4.72.18 Nonbank Trustee Investigation Procedures

Manual Transmittal

July 10, 2017

Purpose

(1) This transmits revised IRM 4.72.18, Employee Plans Technical Guidance, Nonbank Trustee Investigation Procedures.

Material Changes

(1) IRM 4.72.18.1, Program, Scope and Objectives, and the subsections thereunder, were added to meet the new internal controls requirements.

(2) Other minor editorial changes, including revisions to reflect plain language requirements, were made throughout the document.

Effect on Other Documents

This supersedes IRM 4.72.18 dated April 5, 2016.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(07-10-2017)

Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: IRM 4.72.18, Employee Plans Technical Guidance, Nonbank Trustee Investigation Procedures, provides procedural and technical guidance for Employee Plans (EP) agents conducting a Nonbank Trustee Investigation (NBTI). This section will also aid group managers in providing guidance and feedback to agents during and after the NBTI.

  2. Audience: This IRM provides procedures for agents, their group managers and support staff in EP Exam.

  3. Policy Owner: Director, EP Examination.

  4. Program Owner: EP Examination.

  5. Program Authority: EP’s Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

  6. Program Goals: The information contained in this IRM is designed to promote quality NBTIs. To achieve this objective, this IRM discusses each requirement contained in 26 CFR 1.408-2(e)(2) through 26 CFR 1.408-2(e)(5)(viii) and provides the steps agents to verify compliance. This section provides guidance on initiating and closing the investigation case file.

Background

  1. EP Examination is the division designated to determine whether a NBT is in compliance with the regulations.

Authority

  1. The authority for conducting NBTIs is primarily provided by 26 CFR 1.408-2(e)(2) through 26 CFR 1.408-2(e)(5)(viii), and the following laws:

    • Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

    • Small Business Job Protection Act of 1996 (SBJPA)

    • Taxpayer Relief Act of 1997 (TRA ’97)

    • Medicare Prescription Drug, Improvement, and Modernization Act of 2003

Program Controls

  1. Tax Exempt Quality Measurement System (TEQMS) is the quality control system used to oversee the entire examination program. For more information on TEQMS, see IRM 4.71.15.1.3, Program Controls and Program Reports - TEQMS.

  2. All examinations will be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

    Note:

    Additional information may be found on the irs.gov website at www.irs.gov/taxpayer-bill-of-rights.

Acronyms and Forms

  1. This manual uses the following acronyms and references the following forms.

    Acronyms

    Acronym Definition
    AIMS Audit Information Management System
    CCR Case Chronology Record
    DC Disposal Code
    EIN Employer Identification Number
    EP Employee Plans
    EPCU Employee Plans Compliance Unit
    ERISA Employee Retirement Income Security Act of 1974
    ESSP Examinations Special Support and Processing
    IDR Information Document Request
    IDRS Information Data Retrieval System
    IRC Internal Revenue Code
    IRA Individual Retirement Arrangements
    MF Master File
    MSA Medical Savings Account
    NMF Non-Master File
    MFT Master File Tax (Code)
    NBT Nonbank Trustee
    NBTI Nonbank Trustee Investigation
    NOA Notice of Approval
    NOC Notice of Change
    R&A Rulings and Agreements
    RCCMS Reporting Compliance Case Management
    SBJPA Small Business Job Protection Act of 1996
    SEC Securities and Exchange Commission
    SIPC Securities Investor Protection Corporation
    TEQMS Tax Exempt Quality Measurement System
    TRA ‘97 Taxpayer Relief Act of 1997
    (TEFRA) Tax Equity and Fiscal Responsibility Act of 1982
    UBIT Unrelated Business Income Tax


    Forms and Schedules

    Form Name
    Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
    Form 5498 IRA Contribution Information
    Form 5599 TE/GE Examined Closing Record
    Form 10329 Transmittal Sheet-Related Cases
    Form 2848 Power of Attorney and Declaration of Representative
    Form 5596 TE/GE Non-Examined Closings
    Form 5599 TE/GE Examined Closing Record
    Form 1900 Income Tax Survey After Assignment
    Form 5772-A Employee Plans (EP) Workpaper Summary
    Form 5773-A Employee Plans (EP) Workpaper Continuation Sheet
    Form 10329 Transmittal Sheet-Related Cases


Overview of Nonbank Trustees

  1. This IRM is designed primarily to help Employee Plans (EP) examination agents and their managers to identify relevant issues relating to nonbank trustee or nonbank custodian (NBTs) investigations.

  2. A NBT is a financial entity that is neither a bank (as defined inIRC 408(n)) nor an insurance company (as defined in IRC 816) that received a NOA from the Commissioner. NOAs are issued by the Commissioner in response to a request from the entity for such designation.

    Note:

    An NOA is issued only after the entity demonstrates to the Commissioner’s satisfaction compliance with the requirements in 26 CFR 1.408-2(e)(2) through 26 CFR 1.408-2(e)(5)(viii).

  3. A NBT is permitted to serve as a trustee or custodian for tax‑exempt retirement and savings accounts as listed below:

    IRC 220 Archer medical savings accounts (Archer MSAs)
    IRC 223 Health savings accounts
    IRC 401 Qualified retirement plans or trust
    IRC 403(b)(7) Custodial Accounts
    IRC 408 Individual Retirement Arrangements (IRAs)
    IRC 408A Roth IRAs
    IRC 457(b) Deferred Compensation Plans of State & Local Government and Tax Exempt Organizations Custodial Accounts
    IRC 530 Education IRAs
  4. The Director, Employee Plans has jurisdiction to approve an entity to serve as an NBT.

  5. EP Exam investigates approved NBTs for their continued compliance with the NBT regulations.

  6. EP Exam submits their NBT investigation reports to EP Rulings and Agreements (R&A).

Legislation

  1. This table lists the legislative and administrative history of impacted NBT laws and regulations:

    Legal References Effect Effective Date
    Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) Modified IRC 401(d)(1): the requirement that a trustee of a qualified retirement plan benefiting owner-employees be a bank or an approved NBT no longer applies. However, IRC 401(f) states that the person holding the assets of a custodial account under IRC 401 must be a bank or an approved NBT. Years beginning after December 31, 1983
    26 CFR 1.401-12(n) Revised and then moved to 26 CFR 1.408-2(e). See below. December 20, 1995
    Small Business Job Protection Act (SBJPA) Enacted Archer MSAs: IRC 220(d)(1)(B), expanded by Notice 96-53 Q&A-10. Tax years beginning after December 31, 1996
    Taxpayer Relief Act of 1997 (TRA ’97) Enacted Roth IRAs and Education IRAs Tax years beginning after 1997
    Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Enacted Health Savings Accounts. See IRC 223(d)(1)(B). Tax years beginning after December 31, 2003
    SBJPA and Taxpayer Relief Act of 1997 (TRA ’97) Amended IRC 457 for eligible deferred compensation plans, as defined in IRC 457(b) (457(b) plans). Notice 98-8, IRB 1998-4 IRB 6, which provides guidance relating to IRC 457(b) plans, provides that the custodian of such plan must meet the nonbank trustee requirements under 26 CFR 1.408-2(e).
    26 CFR 1.408-2(e) Revised to add final regulations and remove temporary regulations that provide special rules for a governmental unit that seeks to qualify as a nonbank trustee of a deemed IRA that is part of its qualified employer plan. Revised on June 18, 2007

Definitions

  1. The term "account" or "fiduciary account" includes:

    1. A medical savings account established under IRC 220

    2. A health savings account described in IRC 223

    3. A trust described in IRC 401(a) (including a custodial account described in IRC 401(f))

    4. A custodial account described in IRC 403(b)(7)

    5. An individual retirement account (IRA) described in IRC 408 (including an account established by employers and certain employee associations per IRC 408(c))

    6. A custodial account described in IRC 408(h)

    7. A simplified employee pension plan described in IRC 408(k)

    8. A simple retirement account described in IRC 408(p)

    9. A deemed IRA under a qualified employer plan described in IRC 408(q)

    10. A Roth IRA described in IRC 408A

    11. A Coverdell education savings account described in IRC 530 (including a custodial account described IRC 530(g))

    12. A custodial account of an eligible deferred compensation plan described in IRC 457(b)

  2. The term account or fiduciary account under 26 CFR 1.408-2(e)(5)(viii)(A) means:

    1. A trust described in IRC 401(a) (including a custodial account described in IRC 401(f))

    2. A custodial account described in IRC 403(b)(7)

    3. An individual retirement account described in IRC 408(a) (including a custodial account described in IRC 408(h))

      Reminder:

      This regulation was written before the accounts listed below existed or required its trustee or custodian to be: i) a bank (per IRC 408(n)), ii) a bank or an insurance company per IRC 816 (for Archer MSAs and health savings accounts), or iii) an approved NBT or custodian:

      • Medical savings accounts - IRC 220(d)(1)(B) and Notice 96-53

      • Health savings accounts - IRC 223

      • Deemed IRAs - IRC 408(q)

      • Roth IRAs - IRC 408A

      • Coverdell education savings accounts - IRC 530

      • Custodial accounts of eligible deferred compensation plans - IRC 457(b)

    Note:

    Therefore, the definition of "account" or "fiduciary account" in 26 CFR 1.408-2(e)(5)(viii)(A) is expanded to include these accounts. Not including these accounts in the definition of account or fiduciary account miscalculates the NBTs required net worth.

  3. The term "plan administrator" means an administrator per 26 CFR 1.414(g)-1.

  4. The term "common investment fund" means a trust that both:

    1. Consists of all or part of the assets of several accounts that have been established with the applicant.

    2. Is described in IRC 401(a) and exempt from tax under IRC 501(a), or is a trust that is created for the purpose of providing a satisfactory diversification of investments or a reduction of administrative expenses for the participating accounts and that satisfy the requirements of IRC 408(c).

Technical Overview

  1. The trustee or custodian for any of these accounts/plans must be: i) a bank, ii) a health savings account, a bank or an insurance company (per IRC 816) for an Archer MSA, or iii) another person (not an individual) approved by the IRS to serve as an NBT. See 26 CFR 1.408-2(e).

    • An Archer MSA established under IRC 220

    • A health savings account established under IRC 223

    • An IRA established under IRC 408IRC 408A or IRC 530

    • A plan qualified or established under IRC 401(a), IRC 403(b)(7), or IRC 457(b)

  2. To serve as an NBT, an entity must demonstrate in writing, to the Commissioner’s satisfaction, that the requirements of 26 CFR 1.408-2(e)(2) through 26 CFR 1.408-2(e)(5)(viii)(F) will be met. See 26 CFR 1.408-2(e)(1).

  3. If the requirements are met, the NBT receives a written Notice of Approval (NOA) that specifies the approval’s effective day. The NBT isn’t authorized to accept any fiduciary account before the NOA is effective. See 26 CFR 1.408-2(e)(7)(i).

  4. A NBT’s continued approval is contingent upon its continued satisfaction of the criteria under 26 CFR 1.408-2(e).

  5. The NBT must notify the Commissioner, in writing via a "Notice of Change," (NOC) of any change that affects the continuing accuracy of any representations it made in its application. See 26 CFR 1.408-2(e)(6)(iv).

  6. If the Commissioner determines that the NBT is unwilling or unable to administer fiduciary accounts in a manner consistent with these requirements, the NOA is revoked. See 26 CFR 1.408-2(e)(7)(iv).

  7. NBT applications are submitted under Rev. Proc. 2014-4 to:

    Internal Revenue Service
    Commissioner, TE/GE
    Attention: SE:T:EP:RA
    P.O. Box 27063
    McPherson Station
    Washington, DC 20038

Selection for Investigation

  1. EP Rulings & Agreements (R&A) and EP Exam employees involved with the NBT program have access to a database located at the following link: \\VP0SENTSHRCMN13\Common2\EP\Shared\NBT. The database contains information on each NBT and continually tracks approvals, withdrawals, suspensions, revocations, and the type and frequency of contacts we make to submitted changes (“acknowledgement letters” issued in response to a Notice of Change (NOC). The database file:

    1. Includes prior NBT applications.

    2. Includes the original NOA

      Note:

      Agents, make sure a copy of the NOA is included with the case file.

    3. Includes prior NBTI files.

      Note:

      Agents, review the most recent closing letter and include a copy in the case file. If the closing letter advised the NBT to take corrective action, verify such action was taken. If corrective action was not taken, revocation maybe warranted. See IRM 4.72.18.7, Case Closing Steps – Proposed Revocation.

    4. Includes copies of “acknowledgement letters”.

      Note:

      One of the most common changes acknowledged by the Commissioner is an address change. If the acknowledgement letter is recent, include the letter with the case file.

      Caution:

      An "acknowledgement letter" is not a new or revised NOA; it is simply an acknowledgement of a change in the information submitted to National Office.

    5. Can only be updated by assigned employees in EP R&A, EP Exam and EPCU.

    6. Is used to produce the periodically published list of approved NBTs.

  2. Each fiscal year, EP Classification selects a minimum of four approved NBTs from the approved list for each Area to investigate for the NBT’s continued compliance with the NBT regulations (We may select additional approved NBTs for investigation based on operating priorities and available resources.)

    1. The goal is to conduct 20 NBT investigations each fiscal year, and each NBT investigated at least once every five years.

    2. The actual number of NBTs investigated depends on how many NBTs we haven’t investigated in the prior five years.

    3. There may be years when there aren’t 20 NBTs on the list to investigate.

  3. If the IRS receives information that a specific approved NBT may not be in compliance with the NBT regulations, we submit a request or recommendation to EP Classification for investigation of the approved NBT.

Establishing the NBT Investigation Case

  1. EP Classification: establish the NBT investigation on RCCMS and Non-Master File (NMF) AIMS as:

    • RCCMS type: "Non-Bank Trustee Investigation"

    • Activity code: 182

    • Project code: 6182

    • Case grade: 12

    • MFT: 99

    • Source Code: 26

    • A 0415XXXX statute date in keeping with the period assigned

  2. EP Classification: include these IDRS research documents in the case file:

    1. INOLES/T - to verify entity information

    2. BMFOLI - to verify return filings, balances due, freeze codes

    3. PMFOLS - to identify entity-issued information return filings (i.e., Form 1099-R or Form 5498)

      Note:

      If you need specific data for Forms 1099-R or 5498, request an IRPTR(R) print.

    4. AMDIS - to verify the entity is not under current audit

  3. EP Classification: obtain the NBT electronic folder that contains all of the approved NBT’s being investigated available closed case files from EP R&A. Find the electronic information on the shared drive database that contains all of the NBT historical information. See IRM 4.72.18.3.1 (1).

  4. EP Classification: forward to the manager of the EP Exam group that will perform the NBT investigation, the:

    • NBT electronic folder which contains the NBT application

    • EP R&A Technical contact assigned to the NBT investigation name and contact information

    • Any other pertinent information

    Note:

    The EP R&A Technical employee is assigned by the Manager, EP R&A Technical Group 1.

  5. The group manager will assign the NBT investigation to an agent.

  6. The EP agent will:

    1. Consult with the EP R&A Technical contact (SE:T:EP:RA:T1) monthly to report on the investigation’s status and to discuss any concerns.

    2. Contact the EP R&A contact at any time if you have questions about:

      • The NBT regulations

      • NBT investigation procedures discussed in this IRM section

      • Any other problems you encounter

Full Investigation Determination

  1. Determine if an investigation is necessary based on the following criteria:

    IF AND THEN
    An entity acts as an NBT but was never approved as an NBT
    • Don’t start the investigation.

    • Consult with EP R&A technical to determine how to proceed and close the case.

    Note:

    Case disposal and the supporting rational, as determined by EP R&A technical, must be included in the Transmittal Sheet. See case closing procedures for information on the preparation of the Transmittal Sheet

    An approved NBT indicates that it’s no longer serving as an NBT Wants to withdraw its NBT application, and remove its name from the list of approved NBTs,
    • Get a written statement from the approved NBT (enclose this in the NBT investigation case file) stating that:

      1. The accounts were transferred to another entity or distributed to the account owner. If a transfer, the statement should include the transferee’s name, address, telephone, and person to contact.

      2. The NBT wants to withdraw its application and have its name removed from the list of approved NBTs.

    • Inform the NBT that to obtain another NOA in the future, it must submit an application and user fee.

    • Close the case following the procedures in IRM 4.72.18.6, Case Closing Steps – Withdrawal of Notice of Approval Letter..

    The approved NBT is out of business A contact person who has the authority to speak for the defunct NBT is available, (e.g., when an NBT ceases to exist because it merged into another entity, the surviving entity has the authority to speak for the defunct NBT),
    • Obtain a written statement (enclose this in the NBT investigation case file) from that person that:

      1. Discloses whether the fiduciary accounts were transferred to another entity or distributed to the account owner. In the case of a transfer, the statement should include the transferee’s name, address, telephone, and person to contact.

      2. Requests the withdrawal of the defunct NBT’s NOA application and the removal of the defunct NBT’s name from the list of approved NBTs.

      Note:

      Don’t switch the investigation to the surviving entity. Close the case following the procedures in IRM 4.72.18.6, Case Closing Steps – Withdrawal of Notice of Approval Letter.

    The approved NBT is out of business and no contact person is available
    • Notate the fact that the NBT is out of business and there’s no contact person in the report and the Transmittal Sheet.

    • Close the case per IRM 4.72.18.6, Case Closing Steps – Withdrawal of Notice of Approval Letter.

    The approved NBT is not currently serving as an NBT Wants to retain its NOA for future use, Conduct the investigation because the NBT must continue to meet the requirements of the regulations. See IRM 4.72.18.4.2, Prepare for the NBT Investigation.
    None of the above applies Conduct the NBT investigation. See IRM 4.72.18.4.2, Prepare for the NBT Investigation.

Prepare for the NBT Investigation

  1. Prepare for the NBT investigation by following these steps:

    (a) Review the NBT application file and IDRS research.
    (b) Set up an (on-site) meeting with the NBT.
    Identify the individual (contact person) who has authority to discuss the NBT's compliance with the NBT regulations.
    Contact and inform the contact person that the company has been selected for an investigation to verify its continued compliance with the NBT requirements of 26 CFR 1.408-2(e) through 26 CFR 1.408–2(e)(5)(viii)(F).
    Schedule an (on-site) meeting with the contact person. Allow enough time, before the meeting, to allow them to receive an appointment letter (see Exhibit 4.72.18-1) and assemble requested information or documents.
    (c) Prepare and send to the NBT's contact person:
    An appointment letter. See Exhibit 4.72.18-1.
    An Information Document Request (IDR). See Exhibit 4.72.18-2.
    A Disclosure Statement. See Exhibit 4.72.18-3.
    (d) Prepare interview questions. See Exhibit 4.72.18-4. DO NOT SEND THE INTERVIEW QUESTIONS TO THE NBT.
  2. Request the NBT provide the following information or documents to demonstrate its continued compliance with the NBT regulations:

    Information or Documents to Request Investigation Action
    A list of owners with their percentage of ownership Use to determine if the NBT continues to meet the continuity requirement of 26 CFR 1.408-2(e)(2)(i). See IRM 4.72.18.4.3 (2), Verify Compliance with the NBT Requirements.
    The Corporate Charter and/or Articles of Incorporation, or a document establishing the formation of the NBT Review these documents to verify:
    • The state and date of the NBTs incorporation or formation.

    • The state that has jurisdiction over the NBT.


    Note:

    Don’t request this information if it’s included in the application case file retrieved from the electronic records.


    By-laws, operating procedures or some other document that controls the NBT’s activities containing the rules of fiduciary conduct found at 26 CFR 1.408-2(e)(5). See paragraph IRM 4.72.18.4.3 (3), Verify Compliance with the NBT Requirements Review these documents to verify that the NBT does, in fact, have the document required by 26 CFR 1.408-2(e)(5).
    A copy of the organization chart
    A copy of the NBT’s bond (or some other type of insurance) covering all employees taking part in the performance of the NBT’s fiduciary duties

    Note:

    See IRM 4.72.18.4.3 (8), Verify Compliance with the NBT Requirements, and 26 CFR 1.408-2(e)(5)(i)(B).

    Use a copy of the NBT’s bond (or some other type of insurance) that is properly endorsed by the insurer and includes all provisions, conditions, limitations, addenda, riders, etc., to verify:
    • A bond exists

    • The NBT is the named (or one of the named) insured

    • The bond is current and in force.

    • The insurer’s liability limit is at least $250,000 after deductions (if the insurer’s liability limit isn’t at least $250,000, the NBT must cause the insurer to raise its liability limit)

    A copy of the valuation report of the assets in the fiduciary accounts as of the most recent valuation date.

    Note:

    See IRM 4.72.18.4.3 (12), Verify Compliance with the NBT Requirements, and 26 CFR 1.408-2(e)(5)(ii)(E).

    Use the value of the assets in the fiduciary accounts in the adequacy of net worth calculation.

    Note:

    See IRM 4.72.18.4.3 (13), Verify Compliance with the NBT Requirements, and 26 CFR 1.408-2(e)(5)(ii).

    A copy of the most recent Auditor’s Report of the audits and examinations of the NBT’s fiduciary books and records. See IRM 4.72.18.4.3 (14), Verify Compliance with the NBT Requirements, and 26 CFR 1.408-2(e)(5)(iii)(C). Review the Auditor’s Report to verify:
    • The NBT is actually causing the audit that 26 CFR 1.408(e)(5)(iii)(A) or (B) requires

    • Whether the fiduciary accounts have been administered in accordance with the [tax] law, the NBT’s rules of fiduciary conduct ( 26 CFR 1.408-2(e)(5)) and sound fiduciary principles

    Copies of Investment Committee and Board of Directors Minutes. Review the Investment Committee and Board of Directors minutes to verify:
    • Whether the fiduciary accounts have been administered in accordance with the tax law, the NBT’s rules of fiduciary conduct 26 CFR 1.408-2(e)(5)) and sound fiduciary principles.

    • Whether the NBT has knowingly, willfully, or repeatedly failed to administer fiduciary accounts in a manner consistent with the requirements of the IRC and the Regs. thereunder or has administered a fiduciary account in a grossly negligent manner. (See 26 CFR 1.408-2(e)(7)(iv)).


    Request this information only if you’ve reviewed all other aspects of the NBT and still think you need additional information to conclude the NBT is compliant.
    Random copies of reports required by 26 CFR 1.408-5, 26 CFR 1.408-6, and 26 CFR 1.408-7 dealing with annual reports by trustees, disclosure statements, and reports on distributions, respectively, issued to fiduciary account owners during the most recent tax year.

    Note:

    See 26 CFR 1.408-2(e)(4)(ii)(C).

    A copy of the most recent taxable year’s financial statement with auditor’s comment Use to calculate the NBT’s adequacy of net worth. See IRM 4.72.18.4.3 (13), Verify Compliance with the NBT Requirements.
    A copy of the most recent aging report of accounts payable

    Note:

    See 26 CFR 1.408-2(e)(2)(v).

    Review his report for insight to the NBT’s financial responsibility. 26 CFR 1.408-2(e)(2)(v), in part, asks the NBT to exhibit its ability to pay its debts [that aren’t under a legal dispute] as they become due. You can determine this from the NBT’s financial statements.

    Note:

    The regulations don’t require the NBT to demonstrate that it actually pays its debts, however, the aging report may reveal whether the NBT actually pays its debts as they come due.


    The aging report may also reveal if the NBT is acting irresponsibly with paying its debts. Doing so may indicate that the NBT has some degree of irresponsibility handling its fiduciary duties for the fiduciary accounts.
    Employee personnel folders of the employees specified in IRM 4.72.18.4.2 (3)

    Note:

    See 26 CFR 1.4018-2(e)(2)(iii).

    This information may reveal the NBT's employees' expertise in the administration of fiduciary powers used in handling fiduciary accounts.
  3. Ask for separate meetings (one immediately after the other) at the on-site meeting with:

    1. The head of the Trust Department and the supervisors/managers of the trust employees to better understand the internal controls and the systems used for accounting for the fiduciary account assets. The meeting shouldn’t take longer than two hours.

    2. A few (not more than seven) randomly selected employees who handle the fiduciary accounts to verify that the controls are working and to learn of their experiences handling fiduciary accounts.

Verify Compliance with the NBT Requirements

  1. Interview the approved NBT to verify compliance with the below listed NBT requirements. See IRM 4.72.18.4.5, Post Interview, to link to the Checksheet/Workpaper that you must complete to document the NBT investigation.

    NBT Requirement: Explanation
    Continuity
    • The NBT must meet the continuity requirement. See IRM 4.72.18.4.3 (2), Continuity..

    Established Location
    • The NBT must maintain an established business location that is accessible during normal business hours and report the address of that business location. See 26 CFR 1.408-2(e)(2)(ii).

    Fiduciary Experience or Expertise
    • A significant part of the NBT’s business must consist of administering fiduciary accounts.

    • Determine if the NBT continues to hire employees experienced in administering fiduciary accounts. See 26 CFR 1.408-2(e)(2)(iii).

      Note:

      Formal training such as a college degree isn’t sufficient to satisfy the expertise requirement. The employee needs to have actual experience in the administration of the fiduciary powers used to handle retirement plans.

    Financial Responsibility
    • The NBT must pay its debts within 30 days of falling due unless they are the subject of a legal dispute.

      Note:

      See IRM 4.72.18.4.2 (2), Prepare for the NBT Investigation, and 26 CFR 1.408-2(e)(2)(v).

    Capacity to Account
    • Verify the NBT’s competence in accounting for the interests of a large number of individuals including calculating and allocating income earned and paying out distributions to payees. See 26 CFR 1.408-2(e)(3).

    Fitness to Handle Funds
    • Verify the NBT’s competence in performing activities normally associated with the handling retirement funds. See 26 CFR 1.408-2(e)(4), (especially those activities described in (ii)(A)-D).

    Rules of Fiduciary Conduct
    • See IRM 4.72.18.4.3 (3), Rules of Fiduciary Conduct.

    Furnish a Copy of its NOA to its Customers
    • The NBT must furnish the plan administrator or the person for whose benefit the account is to be established a copy of the NBT’s written NOA to serve as a nonbank trustee or custodian. 26 CFR 1.408-2(e)(7(iii).

  2. Continuity. The NBT must assure the uninterrupted performance of its fiduciary duties notwithstanding the death or change of its owners. 26 CFR 1.408-2(e)(i)(B) and (C) give safe harbors (diversity of ownership) for meeting the continuity requirement. EP R&A has approved some NBTs applications or accepted some NBTs during the NOC process (26 CFR 1.408-2(e)(6)(iv)) who fell outside of the safe harbors based on a "facts and circumstances test." The facts and circumstances test factors are:

    Factor Considerations
    Concentration of ownership
    • How close does the applicant come to satisfying the sufficient diversity safe harbors?

    Non-owner management
    • To what degree does the applicant’s continuing existence, organization, viability, etc., depend on the owner(s)? (Where management is separate from ownership and the owner(s) is (are) not involved in day-to-day management, the applicant should be less susceptible to organizational instability due to the owner(s)’ death or disability.)

    Overall financial condition
    Substantial business operation
    • How many employees does the applicant have?

    • How many physical business locations does the applicant have?

      Note:

      A large business establishment with geographically diverse locations (like the companies using the 12b/12g exception of 26 CFR 1.408-2(e)(2)(i)(B)(2) and (3)) is less likely to go out of existence solely because of the death or incapacity of one person.

    Regulatory supervision
    • There may be state or local regulatory supervision to take into account. For a broker-dealer, this is evidenced by membership in the Financial Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).

      Note:

      A company whose stock is subject to disclosure under the Securities Act or that is a reporting company under the Exchange Act would demonstrate regulatory supervision because in either case the company would be subject to SIPC as well as the reporting requirements of section 13 of the Exchange Act.

    Number of years of operation
    Miscellaneous
    • This category considers factors unique to a particular applicant that doesn’t fit into one of the six preceding categories. These factors could be ones that either support or refute an applicant’s satisfaction of the continuity requirement.

    Note:

    None of these factors are, in and of themselves, sufficient to justify approval or disapproval of an applicant. The weight of any particular factor depends on the "facts and circumstances."

    IF AND THEN
    The NBT under investigation falls outside of the safe harbors. Determine (from the closed NBT application case file) if either:
    • The NBT met the safe harbors or the facts and circumstances test when EP R&A approved the application.

    • EP R&A acknowledged (without raising issue) a subsequent NOC (26 CFR 1.408-2(e)(6)(iv)) in the NBT’s ownership structure.

    The NBT failed to satisfy the safe harbors after IRS approved the application. EP R&A never considered the NBT’s change in facts and circumstances after it approved the application. Include a statement in the Transmittal Sheet to the Director, EP that the NBT’s continuity facts and circumstances changed since its application. See Exhibit 4.72.18-7.
    EP R&A acknowledged the NBT’s NOC of the NBT’s ownership structure. In its acknowledgement, EP R&A indicated that the change may adversely affect the NBT’s continued approval. Include a statement in the Transmittal Sheet that EP R&A raised an issue with the NBT’s continuity in an acknowledgement letter of a NOC.
  3. Rules of Fiduciary Conduct. The NBT must demonstrate, during the application process, that it meets the provisions of the rules of fiduciary conduct listed in 26 CFR 1.408-2(e)(5)(i) through (viii) via:

    • Applicable regulatory requirements

    • Corporate or other governing instruments

    • Its established operating procedures

  4. The NBT may demonstrate compliance with the rules of fiduciary conduct by:

    1. The NBT’s board of directors (or its equivalent) resolution adopting the rules of fiduciary conduct and a copy of the document or its appropriate section containing the rules of fiduciary conduct as adopted by the board of directors. The resolution may not incorporate rules of fiduciary conduct by reference.

    2. Providing evidence it’s operating under applicable statutory requirements either under state or federal law, which mirror the rules of fiduciary conduct.

  5. Verify that the NBT’s owners or directors are responsible for:

    1. Determining the NBT’s fiduciary policies

    2. Investing and disposing property held by the NBT in a fiduciary capacity

    3. Directing and reviewing that the actions of all employees (hire-fire relationship) the NBT uses in exercising its fiduciary powers are the NBT’s owners or directors or designated employees who are assigned, by action duly recorded, by the owners or directors responsibility ( 26 CFR 1.408-2(e)(5)(i)(A)(1)).

      Note:

      In carrying out this responsibility, the owners or directors, may assign the administration of the NBT’s fiduciary powers (as may be proper to assign) to designated employees, by action duly recorded.

  6. Verify that the NBT, in operation, made a written record of accepting, relinquishing or closing out all fiduciary accounts, and the assets held for each account. 26 CFR 1.408-2(e)(5)(i)(A)(2).

  7. Verify that in operation, if the NBT (or a member of a controlled group of corporations (per IRC 1563(a)) to which the NBT belongs) has the authority or the responsibility to render any investment advice for the assets held in or for each fiduciary account, it determines if it’s advisable to retain or dispose the assets at least once every 12 months. See 26 CFR 1.408-2(e)(5)(i)(A)(3).

  8. Obtain a copy of the bond or insurance policy, per 26 CFR 1.408-2(e)(5)(i)(B), in which the NBT is the named insured, that is properly endorsed by the insurer and includes all conditions, limitations, addendum, and riders and include it in the Investigation case file to verify in operation that both:

    1. All employees taking part in the performance of the NBT’s fiduciary duties are bonded in a current, properly endorsed bond or insurance policy that is similar to a standard fidelity, stock broker, or financial institution bond where the NBT is named as the insured.

    2. The insurer’s bond or insurance policy liability limit is at least $250,000 after the applicable deductible.

  9. Verify that in operation the NBT employs or retains legal counsel who is readily available to pass upon fiduciary matters and to advise the NBT. See 26 CFR 1.408-2(e)(5)(i)(C).

  10. If the NBT (or a member of a controlled group of corporations per IRC 1563(a) to which the NBT belongs), has the authority or the responsibility to render investment advice for the assets held in or for each fiduciary account, verify that in operation the NBT segregates the performance of its fiduciary duties from other business activities by maintaining a separate trust or custodial division under the immediate supervision of an individual designated for that purpose. The trust or custodial division may use the NBT’s other division’s employees and facilities and NBT’s other divisions may use the employees and facilities of the trust or custodial division, as long as they preserve the separate identity of the trust or custodial division. See 26 CFR 1.408-2(e)(5)(i)(D).

  11. Verify that the NBT’s net worth (as defined in 26 CFR 1.408-2(e)(5)(viii)(F)) is adequate.

    Note:

    A governmental unit that seeks to qualify as a nonbank trustee of a deemed IRA that is part of a plan qualified under IRC 401(a), IRC 403(a), IRC 403(b), or IRC 457 doesn’t need to demonstrate that it satisfies the net worth requirements in 26 CFR 1.408-2(e)(5)(ii) or this section if it demonstrates instead that it possesses taxing authority under applicable law. 26 CFR 1.408-2(e)(8)(i).

    For purposes of this IRM section, the term governmental unit means a state, political subdivision of a state, and any agency or instrumentality of a state or political subdivision of a state. 26 CFR 1.408-2(e)(8)(ii).

  12. Verify that the NBT determines the value of the assets held by it in fiduciary accounts at least once each calendar year and no more than 18 months after the preceding valuation. The assets must be valued at their fair market value, except that for employee pension benefit plans to which section 103(b)(3)(A) of the ERISA (29 USC 1023(b)(3)(A)) applies, assets are considered to have the value stated in the plan’s most recent annual report. 26 CFR 1.408-2(e)(5)(ii)(E).

    1. The value of all assets the NBT holds in fiduciary accounts is an important element of the formulas used to determine the adequacy of the NBT’s net worth. Therefore, it’s important to ensure that the NBT’s fiduciary accounts value is accurate.

    2. The NBT can’t declare the value of certain assets (such as limited partnerships and stock of closed corporations that aren’t publicly traded) as indeterminable or consistently report a value of $0.00, $1.00, or cost. If it were allowed to do so, the adequacy of its net worth will become indeterminable. In addition, Forms 1099-R and 5498 will be under or over stated and result the account holder’s loss of tax revenue or over taxation. Therefore, the NBT must value all assets in its fiduciary accounts. For those assets whose value isn’t easily determinable, the NBT must develop a method for valuing them and give a description of the method.

    3. If the NBT is unwilling or unable to value all the assets it holds in fiduciary accounts, close the case recommending revocation per the closing procedures in IRM 4.72.18.7, Case Closing Steps – Proposed Revocation, because the adequacy of the NBT’s net worth can’t be determined.

  13. Calculate the adequacy of the NBT’s net worth using the following equations:

    Condition Adequate Net Worth Equation
    Before the NBT accepts new accounts during the current year, its net worth (determined as of the end of the most recent taxable year) must have exceeded: The greater of:
    1. $100,000, or

    2. The sum of —

    1. 2% of the value (determined as of the most recent valuation date) of all of the assets it holds in fiduciary accounts passively.

      1. An NBT is passive if it (or a member of a controlled group of corporations (per IRC 1563(a)) to which the NBT belongs) doesn’t render investment advice, make investment decisions, or directly or indirectly control the fiduciary accounts’ investment activity.

      2. An NBT isn’t passive if any of the fiduciary accounts are maintained in a common investment fund (per 26 CFR 1.408-2(e)(5)(viii)(C) according to 26 CFR 1.408-2(e)(5)(vi)).

    2. 4% of the value (determined as of the most recent valuation date) of all of the assets it holds in fiduciary accounts non-passively.

      1. An NBT is non-passive if it (or a member of a controlled group of corporations (per IRC 1563(a)) to which the NBT belongs) renders investment advice, makes investment decisions, or directly or indirectly controls the fiduciary accounts’ investment activity.

    Minimum Net Worth at the end of the NBT’s most recent taxable year = the greater of:
    1. $100,000, or

    2. (value of passive accounts x 2%) + (value of non-passive accounts x 4%).

    (26 CFR 1.408--2(e)(5)(ii)(B)).

    Members of Securities Investor Protection Corporation (SIPC) may use the special rule in 26 CFR 1.408-2(e)(5)(ii)(D) to reduce its minimum net worth requirement.
    To maintain its existing accounts during the current year, the NBT must take whatever lawful steps are necessary (including relinquishing fiduciary accounts) to ensure that its net worth (determined as of the close of each taxable year) exceeded: The greater of:
    1. $50,000, or

    2. the sum of —

    1. 1% of the value (determined as of the most recent valuation date) of all of the assets it holds in fiduciary accounts passively.

      1. An NBT is passive if it (or a member of a controlled group of corporations (per IRC 1563(a)) to which the NBT belongs) doesn’t render investment advice, make investment decisions, or directly or indirectly control the fiduciary accounts’ investment activity.

      2. An NBT isn’t passive if any of the fiduciary accounts are maintained in a common investment fund (per 26 CFR 1.408-2(e)(5)(viii)(C) according to 26 CFR 1.408-2(e)(5)(vi)).

    2. 2% of the value (determined as of the most recent valuation date) of all of the assets it holds in fiduciary accounts non-passively.

      1. The NBT is non-passive if it (or a member of a controlled group of corporations (per IRC 1563(a)) to which the NBT belongs) renders investment advice, makes investment decisions, or directly or indirectly controls the fiduciary accounts’ investment activity.

    Minimum Net Worth determined as of the close of each taxable year = the greater of $50,000 or (value of passive accounts X 1%) + (value of non-passive accounts X 2%). See 26 CFR 1.408-2(e)(5)(ii)(C).

    Members of SIPC may use the special rule provided at 26 CFR 1.408-2(e)(5)(ii)(D) to reduce its minimum net worth requirement.
  14. Verify for the audit requirement in 26 CFR 1.408-2(e)(5)(iii), that:

    1. At least once during each 12-month period, the NBT gets a detailed audit of its fiduciary books and records by a qualified public accountant.

    2. During the audit, the NBT determined whether the fiduciary accounts were administered: according to the law, the NBT’s rules of fiduciary conduct, and sound fiduciary principles.

    3. The audits were conducted according to generally accepted auditing standards and involve whatever tests the qualified public accountant thinks are needed of the fiduciary books and records.

    Note:

    If the NBT is regulated, supervised, and subject to periodic examination by a state or federal agency, the NBT may adopt an adequate continuous audit system in lieu of the periodic audits required by 26 CFR 1.408-2(e)(5)(iii)(A) as long as the continuous audit system includes determining whether the fiduciary accounts have been administered in accordance with law, these rules of fiduciary conduct, and sound fiduciary principles. The continuous audit system must be conducted according to generally accepted auditing standards and involve whatever tests of the NBT’s fiduciary books and records the auditor considers necessary.

  15. Verify that the report of the audits and examinations required by 26 CFR 1.408-2(e)(5)(iii) and the actions taken on them is noted in the NBT’s fiduciary records.

  16. Verify that funds held in a fiduciary capacity, by the NBT, awaiting investment or distribution are not held uninvested or undistributed any longer than is reasonable for the proper management of the account. 26 CFR 1.408-2(e)(5)(iv).

  17. Verify that except for investments pooled in a common investment fund (per 26 CFR 1.408-2(e)(5)(viii)(C) according to 26 CFR 1.408-2(e)(5)(vi)) the investments of each account won’t be commingled with any other property. 26 CFR 1.408-2(e)(5)(v)(A).

  18. Verify that the assets of accounts requiring safekeeping are deposited in an adequate vault and the NBT keeps a permanent record of assets deposited in or withdrawn from the vault. ( 26 CFR 1.408-2(e)(5)(v)(B).

  19. If the NBT maintains a common investment fund (per 26 CFR 1.408-2(e)(5)(viii)(C)), verify that:

    1. The NBT is authorized under applicable law to administer a common investment fund. See 26 CFR 1.408-2(e)(5)(vi).

    2. The pooling of the assets in a common investment fund doesn’t violate the plan documents or applicable law. 26 CFR 1.408-2(e)(5)(vi).

    3. The common investment fund is administered according to 26 CFR 1.408-2(e)(5)(vi)(A) through (F). 26 CFR 1.408-2(e)(5)(vi).

    4. The NBT’s rules of fiduciary conduct doesn’t contain and isn’t operating under any provisions that apply only to passive NBTs.

  20. Verify that the NBT keeps its fiduciary records separate and distinct from other records and retains them for as long as their contents may become material in administering any internal revenue law. See 26 CFR 1.408-2(e)(5)(vii).

  21. Verify that the fiduciary records contain full information for each account. 26 CFR 1.408-2(e)(5)(vii)(A).

  22. Verify that the NBT keeps an adequate record of all pending litigation to which it is a party in connection with exercising its fiduciary powers. 26 CFR 1.408-2(e)(5)(vii)(B).

Changes Experienced by the NBT Revealed During the Interview

  1. If the approved NBT has experienced any changes that affect the continuing accuracy of any representation made in its application, ask the NBT to prepare a NOC per 26 CFR 1.408-2(e)(6)(iv), addressed to the IRS at the address in IRM 4.72.18.3 (7).

    1. Include the NOC in the NBT investigation case file.

    2. Report in the Transmittal Sheet to the Director, EP that a NOC is included in the NBT investigation case file. See Exhibit 4.72.18-7.

  2. The NOC must include the following:

    1. A description of the change

    2. The reason for the change (cosmetic or business)

    3. A statement that no other representation made in its original application has materially changed

  3. Examples of changes include:

    1. A name change

    2. A change in EIN. (The EIN is different from the EIN on the NBT’s application or the NBT’s NOA issued by EP R&A.)

    3. An address change

    4. An applicant who was approved to serve as a passive trustee is now accepting non-passive accounts

    5. An applicant will start handling accounts that are not described in the NOA

    6. An applicant has experienced an acquisition, merger, consolidation, or some other type of reorganization

Post Interview

  1. After interviewing the NBT, complete the NBT Investigation Checksheet / Workpaper by detailing, documenting, and commenting on your findings of each aspect in the IDR and interview questions. The NBT Investigation Checksheet/Workpaper replaces Form 5772 and Form 5773.

  2. If needed, request and/or research for additional information to cross-reference information you receive from the NBT by using:

    • "yK1/Y-Works"

    • Information returns issued by the NBT using IRPTR(R) and RICS

    • Asset Locator data

    • Any other internet research

  3. Number information narratives and documents the NBT submitted which aren’t included in the Checksheet/Workpaper. Reference them to the Checksheet/Workpaper.

Case Closing Steps - No Change or No Change with Deficiencies

  1. Use either Exhibit 4.72.18-5 or Exhibit 4.72.18-6 as a guide to generate a favorable closing letter. The difference between the two sample letters is the inclusion of “However, certain minor deficiencies were noted. Enclosed is an explanation of the deficiencies and the corrective action.” If deficiencies were not note, use Exhibit 4.72.18-5. If deficiencies were noted, use Exhibit 4.72.18-6, which includes the extra language, and prepare the List of Deficiencies attachment.

  2. All favorable closing letters must include:

    1. "On [insert date], you were issued a Notice of Approval authorizing [insert name of NBT] to act as a nonbank custodian of plans qualified under section [insert all the account types authorized in the NOA]. In the Notice of Approval, you were advised that continued approval would be contingent upon the continued satisfaction of the criteria set forth in section 1.408-2(e) of the Income Tax Regulations (regulations)."

    2. "Based upon the results of the nonbank trustee/custodian investigation we recently conducted, we have determined that [NBT’s Name] is operating within the requirements applicable to nonbank trustees/custodians under Treas. Reg. 1.408-2(e) of the Income Tax Regulations."

    3. A statement indicating the investigation is not an examination under IRC 7605(b).

    4. The name and telephone number of a person to contact.

    5. Signature/stamp of the Director, EP Examinations (or delegate).

  3. Save the favorable closing letter in the RCCMS Office Documents folder.

    Note:

    The designated prefix for NBTI documents and workpapers is 3K8.NONBANK TRUSTEE. The designated prefixes for other items (closing letters, correspondence, forms, Case chronology record (CCR), IDRS, etc.) must conform to the RCCMS Naming Convention found at in 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits

    Note:

    Mandatory Review issues all favorable closing letters.

  4. Prepare the Nonbank Trustee Transmittal Sheet (see Exhibit 4.72.18-7) addressed to the Director, EP. Include in the Transmittal Sheet:

    1. The NBT’s name.

    2. A statement that the NBT was investigated per to IRM 4.72.18.

    3. The recommendation and rational for the applicable favorable closing letter.

    4. The group manager’s signature.

    5. Any other relevant or pertinent information.

      Note:

      If a NOC was received during the investigation, it should be mentioned in the List of Deficiencies and should be noted here as well.

      Note:

      The Nonbank Trustee Transmittal Sheet Nonbank Trustee Transmittal Sheet is located under the "JOBS" tab on the "Examination" link under Nonbank Trustees and Custodians.

  5. Prepare Form 5599 and use MFT 99, Disposal Code (DC) 02 or 08, and issue code 36z.

  6. Update RCCMS to reflect the correct DC and issue code (36z).

    • 02 (RCCMS code 107) - No Change. Use when there are no issues found.

    • 08 (RCCMS code 206) - Correction of Operational Practice-Future Impact. Use when there are minor deficiencies noted.

  7. Print out all case file information and assemble in the following order (top to bottom):

    1. Outside-front: Staple Form 10329 and the Nonbank Trustee Transmittal Sheet, see Exhibit 4.72.18-7 to the outside-front of each case file.

    2. Inside-right: Assemble on the inside-right of the paper case file:
      1. Closing letter
      2. Checksheet/workpapers/interview notes
      3. Form 2848
      4. CCR
      5. Investigation correspondence between the IRS and the NBT, in chronological order (most recent on top)
      6. All documents secured during the investigation, such as financial statements, auditors’ reports, net worth computations, fidelity bond, etc.
      7. NBT application file
      8. IDRS research

      Note:

      Leave Form 5599 loose in the case file

  8. Update the case to status 20 Review on RCCMS and AIMS.

  9. Send the completed case file to Mandatory Review at the following address:

    Note:

    Both types of “no change” cases are subject to mandatory review.

    IRS - EP Mandatory Review
    801 Broadway, Room 397
    MDP 13
    Nashville, TN 37203

  10. Mandatory Review:

    1. Determine if the investigation was conducted in accordance with the guidance provided in this IRM.

    2. Verify that the closing letter is accurate.

      Caution:

      Common mistakes include wrong dates (ie NOA date, NOC date, date of prior closing letter, etc.) and incorrect address ( a NOC was submitted, but old address is used).

    3. Prepare the MR Update Sheet and attach Form 5599 noting that Form 5599 be faxed to ESSP at (718) 834-6521. This notifies ESSP to that the case is ready for closure in RCCMS/NMF AIMS.

    4. Ship the closed investigation case file to the following address for scanning and uploading to the NBT shared drive:

      IRS EPCU TEGE – Employee Plans
      Attn: Group Manager, EPCU MS 1113
      324 25th St Rm 6025
      Ogden, UT 84401-2344

Case Closing Steps – Withdrawal of Notice of Approval Letter

  1. If you determine that the NBT is no longer acting in the capacity of an NBT, secure a letter from the NBT explicitly stating this fact. Notify EP R&A of the withdrawal request so they can remove the NBT from the list of approved NBTs.

  2. Send a copy of the letter from the NBT to IRS EP R&A, along with a Transmittal Sheet and any other applicable documents and correspondence received from the NBT, to:
    Internal Revenue Service
    c/o Manager SE:T:EP:RA:T1
    1111 Constitution Avenue, NW PE
    Washington, DC 20224

  3. Prepare a Form 5599 and use MFT 99, DC 01 (Regulatory/Revenue Protection), and issue code 36z.

  4. Update RCCMS for closing by entering DC 210 - Regulatory/Revenue Protection and issue code 36z.

  5. Print out all case file information

  6. Do not send these cases to Mandatory Review. Close them directly to ESSP by:

    1. Faxing a completed Form 5599 to ESSP at (718) 834-6521. The Form 5599 notifies ESSP that the case is ready for closure in RCCMS/NMF AIMS.

    2. Print the case file and ship it to the following address for scanning and uploading to the NBT shared drive:
      IRS EPCU TEGE – Employee Plans
      Attn: Group Manager, EPCU MS 1113
      324 25th St Rm 6025
      Ogden, UT 84401-2344

Case Closing Steps – Proposed Revocation

  1. If you determine the NBT’s NOA letter should be revoked prepare the Nonbank Trustee Transmittal Sheet (see Exhibit 4.72.18-7) addressed to the Director, EP. Ensure the Transmittal Sheet includes the following:

    1. The NBT’s name.

    2. A statement that the NBT was investigated in accordance with IRM 4.72.18.

    3. A recommendation that the NOA be revoked

    4. A detailed rational for why revocation is being recommended.

    5. Your group manger’s signature.

    Note:

    The the Nonbank Trustee Transmittal Sheet Nonbank Trustee Transmittal Sheet is located under the "JOBS" tab on the "Examination" link under Nonbank Trustees and Custodians.

  2. Print out the entire case file and assemble the file (top to bottom) as follows:

    1. Outside-front: Staple Form 10329 and the Nonbank Trustee Transmittal Sheet, to the outside-front of each case file.

    2. Inside-right: Assemble the following items on the inside-right of the paper case file:
      1. Checksheet/workpapers/interview notes
      2. Form 2848
      3. CCR
      4. Investigation correspondence between the IRS and the NBT, in chronological order (most recent on top)
      5. All documents secured during the investigation, such as financial statements, auditors’ reports, net worth computations, fidelity bond, etc.
      6. NBT application file
      7. IDRS research

  3. Prepare Form 5599 using DC 09, Revocation (proposed) and issue code 36z.

  4. Update the case in RCCMS/NMF AMDISA to Status 38, Suspense, All Other, use DC 211 and Issue Code 36z in RCCMS.

    Caution:

    Don’t close the case; the RCCMS case remains in the agent’s inventory until a determination is made by EP R&A.

  5. Mail the entire case file to EP R&A at the address noted below:

    Internal Revenue Service
    c/o Manager SE:T:EP:RA:T1
    1111 Constitution Avenue, NW PE
    Washington, DC 20224

  6. EP R&A will:

    1. Review the case file and follow procedures in 26 CFR 1.408-2(e)(7)(v) for revoking the NOA letter.

    2. If revocation is warranted, send a secure email containing the NBT disposition memo to the agent, the agent's group manager, and EP Classification, informing them that the case can be closed from RCCMS and NMF AIMS once the agent reviews the file and mails the revocation letter to the entity.

    3. If further development is required, return the case to the agent’s group manager.

  7. Agent: If EP R&A returns the case for additional development and you determine revocation is still warranted, return the case, through your group manager, to EP R&A. If you determined the case is a "no change" or "no change with deficiencies" , follow the steps in IRM 4.72.18.5, Case Closing Steps - "No Change" or "No Change with Deficiencies" .

  8. Agent: If EP R&A supported revocation,

    1. Save the closing letter and the NBT Disposition Memo in the RCCMS Office Documents folder using the RCCMS Naming Convention found in 4.71.1 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits

      Note:

      The designated prefix for NBTI documents and workpapers is 3K8.NONBANK TRUSTEE. The designated prefixes for other items (correspondence, forms, CCR, IDRS, etc.) should conform to the RCCMS Naming Convention.

    2. Fax ESSP Form 5599 to notify them that the case is ready for closing. ESSP's fax number is (718) 834-6521.

    3. Send the closed investigation case file to the following address for scanning and uploading to the NBT shared drive:
      IRS EPCU TEGE – Employee Plans
      Attn: Group Manager, EPCU MS 1113
      324 25th St Rm 6025
      Ogden, UT 84401-2344

    Note:

    EP R&A is the ultimate authority on all NBTI. Since EP R&A reviewed the investigation, do not send the case to Mandatory Review.

Case Closing Steps – Survey Before or After Assignment

  1. If you’re assigned a case for investigation and you and your group manager determine that the case shouldn’t be investigated since there has been recent compliance activity involving the NBT, contact EP Classification and secure their concurrence to survey the case.

  2. Classification may assign another NBT for investigation to replace the one that was surveyed.

  3. Close the case using one of the following DCs:

    1. 31 (RCCMS code 910) – Survey Before Assignment

    2. 32 (RCCMS code 908) – Survey After Assignment

  4. Use issue code 36z for all NBT cases, regardless of DC.

  5. Complete Form 5596, TE/GE Non-Examined Closings and Form 1900 per IRM 4.71.7, Survey Returns.

  6. Fax a copy of the Form 5596 or Form 1900 to ESSP to notify them that the case is being closed through survey. ESSP's fax number is (718) 834-6521.

  7. Send the Transmittal Sheet, Form 1900 and any documents associated with the file to the following address for scanning and uploading to the NBT shared drive:
    IRS EPCU TEGE – Employee Plans
    Attn: Group Manager, EPCU MS 1113
    324 25th St Rm 6025
    Ogden, UT 84401-2344

EPCU Scanning of Closed Investigation Files and Upload to NBT Shared Drive

  1. When NBT Investigation cases are closed, the groups send printed copies of the entire case file to the EPCU Unit in Ogden, UT.

  2. EPCU will:

    1. Scan the entire case into an electronic format.

    2. Upload the electronic case file to the NBT shared drive to a separate folder for that NBT that includes all its historical documents.

    3. Enter the NBT investigations closing date on the NBT inventory tracking system.

Recertification

  1. Each year, October 1 through December 31, the EPCU contacts each approved NBT that was not selected for investigation during that year and certifies that the NBT wishes to retain its NOA letter.

  2. EPCU issues a letter on or about October 1 to all NBTs that were not selected for investigation during that year.

  3. The letter should request the NBT to:

    1. Verify it wants to retain its NOA

    2. Verify the NBT’s current address

    3. Identify the names of individuals and/or points of contact for the NBT to whom we can send future correspondence

  4. The following table provides actions the EPCU should take based on the NTB’s response to the letter.

    IF THEN
    If an NBT doesn’t want to retain its NOA: It must state, in writing:
    • It’s no longer serving as an NBT.

    • It wishes to withdraw its NBT application.

    • It wants to have its name removed from the list of approved NBTs.

    • Whether the accounts were transferred to another entity or distributed to the account owner.

      Note:

      If transferred, the statement should include (if available) the transferee’s name, address, telephone, and person to contact.

    If EPCU doesn’t receive a response from an NBT within 30 days, EPCU researches the internet and/or IDRS to determine a reason the NBT didn’t respond to the letter.
    1. If the research reveals a new address for the NBT, EPCU sends another letter to the new address.

    2. If the research doesn’t provide a new address or any other useful information about the NBT’s location or there’s no response to the second letter, EP R&A immediately suspends the NBT’s NOA by issuing a letter to the NBT’s address on file per 26 CFR 1.408-2(e)(7)(v)(E) and removes the NBT from the list of approved NBTs. The letter:

      1. Notifies the NBT of the suspension and propose revocation of the NOA per 26 CFR 1.408-2(e)(7)(v).

      2. Is sent by registered or certified mail.

    If the NBT responds to the first letter within 30 days or the second letter within 60 days per 26 CFR 1.408-2(e)(7)(v)(C) and declares that it wishes to retain its NOA, EP R&A places the NBT’s name back on the list of approved NBTs
    If the NBT doesn’t respond within 60 days per 26 CFR 1.408-2(e)(7)(v)(C) or (D) the Director, EP R&A revokes the NBT’s NOA.
    If an approved NBT doesn’t certify that it wishes to retain its NOA or the approved NBT can’t be located, EP R&A revokes the approved NBTs NOA and its name removed from the list of approved NBTs.

NTB Status Changes - Coordination Between EP R&A and EPCU

  1. If the NBT indicates that they no longer operate as an NBT, the EPCU will:

    1. Secure a written statement from the NBT specifically stating this.

    2. Update the NBT database to reflect the change.

    3. Scan the EPCU case file, including the statement from the NBT, and uploads these documents to the shared NBT drive.

    4. Send the letter from the NBT to R&A.

  2. R&A will:

    1. Remove the NBT from the published list.

    2. Send a letter to the NBT confirming that they’re no longer operating as an NBT and that they’re removed from the list of approved NBT’s.

  3. If the NBT indicates that there’s a major change to the NBT (e.g., NBT changed its organization structure from corporation to partnership), the EPCU will:

    1. Secure written statement from the NBT specifically stating this.

    2. Update the NBT database to reflect the change.

    3. Scan the EPCU case file, including the statement from the NBT, and uploads these documents to the shared NBT drive.

    4. Send the letter from the NBT to R &A.

  4. R&A will:

    1. Update the published list and determines if any additional information or actions are necessary.

    2. Send a letter to the NBT acknowledging the change

  5. If the NBT indicates that there’s minor changes to the entity information (e.g., address change or change in the name of the point of contact), the EPCU will:

    1. Secure a written statement from the NBT specifically stating the nature of the change.

    2. Update the NBT database to reflect the change.

    3. Scan the EPCU case file, including the statement from the NBT, and upload these documents to the shared NBT drive.

    4. Send the letter from the NBT to R&A.

  6. R&A will:

    1. Update the published list and determines if any additional information or actions are necessary.

    2. Send a letter to the NBT acknowledging the change.

  7. If R&A determines that any changes in IRM 4.72.18.10.1 (1), IRM 4.72.18.10.1 (3), IRM 4.72.18.10.1 (5) above are different than initially provided, they’ll:

    1. Update the NBT database to reflect the change.

    2. Scan the case file, including the statement from the NBT, and upload these documents to the shared NBT drive.

Abbreviated Compliance Checks

  1. Instead of a doing a complete NBT investigation, EP Exam (coordinated by EPCU) may conduct a short check for compliance with the NBT regulations at 26 CFR 1.408-2(e). EPCU, through a compliance check, sends a short questionnaire to select NBTs for the following key items in the regulations that they evaluate to determine if a full NBT investigation is needed:

    1. Continuity

    2. Capacity to Account

    3. Bonding

    4. Adequacy of Net Worth

    5. Court Action/Bankruptcy

    6. Passive or Non-Passive (Active)

Sample Appointment Letter

Sample Appointment Letter

NOTE: Use Letterhead

Internal Revenue Service Department of the Treasury
TE/GE Employee Plans
Date: Date of Appointment:

Time of Appointment:

Place of Appointment:

Person to Contact/Badge Number:

Telephone Number:
Dear Sir or Madam:

As a Non-bank trustee, you have been selected for an investigation to test compliance with the requirements of Treas. Reg. 1.408-2(e)(2) through 1.408-2(e)(5)(viii)(F). To help make the investigation as brief as possible, please have the items available that I have requested at the end of this letter.

If you have any questions or cannot keep the scheduled appointment, please contact me at the telephone number shown above.

Thank you for your cooperation.

Sincerely,
Agent Name
Employee Plans Specialist
Enclosure:
Information Document Request
Disclosure Statement

Sample Information Document Request

Sample Information Document Request

Internal Revenue Service Department of the Treasury
Information Document Request (IDR)

Please have the following items available for inspection:

(1) A list of owners with their percentage of ownership.

(2) The Corporate Charter and Articles of Incorporation.

(3) The by-laws, operating procedures, or some other document containing the rules of fiduciary conduct.

(4) A copy of the Organizational Chart.

(5) A copy of the fidelity bond (or some other type of insurance) for all employees handling fiduciary accounts.

(6) Provide your adequacy of net worth calculations as of the end of the most recent taxable year for purposes of Treas. Reg. 1.408-2(e)(5)(ii)(B) and (C) or (D), if applicable.

  1. Make sure the valuation date being used is specified in the calculation and ties to the supporting documentation.

  2. Provide documentation to support:
    1. The valuation report of the fiduciary accounts.
    2. The value of all other accounts.
    3. The audited financial statements that were prepared in accordance with Generally Accepted Accounting Principles (GAAP), which include the auditor's comments. Please tie the net worth used in the calculation back to the net worth reflected in these financial statements.

7. Provide:

  1. The audit of your fiduciary books and records as required by Treas. Reg. 1.408-2(e)(5)(iii)(A) or (B).

  2. If applicable, a copy of your Sarbanes-Oxley compliance report.

8. The report/records generated under Treas. Reg. 1.408-2(e)(5)(iii)(C) relating to the audit required by Treas. Reg. 1.408-2(e)(5)(iii)(A) or (B) together with the action taken thereon.

9. Be prepared to provide a sample of the reports required by Treas. Regs. 1.408-5, 1.408-6, and 1.408-7, dealing with annual reports by trustees, disclosure statements, and reports on distributions, respectively, issued to fiduciary account owners during the most recent tax year.

10. A copy of the aging report of accounts payable as of the latest period available.

11. Personnel folders of the employees specified in the next item below handling the fiduciary accounts.

12. Please arrange separate meetings (one immediately after the other) at the time of the on-site meeting, with:

  1. The head of the Trust Department and the supervisor/manager of the trust personnel to gain an understanding of the internal controls and the systems utilized for accounting for the assets of the fiduciary accounts. The meeting should not take longer than two hours.

  2. A few (not more than 7) randomly selected employees who handle the fiduciary accounts to verify that the controls are working and to gain an understanding of their experience with handling fiduciary accounts.

Disclosure Statement

Nonbank Trustee ("NBT" ) Investigation Disclosure under the Freedom of Information Act

All submissions by an NBT and information gathered by the Service during an NBT investigation are subject to requests under the Freedom of Information Act (FOIA). The FOIA, however, does not require the IRS to release all documents that are subject to FOIA requests. The IRS may withhold information pursuant to nine exemptions and three exclusions contained in the FOIA statute.

The two most likely FOIA exemptions potentially applicable to information contained in NBT investigation files are FOIA exemptions (b)(3) and (b)(4). 5 USC sections 552(b)(3) and (b)(4).

FOIA exemption (b)((3) requires agencies to withhold information specifically exempted from disclosure by statue Section 6103 of the Internal Revenue Code specifically exempts from disclosure returns and return information and may be employed with FOIA exemption (b)(3) to withhold such information otherwise responsive to a FOIA request.

FOIA exemption (b)(4) protects from disclosure commercial or financial information obtained from a person and privileged or confidential information. Courts have interpreted this exemption to mean that commercial and financial information other than trade secrets can be withheld from disclosure only if it meets the following criteria: it must be privileged or confidential, and it must be obtained from a person by the government. Information has been found by the courts to be confidential if its disclosure would be likely to: (1) impair the government's ability to obtain similar information in the future, or (2) harm the competitive position of the person who supplied it. In response to a FOIA request, the Service will make deletions pursuant to FOIA exemption (b)(3) in connection with section 6103 of the Code and FOIA subsection (b)(4) before information is made available to the public in order to protect the confidentiality of return information and the privacy of privileged or confidential information of the NBT as appropriate. To help the Service make the necessary deletions of privileged or confidential information under FOIA exemption (b)(4), the NBT must provide during the investigation a statement indicating the deletions desired (deletions statement). An NBT who wants only names, addresses, and identifying numbers deleted should state this in the deletions statement. An NBT who wants more information deleted must provide a copy of its submissions and supporting documents on which the NBT has placed brackets around the material to be deleted.

The deletions statement must not appear within the material submitted by the NBT. Instead, the deletions statement is to be made in a separate document that is signed and dated by the NBT or the NBT’s authorized representative. A stamped signature or faxed signature is not permitted.

The NBT should follow this same process to propose deletions from any additional information submitted after the initial deletions request. An additional deletions statement is not required with each submission of additional information if the NBT's initial deletions statement requests that only names, addresses, and identifying numbers are to be deleted and the NBT wants only the same information deleted from the additional information.

Sample Interview Questions

Sample Interview Questions

Nonbank Trustee (NBT) Investigations Interview Questions

History-Interview Questions:


Ask to take a tour of the Trust Department/Area.

Conduct first interview with the Head of Trust Department or the Supervisor of Trust personnel to gain an understanding of the internal controls and the systems utilized for accounting for the assets of the fiduciary accounts. The meeting should not take longer than two hours. Then, interview several trust department employees (see last two items of IDR).

Part I - Ownership
(Workpaper Part II A 1 Continuity) (Item 1 of IDR)

1. Describe the ownership of the NBT.




a. Is it publicly traded?
□ Yes □ No


b. Does it have a parent that is publicly traded?
□ Yes □ No


c. Does any owner (stockholder/partner) own more than 20% of the NBT?
□ Yes (see below) □ No

If the answer to 1c is "yes" then,
(i) What are the owner’s names and ownership percentages?



(ii) Do those owners, who own more than 20%, own more than 50% in the aggregate?
□ Yes (see below) □ No

Part II — Trust Personnel
(Workpaper Part II A 3— Fiduciary Expertise, Part II A 4 B - Capacity to Account, 4 C —Fitness to handle funds) (Item 4 & 11 on IDR)

1. What are the names of the Trust Department employees?

2. How many years have they been with the NBT?

3. How many years have they been in this field?

4. What are their job responsibilities?

  • Who directs and monitors actions of employees?

  • Who maintains records for federal tax purposes?

  • Who prepares 1099s?

  • Who prepares 5498 statements?

  • Who calculates net worth requirements?

  • Who performs calculations of income?

  • Who prepares the distributions?

  • Who issues certificates of ownership?

Part Ill — Trust (and other business) Operations


1. What are the NBT’s normal business hours?
(Workpaper Part II A 2— Established Location)

2. What type of fiduciary accounts does the NBT hold:
(Workpaper Part I C - Types of Accounts)

□ 401(f) □ 403(b)(7) □ 457(b)
□ IRAs under 408(a), (c), (h), (k), or (q) □ 530 □ Archer Medical under 220
□ Health Savings under 223 □ Other:


3. a. How many fiduciary accounts does the NBT maintain?
(Workpaper Part II A 4 B — Capacity to Account)

b. What is their aggregate value?

4. a. Is investment advice given by the NBT or any related entity?
□ Yes (see below) □ No

b. If "yes" , how often?

c. Does the NBT consider its self a passive or non-passive NBT?
(Workpaper Part II A 4 C —Fitness to Handle Funds)
□ Passive □ Non-passive

5. a. What other types of accounts are maintained?
(Workpaper Part II A 4 C — Fitness to Handle Funds)

b. How many of these other types of accounts are maintained?

c. What is their aggregate value?


6. If fiduciary and non-fiduciary accounts are maintained:
a. Is a separate trust division with separate personnel and facilities maintained?
□ Yes □ No (see below)
b. If not, does the trust department maintain a separate identity? Please describe. (Workpaper Part II A 4 D 1 (f))
c. Does the NBT keep separate and distinct records for fiduciary accounts? Please describe. (Workpaper Part II A 4 D 7 (a))
□ Yes □ No
d. How long are those records maintained?
(Workpaper Part II A 4 D 7 (a))

7. a. Are separate investment accounts maintained for each account holder?
(Workpaper Part II A 4 D 5 (a))
□ Yes □ No
b. Does the NBT have pooled investment accounts?
(If yes, contact National Office for guidance.)
□ Yes □ No

8. Describe how accounts are handled from inception to closure:
a. Who is responsible for receiving investment funds when a new account is opened and how is this done?

b. What is the time lag between receipt of new monies and their investment?
(Workpaper Part II A 4 D 4)

c. What type of documentation is given to the new account holder?
(Workpaper Part II A 4 D 1 b)

i. When a new fiduciary account is established does the NBT provide the individual with a copy of their Notice of Approval?
(Workpaper - Other Regulations - 10 Miscellaneous)
□ Yes □ No
d. How are buy/sell orders executed?

i. What type of documentation is generated?

e. How does a customer initiate account closure?

i. What is the time frame between request for funds and actual disbursement of fund?

ii. What type of documentation is given when the account is closed out? (Workpaper Part II A 4 D 1 b) & (Workpaper Part II A 4 D 4)

f. Aside from servicing accounts, what other services/products are available through the NBT? (Workpaper Part II A 3 Fiduciary Experience, Part II A 4 B Capacity to Account, Part II A 4 C Fitness to handle funds)

Part IV — Miscellaneous Business Operations

1. a. Is the NBT the subject of any ongoing litigation?
□ Yes (see below) □ No
b. If so, please explain the matter. (Workpaper Part II A 4 D 7)

2. a. Does the NBT employ or retain legal counsel versed in fiduciary matters? (Workpaper Part II A 4 D 1 e)
□ Yes □ No
b. Who are they (name of firm or individual)?
c. Are they in-house or on retainer?
□ In-House □ On Retainer


3 a. Are employees bonded?
(Workpaper Part II A 4 D 1 d)
□ Yes □ No
b. If so, which employees?

4. Is there a safe or vault to keep assets?
□ Yes □ No

5. Is there a permanent record of assets going into and out of the safe/vault?
(Workpaper Part II A 4 D 5 b)
□ Yes □ No

Part V - Accounting and Auditing.

1. How often are Trust assets evaluated for performance objective?
(Workpaper Part II A 4 D 1 c)

2. a. How often are Trust assets valued?
b. What were the last two valuation dates?
c. How is FMV determined?
(Workpaper Part II A 4 D 2 d)

d. How often are audits of fiduciary assets conducted?
e. What were the dates of the last two audits?
(Workpaper Part II A 4 D 3 a (1)-(3) & c)

f. Who performs the audit?
g. How is the audit used?
h. Who reviews the audit?
i. Are the audit recommendations followed?
□ Yes □ No
j. Where are these actions documented?

3. a. Is the NBT regulated by either a State or Federal Agency?
(Workpaper Part II A 4 D 3 b)
□ Yes (see below) □ No
b. If "yes," does the Agency require periodic examinations of the audit systems (if "yes" obtain copy)
c. If "yes," does this supersede the certified audit requirement?

Sample Favorable Closing Letter

Sample Favorable Closing Letter

NOTE: Use Letterhead

Internal Revenue Service Department of the Treasury
TE/GE Employee Plans
Date: Taxpayer Identification Number:
Person to Contact/Badge Number:
Telephone Number:
Name
Street Address
City, State, Zip

Dear Sir or Madam:

On [insert date], you were issued a Notice of Approval authorizing [insert name of NBT] to act as a nonbank custodian of plans qualified under section 401 of the Internal Revenue Code, as a custodian of custodial accounts described in section 403(b)(7), and as a nonbank trustee or custodian for IRAs established under section 408. In the Notice of Approval, you were advised that continued approval would be contingent upon the continued satisfaction of the criteria set forth in section 1.408-2(e) of the Income Tax Regulations (regulations).

Based upon the results of the nonbank trustee/custodian investigation we recently conducted, we have determined that generally, [insert name of NBT] is operating within the requirements applicable to nonbank trustee/custodian under Treas. Reg. 1.408-2(e).

This investigation was not an examination under section 7605(b).

If you have any questions regarding these findings, please contact the individual listed above.

Sincerely,
[Insert Name]
Director, Employee Plans Examinations

Sample Favorable Closing Letter with Deficiencies

Sample Favorable Closing Letter with Deficiencies

NOTE: Use Letterhead

Internal Revenue Service Department of the Treasury
TE/GE Employee Plans
Date: Taxpayer Identification Number:
Person to Contact/Badge Number:
Telephone Number:
Name
Street Address
City, State, Zip

Dear Sir or Madam:

On [insert date], you were issued a Notice of Approval authorizing [insert name of NBT] to act as a nonbank custodian of plans qualified under section 401 of the Internal Revenue Code, as a custodian of custodial accounts described in section 403(b)(7), and as a nonbank trustee or custodian for IRAs established under section 408. In the Notice of Approval, you were advised that continued approval would be contingent upon the continued satisfaction of the criteria set forth in Treas. Reg. 1.408-2(e).

Based upon the results of the nonbank trustee/custodian investigation we recently conducted, we have determined that generally, [insert name of NBT] is operating within the requirements applicable to nonbank trustee/custodian under Treas. Reg. 1.408-2(e). However, certain minor deficiencies were noted. Enclosed is an explanation of the deficiencies and the corrective action.

This investigation was not an examination under IRC 7605(b).

If you have any questions regarding these findings, please contact the individual listed above.

Sincerely,
[Insert Name]
Director, Employee Plans Examinations
List of Deficiencies

1. Treas. Reg. 1.408-2(e)(5) provides that the [nonbank trustee] applicant must demonstrate that the rules of fiduciary conduct specified in Treas. Reg. 1.408-2(e)(5)(i) through (viii) are incorporated in operating procedures, by-laws, or some other document that controls the applicant’s activities. Compliance with this requirement can be demonstrated by the following:

  • Compliance with this requirement may be demonstrated by a resolution of the NBT’s board of directors (or its equivalent) adopting the rules of fiduciary conduct and a copy of the document or the appropriate section of the document that contains the rules of fiduciary conduct as adopted by the board of directors. The rules of fiduciary conduct may not be incorporated by reference.

  • In lieu of the above demonstrations, the NBT may provide evidence it is operating under applicable statutory requirements either under state or federal law, which mirror the rules of fiduciary conduct.

During the application process, you submitted evidence that such a document exists. However, during the nonbank trustee investigation for continued compliance, you were not able to show evidence that such a document containing the language found at I.408-2(e)(5)(i) through 1.408-2(e)(5)(viii)(F) exists. The absence of this document is a violation of section I.408-2(e)(5). Therefore, please see to it that such a document comes into existence before you are selected for another investigation for continued compliance.

2. Section I.408-2(e)(5)(i)(B) provides that all employees taking part in the performance of the applicant’s fiduciary duties will be adequately bonded. The Bond you submitted during the investigation does not name (insert name of NBT) (the approved nonbank trustee under investigation) as an insured. In addition, there is no evidence in the investigation case file that you have hire-fire power over the employees of the named insured on the bond you submitted during the investigation. Therefore, it appears that, section I.408-2(e)(5)(i)(B) is not currently satisfied.

3. There are statements from you in the investigation case file that (insert name of NBT) (the approved nonbank trustee) was a participant in a merger. Therefore, it is understandable that there may have been a name change, change in employer identification number, or the end of the existence of (insert name of NBT) in favor of the surviving entity of the merger who has not demonstrated to the service that it meets the nonbank trustee requirements.

Paragraph two on page three of your notice of approval (best available copy available enclosed) to serve as a nonbank custodian provides:
"This approval letter is not transferable to any other entity. An entity that is a member of a controlled group of corporations, within the meaning of section 1563(a) of the Code, may not rely on an approval letter issued to another member of the same controlled group. Furthermore, any entity that goes through an acquisition, merger, consolidation or other type of reorganization may not necessarily be able to rely on the approval letter issued to such entity prior to the acquisition, merger, consolidation, or other type of reorganization. Such entity may have to apply for a new notice of approval in accordance with Treas. Reg. 1.408-2(e)."

The first full paragraph on page three of your notice of approval to serve as a nonbank custodian provides that (insert name of NBT) is required to notify the Commissioner of Internal Revenue in writing of any changes which affects the continuing accuracy of any representations made in its application.” [Section 1.408-2(e)(6)(iv) of the regulations]

4. Section 1.408-2(e)(7)(iii) of the regulations provides that the [NBT] applicant must not accept a fiduciary account until after the plan administrator or the person for whose benefit the account is to be established is furnished with a copy of the written notice of approval issued to the applicant.

Based on items 1, 2, 3, and 4 above, it appears that you may have violated sections 1.408-2(e)(5), I.408-2(e)(5)(i)(B), I.408-2(e)(6)(iv), and I. 408-2(e)(7)(iii) of the regulations. You now have the opportunity to ensure that you are in compliance with these nonbank trustee requirements.

Note:

The "List of Deficiencies" is only a sample. The actual deficiencies found during the investigation should be noted. If the deficiencies were corrected during the investigation, the correction should be noted as well.

Nonbank Trustee Transmittal Sheet

Nonbank Trustee Transmittal Sheet

Nonbank Trustee Transmittal Sheet

Complete this form at the conclusion of the investigation. It is used to provide a synopsis of the results of the investigation.

Nonbank Trustee Entity Information

Name: __________________________ TIN:___________________________
Address:_________________________
_____________________________
_____________________________
_____________________________
Results of the Investigation
Regulations Met? Yes □ No □
Recommended Closing
□ No Change (Include draft of No Change Letter in the file.)
□ No Change with Issues (Include draft of No Change Letter in the file.)
□ Revocation (EP Rulings & Agreements will prepare closing letter.)
□ Withdrawal (EP Rulings & Agreements will prepare closing letter.)

Rationale for the Conclusion
Briefly explain your conclusion, key findings or issues and the rationale. Other Issues or Concerns
Briefly explain any issues or concerns that should be brought to the attention of EP Rulings & Agreements

Agent Signature:_____________________
Agent Name:____________________
Date:____________________
Phone Number:________
Manager Signature:__________________
Group Manager Name:____________
Date: ____________________
Phone Number:_________