The Advisory Committee on Tax Exempt and Government Entities ("ACT") - 2018 Report

On June 7, 2018, a team of Ice Miller attorneys attended a public meeting at the Internal Revenue Service ("IRS") where the Advisory Committee on Tax Exempt and Government Entities ("ACT") presented its 2018 report. The report covers five main topics:
 

• Employee Plans: Recommendations regarding the re-opening of the IRS Determination Letter Program;
• Employee Plans: Recommendations regarding missing participants in retirement plans;
• Exempt Organizations: Recommendations regarding incentivizing universal e-filing for Forms 990;
• Indian Tribal Governments: Recommendations regarding sharing of taxpayer information with tribal government tax programs; and
• Tax Exempt Bonds: Recommendations regarding encouraging self-compliance by issuers of tax-advantaged obligations/tax exempt bonds. 

For purposes of this e-alert, we highlight the ACT's recommendations regarding the re-opening of the IRS Determination Letter Program and the ACT's recommendations regarding missing participants in retirement plans. The ACT's complete report is available here.

IRS Determination Letter Program

On May 31, 2018, Ice Miller LLP submitted a comment letter to the IRS (available here) in response to IRS Notice 2018-24 where the IRS requested comments regarding expanding the IRS Determination Letter Program. The ACT's report made the following recommendations regarding re-opening the IRS Determination Letter Program:
 

1. Confirm through easily accessible information sources, such as the IRS website and IRS presentations to EP Community associations, that the plan sponsor or plan administrator may continue to rely on a favorable determination letter issued under the Cycle System with respect to all plan language other than amended language, provided there has been no change in the law that would affect the portion of the plan that has not been amended.
2. Institute a new procedure to allow for a limited scope determination letter under which a plan sponsor or plan administrator could ask the IRS to review specified changes since the issuance of a prior favorable determination letter.
3. Allow submission of determination letter applications for plan amendments required by major business transactions, such as plan sponsor mergers and acquisitions, divestitures, joint ventures and bankruptcy proceedings, as well as for plan mergers and spin-offs.
4. Allow submission of determination letter applications for plan amendments adopted to comply with requirements published annually by the Treasury and IRS as a Required Amendments List for individually designed plans that generally applies to changes in qualification requirements that become effective on or after January 1, 2016.
5. Issue guidance that makes clear if the only change in plan provisions is the name of the plan sponsor and/or the plan name (for example, in the case of an assumption of an ongoing plan by a buyer or in the case of a spin-off of a “cloned” plan as part of a divestiture transaction), then the prior favorable determination letter can be relied upon by the “new” plan sponsor.
6. Allow submission of determination letter applications in the event of a major change in the tax law applicable to tax-qualified plans and provide model language for amendments to facilitate the review process in these cases.
7. Allow submission of determination letter applications for any plan that has had significant changes, including a major design change (such as a change to a hybrid plan) or a novel qualification issue, that the plan sponsor or plan administrator believes may represent a “material change” such that reliance on the most recent favorable determination letter is not appropriate.
8. To encourage conversion of individually designed plans to pre-approved plan documents when feasible, expand IRS instructions for the pre-approved 401(a) plan and 403(b) plan programs by providing further guidance on the type of changes that would be considered "minor modifications."
9. In addition, since more plan sponsors are now contemplating conversion to a pre-approved plan option, the IRS should consider extending adoption deadlines under the pre-approved plan program.
10. Allow submission of determination letter applications upon the expiration of a stated period of time since the last favorable determination letter (for example, 10 or 15 years).
11. Allow access to determination letters for certain plans that cannot currently fall within the pre-approved program limitations, such as multiemployer plans, governmental plans with statutory structures, hybrid plans and complicated employee stock ownership plans.
12. If IRS workload management is a concern, the EP Community is receptive to rules that stagger the deadline to submit determination letter applications that are not based on a transaction date (for example, last determination letter date more than 10 or 15 years ago).

Missing Participants

On May 7, 2018, we issued an e-alert regarding "FAQs About Required Minimum Distributions," which included information regarding missing and/or lost participants and the IRS' TE/GE Field Directive regarding lost and missing participants. With respect to missing participants in retirement plans, the ACT made the following recommendations:
 

1. Expand the scope of the TE/GE Field Directives to apply to plan distributions other than RMDs under IRC Section 401(a)(9), including distributions made pursuant to IRC Sections 401(a)(31), 401(a)(14) and 411(a)(11).
2. Modify the TE/GE Field Directives to clarify that if any communication (even if the envelope does not include a check) was returned as undeliverable with no forwarding address, and if the Plan Sponsor is subsequently unable to locate a valid address for such Missing Participant, the requirement under the TE/GE Field Directives to send a certified letter is waived, because it would be imprudent to send a certified letter and/or check to a known invalid address.
3. Modify guidance and the instructions to Form 5500, Annual Return/Report of Employee Benefit Plan, to make clear that sponsors should answer lines 4l of Schedules H and I of the Form 5500 question: "Has the plan failed to provide any benefit when due under the plan?" based on the steps outlined in the TE/GE Field Directives.
4. Provide guidance and amend the instructions to IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to establish an automatic waiver from the IRC Section 4974(a) 50 percent excise tax on insufficient RMDs if the plan sponsor has completed all of the steps outlined in the TE/GE Field Directives.
5. Provide guidance and amend the instructions to IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. to provide direction on when Form 1099-R should be issued with respect to distributions that remain uncashed.
6. Issue a Field Directive to EP examiners confirming that distributions for Missing Participants, as well as uncashed checks, may be forfeited subject to reinstatement pursuant to Treas. Reg. Section 1.411(a)-4(b)(6) and coordinate such guidance with the DOL.
7. Re-open the IRS Letter Forwarding Program under Rev. Proc. 2012-35 for locating Missing Participants, because it is more effective to send official letters from the IRS; employees are reluctant to respond to letters from former employers given anxieties about spams, scams and frauds.
8. Provide support to the Office of the Benefits Tax Counsel at Department of Treasury to increase, by legislation, the dollar threshold under IRC Sections 411(a)(11) and 401(a)(31) to an amount greater than $5,000.
9. Support the issuance of inter-agency coordinated guidance with Treasury Office of Chief Counsel, the DOL and PBGC as soon as possible.

We appreciate the ACT's work and recommendations on these two issues of importance to governmental plans. We will continue to monitor these recommendations and whether the recommendations result in any relevant changes from the IRS. For more information, contact Audra Ferguson-Allen, Rob Gauss, Lisa Harrison, Lindsay Knowles, Tara Sciscoe, Chris Sears, or the Ice Miller Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.