These frequently asked questions and answers are provided for general information only and should not be cited as any type of legal authority. They are designed to provide the user with information responsive to general inquiries. Due to the uniqueness and complexities of Federal tax law, it is imperative to ensure a full understanding of the specific question presented, and to perform the requisite research to ensure a correct response is provided.
-
-
-
-
-
Why is there a need for this project?
The Form 5500, Schedule A Project is designed to obtain information on whether defined contribution plans are in compliance with the qualified plan reporting and incidental benefit rules. If they are not, then the potential exists for discrimination in favor of highly compensated employees and abusive tax avoidance. Plan sponsors are being sent a compliance contact letter that asks them to provide information on how they are meeting those qualified plan requirements.
We anticipate that the results obtained from this Project will strengthen the adoption and maintenance of qualified retirement plans, protecting the future for employees and their families. In addition to identifying best practices, the recommendations made will assist benefits practitioners and sponsors to avoid, find and correct errors in their plans as early as possible.
Why are you focusing on defined contribution plans?
In February 2004, the Treasury Department and the IRS issued guidance to shut down abuses involving the use of certain specially designed life insurance policies in defined benefit retirement plans involving Internal Revenue Code Section 412(i). Generally, these special policies are made available only to highly compensated employees.
The 412(i) Abusive Tax Transactions web page addresses situations where these special policies, often used in conjunction with Section 412(i) plans, are used to artificially increase the deductible contributions to retirement plans while greatly reducing the amount taxable when the policies are distributed to the plan participant.
Processing of EP determination and examination cases indicates that there is also a need to obtain more information regarding the purchase of insurance within defined contribution plans. One of the goals of the EP Examination program is to increase contact with the taxpayer community by leveraging the resources available in the Employee Plans Compliance Unit (EPCU) so that enforcement resources are focused on finding noncompliant plans.
Why have I been selected for a sponsor compliance contact?
You were selected as part of a judgment sample of defined contribution plans that filed a Form 5500, Schedule A.
What will be the focus of the information request?
This project will focus on obtaining information regarding insurance purchases in qualified defined contribution plans. You will be asked various questions about the purchasing, distributing and reporting of that insurance. You will also be asked to verify some of the items you have reported on Form 5500, Schedule A.
Will I have an opportunity to provide additional information?
Yes. In addition to the information and documentation described in the Request for Information, you may also furnish any other documents, insurance or other clarifying materials that you believe will be helpful for us to review.
|