Tax Exempt and Government Entities FY 2017 Work Plan priorities includes EP Examinations

IRS officials have released the Tax Exempt and Government Entities (TE/GE) FY 2017 Work Plan, which includes initiatives for Employee Plans (EP) Examinations. TE/GE Commissioner Sunita Lough and TE/GE Deputy Commissioner Donna Hansberry provided a briefing of TE/GE’s work plan and priorities for fiscal year (FY) 2017 and shared an update as to the projects and initiatives from FY 2016.

The officials noted that, in FY 2017, TE/GE will continue to move forward on many initiatives started in the past two years. For example, TE/GE has successfully combined its three case-closing functions (Exempt Organizations, Employee Plans, and Government Entities) into a single entity, and now the TE/GE staff is ready to be cross-trained. The officials stressed that their intent is that for each initiative they undertake, they will do so transparently, efficiently and effectively.

EP Examinations

In FY 2017, EP will continue to: (1) develop, maintain and refine a comprehensive collection of enforcement strategies that identify and focus efforts on addressing retirement plan non-compliance; (2) leverage existing programs and learned best practices to enhance voluntary compliance; and, (3) address and eliminate fraudulent and abusive schemes that undermine the retirement system.

For FY 2017, EP will use: (1) compliance indicators to facilitate the building of project models and, (2) statistical issue-based sampling techniques for case selection to allocate examination resources among specific “focused” non-compliance issues that have the greatest impact on the retirement plan community. The categories of casework (to be conducted as field work and office correspondence, as appropriate) include specialty programs, traditional casework, and focused supplemental work.

Specialty programs. EP will continue to apply resources into specialty program casework, focusing on EP Team Audit (EPTA)/Large Case, multiemployer (MAP) plans, Code Sec. 403(b)/457(b) plans, cash balance plans, hybrid 401(k) plans (such as those with the age-weighted new comparability feature), and leveraged/non-leveraged employee stock ownership plans (ESOPs). Issues of non-compliance to be pursued during FY 2017 include (but are not limited to) distributions (EPTA), service crediting (MAP), universal availability (403(b)/457), allocation and contribution limitations (cash balance), participation/discrimination (hybrid 401(k)) and stock valuation (ESOP).

Traditional casework. In FY 2017, EP will continue to select various plan types (profit-sharing, money purchase, 401(k), defined benefit) from within its risk-based targeted program, while continuing to pursue taxpayer and interagency referrals, 401(k) plans, reported funding deficiencies and non-bank trustee investigations. In addition, EP is partnering with Research Analytics Applied Statistics (RAAS) to use a data-driven, issue-based approach to better identify focused issues that may represent aggressive or abusive behavior that is detrimental to plan participants.

Focused supplemental work. In FY 2017, additional project work will be supplemented by the Emerging Issues program, the Learn, Educate, Self-correct, Enforce (LESE) program, the Individual Retirement Arrangement (SEPs, SAR-SEPs, SIMPLES) program and the Form 5500-EZ program. Issues of non-compliance discovered in FY 2016 case closures will continue to be pursued during FY 2017, including prohibited transactions, Code Sec. 415 funding violations, trust investments, contribution/earnings allocation errors, violation of maximum participants rules (the Individual Retirement Arrangement program), and participant loans (the Form 5500-EZ program).

Compliance checks. EP will also use the Employee Plans Compliance Unit (EPCU) to identify areas of greatest non-compliance in plan operation and form through compliance check contacts and continue with the mandated programs: (1) collection of multiemployer certifications and validations; (2) review non–bank trustee notifications; and (3) review pension plan funding for funding deficiencies.

In FY 2017, compliance checks will focus on the following projects:

• SIMPLE plans;

• merger/consolidations/transfers/spinoffs relating to Form 5310-A filings;

• issues surrounding terminated/partially terminated plans;

• inflated assets and/or unusual investments;

• SEP plan issues including coverage of employees; and

• 403(b) plan document requirements.

EP Determinations

Individually designed plan determinations. In FY 2016, EP Determinations completed the review of the multiemployer plans from Cycle D2 and established a group to review Cycle E2 governmental plans. EP Determinations has also started reviewing defined benefit plans for risk transfer language (i.e., converting annuity streams to lump sums). EP Determinations expects to receive applications for initial and terminating plans under the revised determination letter program beginning January 1, 2017, and the final cases under the five-year remedial amendment cycle system (Cycle A3) by January 31, 2017.

Pre-approved plan determinations. EP Determinations reported that the review of both the 403(b) and defined benefit (DB) programs are in progress. Determinations expects to issue approval letters for 403(b) pre-approved plans during the second quarter of FY 2017 and will continue reviewing the DB pre-approved plans, with issuance of letters expected in FY 2018. The defined contribution pre-approved plan period is opening six months later than planned due to the extension of the deadline to submit pre-approved DB plans because of the addition of cash balance features. Submissions will be accepted from August 1, 2017 to July 31, 2018.

Voluntary Compliance

In FY 2016, a large portion of Voluntary Compliance (VC) submissions were concentrated on failures involving late amendments or failures to adopt amendments, participant loan failures, and the failure to make minimum required distributions. In FY 2017, VC will focus on streamlining its processes and modifying its existing case inventory management system to accommodate electronic case inventory processing. VC notes that it continues to accept voluntary requests for closing agreements. This allows plan sponsors or other third parties to submit proposals to correct compliance issues that are ineligible for the Employee Plans Compliance Resolution System (EPCRS).

EP Technical

EP Technical reports that it will continue to enhance the three EP Knowledge Networks (Defined Contribution Plans, Defined Benefit Plans, and Specialized Plans) by evaluating best practices used in Large Business and International (LB&I) and Exempt Organizations (EO) in order to provide a more effective way to search for documents in our knowledge management electronic library.

Source: IRS Tax Exempt and Government Entities FY 2017 Work Plan.

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