Closing Agreement Irs Tax Shelter by tvh39818

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									                            Plan Loans

 •   VCP allows correction where plan
     loans did not comply with:
     – Limit on loans
     – Plan term requirements
     – Unreported defaulted loans (repayment
       period has not expired)


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                            Plan Loan
                          Limit Example
 • Participant borrows $60K; violation
   discovered 2 years later
 • Correction:
     – Repays $10K
     – Remaining balance reamortized over
       remaining life of loan
     – Prior loan payments attributable to $10K
       excess can be applied to:
         •   interest on excess, or
         •   remaining loan balance
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                           Plan Loan
                         Term Example
 • Participant borrows $10K over 6-year
   period; violation discovered 2 years later
 • Correction:
     – Loan reamortized over remaining 3-year
       period of the loan
     – Correction not available where statutory
       term of loan has expired

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                          Plan Loan
                       Default Example
 • Participant borrows $10K over 5-year
   period; Loan payments never begin;
   violation discovered 2 years later
 • Correction (any combination of below):
     – Lump sum (P&I) bringing loan current,
       continues payments under old schedule; or
     – Loan reamortized over remaining life of
       original loan term

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               Plan Loans – DOL- VFC
                      Program
 Department of Labor’s Voluntary
  Fiduciary Correction Program

 •   Party in interest loans
     – IRS Compliance Statement required



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                 DL Submission under
                  VCP and Audit CAP
 •   DL must be submitted for
     nonamender failure
     – Other than through adoption of
         • model amendment or
         • prototype or volume submitter plan

 •   Nonamender
     – Failure to amend for required change
       w/in plan’s remedial amendment period
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                 DL Submission under
                  VCP and Audit CAP
 •   DL may be issued
     – For failure being corrected under VCP or
       Audit Cap for terminating plan
     – For failure being corrected under VCP
       during on-cycle year or under Audit Cap if
       examination is in on-cycle year


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                 DL Submission under
                  VCP and Audit CAP
 •   If DL not issued for failures corrected
     through plan amendment
     – Issuance of compliance statement or
       closing agreement is determination of
       amendment on qualification except for:
         • 401(a)(9) final and temp regs,
         • Good faith EGTRRA amendments, and
         • Interim amendments

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                  DL Submission under
                   VCP and Audit CAP
 •   DL not issued to correct failure to
     amend plan timely for:
     – Good faith EGTRRA amendments,
     – §401(a)(9) final and temp regs., or
     – Interim amendments, UNLESS
         •   VCP filing submitted or plan examined for an
             on-cycle year or a terminating plan

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              Abusive Tax Avoidance
               Transaction (ATAT)
 •   Definition
     – Any listed transaction under § 1.6011-
       4(b)(2) and
     – Any other transaction identified as an
       abusive transaction in IRS web site under
       “EP Abusive Tax Transactions”


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                          ATATs – SCP

 •   SCP is not available to correct any
     Operational Failure that is directly or
     indirectly related to the ATAT if plan
     or Plan Sponsor has been a party to
     the abusive tax avoidance transaction

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                          ATATs – VCP
 •   If ATAT involvement suspected
     – Referred to EP Tax Shelter Coordinator
 •   If determined plan/plan sponsor a party
     to an ATAT relating to VCP failures
     – Referred to EP Exam
 •   If failures not related to or determined
     no ATAT
     – Compliance statement can be issued
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            ATATs – Audit CAP and SCP
               (Under Examination)
 •   If ATAT involvement suspected
     – Referred to EP Tax Shelter Coordinator
 •   Audit CAP & SCP may not be available if
     – Determined failure related to the ATAT, or
     – Satisfactory corrective actions not taken
       with regard to transaction
 •   Includes transactions designed to
     facilitate impermissible avoidance of tax
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                          Excise Tax Relief
•    Under VCP, potential relief from:
      – §4972 excise taxes when required to make a
        contribution as part of correction
          •   Must be requested in the VCP submission

•    Under VCP, potential relief from:
      – §4979 excise taxes when tested timely but
        inaccurate data yielded
          •   Underpayment of excess contributions, or
          •   Excess aggregate contributions
          •   Must be requested in the VCP submission

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                      Excise Tax Relief

•   Under VCP, relief from:
    – §4974 excise taxes when the failure
      involves the failure to satisfy the
      minimum required distribution
      requirements of Code section 401(a)(9)
      •   Must be requested in the VCP
          submission



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                          Orphan Plans
 • VCP & Audit CAP now available for
   Orphan Plans
 • VCP submitted by “Eligible Party”
   where determined plan sponsor:
     – No longer exists
     – Cannot be located
     – Is unable to maintain the plan, or
     – Abandoned plan pursuant to DOL regs
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                          Orphan Plans
 •   “Eligible Party” – person/entity entitled
     to facilitate plan termination/liquidation
     – Court appointed representatives
     – DOL investigation determines party
       accepted responsibility for plan
     – Surviving spouses if never covered by
       Title I - sole participant/owner of business

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                          Orphan Plans

 •   Service retains right under VCP or
     Audit CAP not to require full correction
     for orphan plans

 •   Service may waive VCP fees in case of
     a terminating orphan plan


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                      Failure to Obtain
                      Spousal Consent
 •   If spousal consent cannot be obtained,
     spouse entitled to benefit equal to
     portion of QJSA payable to spouse
     under plan at annuity starting date of
     prior distribution


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                      Failure to Obtain
                      Spousal Consent
 •   Rev. Proc. 2006-27 adds alternative:
     – Permits lump sum distribution to spouse
       = present value of annuity determined
       under old correction method

     – Interest and mortality factors under
       §417(e)(3) used to calculate lump sum


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                 Excluding Eligible
               Employee in 401(k) Plan
 •   Rev. Proc. 2003-44 correction for
     excluding eligible employee under a
     401(k) plan:
     – QNEC =
         • Class   ADP x employee’s comp, and
         • Class   ACP x employee’s comp

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                 Excluded EE in 401(k)
                 Non Safe Harbor Plan
 •   Rev. Proc. 2006-27 correction based on
     lost opportunity cost to defer
     – 50% of employee’s missed deferral
     – Deferral = comp x Class ADP
     – Correction method used for failure to
       include
         • eligible employee in plan for entire year, or
         • participant for part of year

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                 Excluded EE in 401(k)
                 Non Safe Harbor Plan
 •   Matching contribution correction
     – Based on match that would have been
       received had employee made deferral
     – Based on full amount of deferral, not lost
       opportunity cost of making deferrals
     – Change from Rev. Proc. 2003-44
         (match = comp x applicable ACP)

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             Ex 1: Excluded EE in 401(k)
                 Non Safe Harbor Plan
 •   Excluded NHCE, $30K comp
     – Plan match = 100% of first 3% of comp
     – Class ADP (NHCE) = 4%
 •   Correction, QNEC for:
     – Lost opportunity cost = $600
           ($30K x 4% x 50%)
     – Matching contribution = $900
           ($30K x 3%)
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                 Excluded EE in 401(k)
                  Safe Harbor Plans
 •   Plans with 3% non-elective contribution,
     missed deferral deemed = 3% x comp
 •   QNEC for missed opportunity cost of
     making deferral = 50% x 3% x comp
 •   If safe harbor contribution not made,
     additional QNEC of 3% required

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              Ex 2: Excluded EE in 401(k)
                     Safe Harbor Plans
 •   Excluded NHCE, $30K comp
 •   Correction, QNEC for:
     – Missed opportunity cost of salary deferral
       = $450 ($30K x 3% x 50%)
     – If applicable, 3% safe harbor contribution
       = $900 ($30K x 3%)


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                 Excluded EE in 401(k)
                  Safe Harbor Plans
 •   Plan’s with matching contribution =
     100% of first 3% comp/50% of next 2%
     comp, missed deferral = greater of:
     – 3% x comp, or
     – Maximum deferral % for which employer
       provided a matching contribution rate that
       is at least as favorable as 100% of elective
       deferrals made by employee
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                 Excluded EE in 401(k)
                  Safe Harbor Plans
 •   QNEC for matching contribution = the
     matching contribution that would have
     been received had employee made
     deemed pre-tax deferrals



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              Ex 3: Excluded EE in 401(k)
                     Safe Harbor Plans
 •   Excluded NHCE, $30K comp
     – Plan match = 100% of first 3% of comp
       and 50% of next 2% of comp
 •   Correction, QNEC for:
     – Missed opportunity cost of deferral =
       $450 ($30K x 3% x 50%)
     – Matching contribution =
       $900 ($30K x 3%)
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             Ex 4: Excluded EE in 401(k)
                     Safe Harbor Plans
 •   Excluded NHCE, $30K comp
     – Plan match = 100% of deferrals up to
       4% of comp
 •   Correction, QNEC for:
     – Missed opportunity cost of deferral =
       $600 ($30K x 4% x 50%)
     – Matching contribution =
      $1,200 ($30K x 4%)
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               Excluded EE in Plan with
                After-Tax Contributions
 •   Correction based on lost opportunity
     cost to make after-tax contributions
     – Opportunity cost = 40% of after-tax
       contributions employee would have made
     – After-tax contribution = comp x class ACP
         •   Alternately, ACP attributable to only after-tax
             contributions may be used

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                              VCP Fees
 •   Required minimum distribution failures
     – Reduced fee of $500 if affected
       participants < 50
 •   SEP or SIMPLE IRA plan
    – Reduced to $250 from $500 (most cases)
 • Failure to amend for EGTRRA good faith,
   401(a)(9) and interim amendments
    – Flat $375 fee
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                    DL Discovery Fees

 •   New fee schedule - nonamender issues
     discovered during DL process
 •   Fee based upon
     – Number of participants in plan and
     – Legislation for which plan is not amended


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               Miscellaneous Changes

 •   Nonamenders discovered during EP
     examination
     – Audit CAP sanction will be greater than
       sanction for failure discovered during DL
       process
 •   Group Submissions - each M&P plan of
     sponsor is separate submission
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               Miscellaneous Changes

 •   Sample “Acknowledgement Letter”
     – Appendix E
 •   “Assembling the Submission”
     – Revised Appendix D
 •   Streamlined submission package for
     interim nonamender failures
     – Appendix F

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               Miscellaneous Changes

 •   If Excess Amount (VCP/Audit CAP) is
     $100 or less
     – Distribution/forfeiture not required
     – If exceeded statutory limit participant
       notification required of ineligible rollover
 •   If Overpayments $100 or less
     – Participant notification not required that
       overpayment ineligible for rollover
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                EPCRS – Check it Out!




                  On-line Resource
                 Tools: Topical Index,
                Summary of Changes,
                   Explanations…
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