correct effective dates for changes made by GUST law • both the ratio leveling and dollar leveling for disposing of excess deferrals and/or excess aggregate contributions • designate the method of correcting the Multiple Use Test. Ø Good Reference for Info: Q&As @ www.irs.gov/ep
EP Rulings and Agreements
Integrating GUST-Related Amendments into Application
Ø Plans may include amendments implementing final cross-
testing Regs. (eff. PYs 1/1/2002 and later) – acceptable in all plans, including VSs, but not M&Ps Ø Elective Transportation Fringe Benefits (IRC 132(f)) included in compensation per CRA ’00 – Notice 2001-37 provides model amendment -- mandatory amendment! Ø Minimum Distribution Final/Temp. & Prop. Regs. (IRC 401(a)(9)) -- Rev. Proc. will provides model amendment to comply with IRC 401(a)(9)
EP Rulings and Agreements
EGTRRA’s Impact during the GUST RAP
Ø EGTRRA • IRS will not rule on EGTRRA changes now -- but IDPs may include EGTRRA amendments in GUST plan documents
– Pre-approved plans may include EGTRRA amendments, but must be in
the form of a separate, clearly identified addendum to the plan
• Notice 2001-42 explains the term “timely adoption of good faith
amendments” • Notice 2001-57 provides IRS sample “good faith” amendments • Separate 401(b) period for EGTRRA (last day of 2005 PY)
EP Rulings and Agreements
Future of the Determination Letter Program
Is there a better way to:
Ø Simplify the cumbersome process? Ø Utilize resources available? Ø Reduce the amount of time spent by all parties?
“White Paper”
EP Rulings and Agreements
Ø Compendium of Brain-Storming Ideas
(Ann. 2001-83)
• • • •
Current process (complex) Possible alternatives Implementation 5-10 years Comments due by 7/01/02 – extended in Ann. 2002-36
Ø Public dialogue (your input) is crucial
“White Paper” (Options)
EP Rulings and Agreements
Ø Maintain Status Quo Ø Eliminate DLs (all plans) – provide model plans for employers who want reliance
Ø Eliminate DLs for Individually Designed Plans – continue letters for sponsors of pre-approved plans (M&Ps, VS)
Alternatives:
• Continue Opinion/Advisory letters, but no DLs for adopters • Continue Opinion/Advisory letters and DLs for adopters
“White Paper” Options
EP Rulings and Agreements
continued
Ø Third-party Certification System Ø Self-certification System Ø Annual Registration (Schedule to 5500?) Ø Issue DL Only at Initial Adoption and Termination • Alt: Annual Registration in between
“White Paper” Options
EP Rulings and Agreements
continued
Ø Stagger Expiration of the 401(b) RAP
• Alt: Stagger the RAP But Require Immediate Amendments
for Law Changes
Ø Immediate Amendment for Law Changes &
Again for Guidance-Required Changes
Amendments for Guidance-Required Changes
• Alt: Immediate Amendment for Law Changes and Cyclical
Note: Consider mixing and matching various options.
Customer Concerns
EP Rulings and Agreements
Ø Reliance key to employers – value of 7805(b)
relief Ø Large complex plans want DLs Ø Impact of DL on operating compliance
Other Issues
EP Rulings and Agreements
Ø Cookie cutter plans Ø Model provisions Ø Model plans Ø Small employer compliance Ø Third-party administrator responsibilities
Partner With Us
EP Rulings and Agreements
Ø How can we improve the current program? Ø Help us identify issues needing greatest
guidance/publicity Ø Prioritize guidance projects Ø Dialogue on White Paper – “What is your favorite option?”
Contact Information
EP Rulings and Agreements
Share your views with us.
Ø Paul Shultz
202-283-9660 Paul.T.Shultz@irs.gov Ø Robert Bell 513-263-3567 Robert.P.Bell@irs.gov Ø Bruce Settell 513-263-3610 Bruce.A.Settell@irs.gov
E-mail is the preferred method of contact.
Technical Questions? Call our Customer Account Services on 1-877-829-5500 EP Guidance & General Information is available at www.irs.gov/ep
EP Rulings and Agreements
Internal Revenue Service
Guidance and Current/Pending Projects
Recent Guidance
EP Rulings and Agreements
Ø Final/Temp. & Prop. 401(a)(9) Regs Ø Proposed Regs under 4980F/204(h) -excise tax re notice failure re amendment Ø DOL’s DFVC Prog. -- penalties not apply Ø DOL’s Fiduc. Correct. Prog. -- excise tax not apply
Recent Guidance
EP Rulings and Agreements
Ø 5500 Sched. F suspended Ø 30-year Treasury suspension addressed
Proposed 457 Regulations Ø PEO guidance in Rev. Proc. 2002-21
Current/Pending Projects
EP Rulings and Agreements
Ø Rev. Proc. re 401(a)(9) amendments to
plans Ø Rev. Rul. re 125/415 & health care elections Ø IRA Model Forms -- After 401(a)(9) regs -- Deadline to be moved to 10/1 from 6/1
Current/Pending Projects continued
EP Rulings and Agreements
Ø Re-visiting the proposed 401(k) and
401(m) Regs, including plan merger issues Ø Guidance for cash balance plans Ø Loans under 72(p) Ø 10-or-more Employers under 419A(f)(6) Ø Meaningful benefits under 401(a)(26)
Current/Pending Projects continued
EP Rulings and Agreements
Ø EPCRS Rev. Proc. -- June likely ØStreamlined treatment for nonamenders, including appendix with form, reduced fee, easier and better than if we find non-amendment ØOther changes reflecting comments from customers ØNot a major rewrite of program this year
Guidance
EP Rulings and Agreements
EGTRRA:
Ø Plan amendments and determination letter program -
Notice 2001-42 Ø Effective dates of increase in 401(a)(17) limit, topheavy changes, and 401(k) hardship distribution suspension period - Notice 2001-56 Ø Sample “good faith” amendments - Notice 2001-57
Guidance continued
EP Rulings and Agreements
EGTRRA Ø Age 50 Catch-up Contributions - proposed regulations under IRC 414(v) Ø Dollar limitations including EGTRRA limits and cost-of-living allowances - Notice 2001-84 Ø No user fee for new plans of small employers (EGTRRA 620) – Notice 2002-1 modifies the annual user fee Rev. Proc. (2002-8) & the annual DL Rev. Proc. (2002-6)
Guidance continued
EP Rulings and Agreements
EGTRRA Ø Sample notice to employees regarding the nonrefundable “Saver’s Credit” - Announcement 2001106 Ø DB 415/417 Issues – Rev. Rul. 2001-62 Ø IRC 404(k) and 409(p) (changes to ESOP plans) – Notice 2002-2 Ø IRC Notice 2002-4 includes language under which IRS will interpret “severance from employment” consistent with GCM 39824
Pending EGTRRA Projects
EP Rulings and Agreements
Ø Mergers of money purchase into profit-
sharing plans -- very soon