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Employee Plans Compliance Unit (EPCU) - Current Projects - Hacienda Project

Background

The Tax-Exempt and Government Entities (TEGE) - Employee Plans (EP) unit embarked on an initiative during fiscal year 2000 to determine the applicability of the Internal Revenue Code (IRC) to pension plans maintained in United States (US) Territories. Sponsors of plans covering employees in Puerto Rico must receive approval from the Puerto Rico taxing authority -The Hacienda and may need to be qualified under the United States code. In 2006, a Memorandum of Understanding (MOU) was executed between TEGE-EP and the Hacienda that provided for the exchange of information between the agencies.

Sponsors of plans covering employees in Puerto Rico can elect to have those plans qualified under the Hacienda or both the IRC and the Hacienda (dual-qualified). Erisa section 1022(i) (2) gives two methods for Plan sponsors to make an irrevocable election to have dual qualified status –

  1. File for a determination letter with the Internal Revenue Service
  2. Register the election with the Internal Revenue Service Director's Representative in Puerto Rico.

To distinguish the qualification intention of plans covering Puerto Rico employees two feature codes were created for use on the form 5500. The feature code 3C is to be entered if the plan does not intend to be qualified under the IRC. The feature code 3J should be entered if the plan is intended to be dual-qualified. It is our goal to properly classify plans covering employees who are residents of Puerto Rico to determine those subject to the Internal Revenue Code.

 


Project Process

A comparison of plans that did not report the feature code 3C on their 5500 returns for the 2008 plan year and did for the 2009 plan year will be made (changing their intention from being covered under the IRC to not being covered under IRC) was conducted. The identified plans will receive a compliance check letter which includes a questionnaire. The answers to the questions will be used to determine the proper classification of the plans as either qualified under the Hacienda only, qualified under the IRC (may have been incorrectly identified as having Puerto Rico employees) or both. All correspondence will be available in both English and Spanish. Plan sponsors wishing to have the information in Spanish can view the Spanish version on the EPCU website or call or e-mail to request a copy to be faxed to them.

If You Receive a Letter
Ensure the request is routed to the office or department with primary responsibility for the day to day administration of your employee benefit programs. Please complete the enclosed attachment as completely and accurately as possible and return to the person listed in the contact letter using one of the response options listed. You may also furnish any other documents or clarifying material that you believe will be helpful to us for review. If you need additional time, please contact the person whose name is listed on the cover letter to request an extension before the response due date. Possible defects need to be discovered now when sanction relief is available to sampled higher education organizations that timely correct. Failure to provide the information requested could result in further action or examination of your plan.

If You Have Questions
Please feel free to e-mail us and we will be glad to answer any questions you have about the project and how it relates to your situation. Please indicate “International Project – Hacienda” in the Subject line of the message.

Other Resources

Page Last Reviewed or Updated: 25-Nov-2013