IRS Logo
Print - Click this link to Print this page

Employee Plans Compliance Unit (EPCU) - Projects with Summary Reports - Non-Cash Contributions Project

The Project

The project reviewed plans that reported non-cash contribution amounts on Schedule H or Schedule I to determine whether there were non-cash contributions and, if so, whether the contributions were allowable.

The EPCU selected Forms 5500 where the returns indicated non-cash contributions of $100,000 or more. The EPCU used a stratified technique for case selection, contacting all defined benefit (DB) plans and a statistically valid sample of the more predominant defined contribution (DC) plans.
 
The project included tax periods ending between December 31, 2006 and November 30, 2007. The EPCU sent compliance check letters to gather additional information on the reported contributions.

The Results

The EPCU contacted a total of 71 plan sponsors – 11 Defined Benefit Plans and 60 Defined Contribution Plans. Seventy-six percent of the plans contacted had entered incorrect information on the return line relating to non-cash contributions. EPCU removed 11% of the contacts, identified as Employee Stock Ownership Plans (ESOPs) (not part of this study). The EPCU referred 9 (13%) cases with unresolved non-cash contribution issues;  these included plans that did not respond or did not respond with sufficient information for a determination, plans that disagreed with EPCU conclusions, and plans with inadequate appraisals of assets.  

The EPCU closed 35 plans when the plans were identified as:

  • Previously under examination.
  • Data entered on the line for non-cash contributions in error.
  • Employee Stock Ownership Plans (which were categorically excluded from the project).

As a result, the EPCU excluded 14 DB plans and 21 DC plans. Refer to Table 1 for additional information.

Table 1: Results

DB Plans

Non-contact

Contact

Total

Referrals  

2

25

Conversion Error  

1

TP Line Error  

8

Examination in progress

14

 

Total Closures

14

11

DC Plans  

81

TP Line Error

1

43

E2SOP Plans

16

8

Examination Requests  

7

No Change  

2

Examination in progress

4

 

Total Closures

21

60

Total Contact Closures:

 

71

106

Total Noncontact Closures:

35

 

Grand Total

 

Background

The transfer of property to reduce a sponsor’s obligation to the plan constitutes a transfer to reduce an obligation of the employer. In the absence of an applicable exemption, such a contribution is prohibited under Sec 406(a)(1)(A) of The Employee Retirement and Income Security Act of 1974 (ERISA) and Internal Revenue Code section 4975(c)(1)(A). A prohibited transaction exists even if the value of the contribution exceeds the sponsor’s funding obligation for the plan year in which the contribution is made and is not used to reduce the plan’s accumulated funding deficiency for that plan year, because the contribution results in a credit against funding obligations that might arise in the future.

The value of an item other than cash contributed to a plan is reported on Form 5500 Schedule H or I. Non-cash contributions to a plan must be valued annually. Non-cash contributions for which the value is neither readily determinable on an established market nor set by an independent third party appraiser must be reported on Schedule H or I as appropriate.

Page Last Reviewed or Updated: 04-Apr-2014