7.11.11 Proposed Adverse Cases

Manual Transmittal

September 11, 2017

Purpose

(1) This transmits revised IRM 7.11.11, Employee Plans Determination Letter Program, Proposed Adverse Cases.

Material Changes

(1) Updated and renamed IRM 7.11.11.1, Overview, to Program Scope and Objectives. Also added IRM 7.11.11.1.1, Background, IRM 7.11.11.1.2, Authority, and IRM 7.11.11.1.3, Definitions and Acronyms, to add in the internal controls as required by IRM 1.11.2.2.5.

(2) Renumbered all subsequent sections to accommodate new internal controls.

(3) Updated various sections for grammatical rules in the IRS Style Guide.

Effect on Other Documents

This supersedes IRM 7.11.11 dated August 22, 2016.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(09-11-2017)

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

Program Scope and Objectives

  1. Purpose: This IRM describes the procedures and technical guidance for processing Employee Plans (EP) Determination Letter (DL) applications when you're proposing a potential adverse action.

  2. Audience: EP Determinations and Quality Assurance (QA) staff

  3. Policy Owner: Director, EP

  4. Program Owner: EP

  5. Program Goals: The goal of EP Determinations is to ensure that plans are in compliance with the tax laws by reviewing applications for DLs and opinion letters, and to protect the public interest by applying the tax law with integrity and fairness to all.

Background

  1. A plan is qualified if it meets the requirements of IRC 401(a) in form and operation. A qualified plan is entitled to favorable tax treatment.

  2. To help taxpayers ensure that their plans are in compliance with the tax law, EP issues DLs, opinion letters, and advisory letters on whether the form of the plan meets the qualification requirements. See IRM 7.11.1.

  3. Use proposed adverse procedures when you find disqualifying defects and can't resolve them.

  4. We use adverse procedures in only a few cases because there are alternative methods to handle unagreed plan language or qualification issues. See IRM 7.11.11.3 (1).

Authority

  1. Delegation Order 7-1a, delegates the authority to issue favorable and adverse determination letters on the qualified status of pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans to the Director, EP. IRM 1.2.46.2.1.

  2. A complete list of delegation orders governing EP Rulings and Agreements can be found at https://www.irs.gov/privacy-disclosure/delegation-orders-and-policy-statements-by-process

  3. See IRM 7.1.1, Exhibit 7.1.1-1 for a complete list the major EP revenue procedures currently in effect.

Acronyms

  1. This table lists commonly used acronyms and their definitions

    Acronym Term
    DL Determination Letter
    EDS Employee Plans and Exempt Organization Determination System
    EP Employee Plans
    DOL Department of Labor
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    QA Quality Assurance
    Tax Court United States Tax Court

Administrative Record - Procedural Requirement

  1. The administrative record is the written record of the administrative proceedings between the IRS and the plan sponsor in connection with a DL application.

  2. Tax Court Rule 210(b)(12) defines the administrative record as including:

    • The request for a DL

    • All documents submitted to the IRS by the applicant for the DL request

    • All protests and related papers submitted to the IRS

    • All written correspondence between the IRS and the applicant about those protests

    • All pertinent returns filed with IRS

    • The notice of determination by the Commissioner

      Note:

      In general, the administrative record doesn’t include internal documents, such as interoffice memorandums, reviewer's memorandums, the specialist’s workpapers, the Case Chronology Record, or summaries of telephone conferences. Incorporate these internal documents into the administrative record only when the content/issue is specifically pertinent and has been shared in writing between the IRS and the plan sponsor.

  3. It's extremely important that you fully develop, clearly document and include in the record:

    • All pertinent facts

    • Relevant guidance

    • IRS's position

    • Analysis and arguments supporting the IRS’s position

    • Plan sponsor’s position

    • The effect of the plan sponsor’s comments on IRS conclusions

  4. Include all information obtained or exchanged during the determination ruling in the administrative record. Information must be exchanged between the plan sponsor and the IRS (or vice versa) before you can include it in the administrative record.

    1. If there is any doubt that a document has been exchanged, mail it to the plan sponsor with an individually designed cover letter.

    2. Include pertinent information that you discussed with the plan sponsor/representative in the administrative record only if reduced to writing and exchanged with the plan sponsor or the representative.

  5. Organize the administrative record documents in a separate bundle in the case file in the order shown in Exhibit 7.11.11-1, Sample Proposed Adverse Case File Assembly, using a binder clip.

    1. Assemble all items in the administrative record in chronological order (oldest on top, most recent on bottom, which is different than the normal case file assembly).

    2. Attach tabs to blank cover sheets to correspond to the items in the administrative record index and not to the original documents.

  6. The first document in the administrative record must be the administrative record index. Notate the date you received documents from the plan sponsor in the administrative record index. See Exhibit 7.11.11-2, Sample Administrative Record Index.

  7. Don’t deface documents you received from the plan sponsor/representative in any way (writing, highlighting, noting or scribbling, etc.). If you need to write information on a document, make a copy.

  8. Include all attachments which you refer to in any correspondence in the administrative record and associate them with the related document. This includes publications, notices, etc., that you attached to outgoing correspondence.

  9. Clarify incorrect computations, misinterpretations of law (IRC, Regulations, revenue rulings, etc.) or incorrect conclusions you made in writing to the plan sponsor in subsequent correspondence.

    1. Any information that has been provided to the plan sponsor becomes a part of the administrative record; therefore, include incorrect information that has been put in writing and sent to the plan sponsor/representative in the administrative record.

    2. To correct a mistake, don’t remove the document from the administrative record. Rather, admit that you’ve made a mistake and submit a corrected statement or revised calculation to the plan sponsor/representative in writing.

Proposed Adverse - Specialist's Responsibilities

  1. Consider these other methods to resolve an unagreed or qualification issue before you begin the adverse determination procedures:

    1. Encourage the plan sponsor to discuss the issues with your group manager present.

    2. Try to resolve plan language deficiencies using the Closing Agreement Program. See IRM 7.11.8, EP Determinations Closing Agreement Program.

    3. Follow technical advice procedures if the disputed plan language is unusual or complex or hasn’t been treated with uniformity throughout the IRS. You must also submit a request for relief from retroactive disqualification under IRC 7805(b) for technical advice. See IRM 7.11.12, Technical Advice Requests.

    4. The plan sponsor may elect to withdraw their application. See IRM 7.11.1.17, Withdrawal of Applications.

  2. If the issue still can't be resolved using the other methods, obtain your group manager's concurrence to propose closing the case as adverse. Document the file.

  3. Resolve any other outstanding issues and prepare the case file for closing.

  4. Clearly document the case file to show you've considered or attempted to use all appropriate resolution methods.

    1. Include your conclusions or reasons for not using alternative methods.

    2. Document the plan sponsor's denial of a closing agreement offer or that offering a closing agreement isn’t appropriate.

  5. Inform the plan sponsor of the proposed adverse DL process and their appeal rights. Prepare and send "Letter of Notification for Potential Proposed Adverse Closure" and Pub 5153. See Exhibit 7.11.11-4 for a sample of the letter.

    Note:

    This letter describes the steps (such as, the pre-issuance review and possible referral to EP Examinations) that EP Determinations takes before sending the Letter 1755, EP Proposed Adverse Letter. Pub 5153 explains the appeal process.

  6. Prepare the administrative record before you send the case to QA. The Tax Court uses the administrative record if the plan sponsor files a petition for a declaratory judgment under IRC 7476, so you must prepare it according to IRM 7.11.11.1.1, Administrative Record - Procedural Requirement.

  7. Prepare a draft Letter 1755 using the letter template in the Forms/Pubs/Products Repository and place it in the case file but don't mail the letter. Complete the letter by selecting:

    1. The "beginning" of plan year the adverse takes place

    2. The "certified" letter mailing options

      Note:

      QA mails the letter later if they agree with the proposed adverse action.

  8. Electronically complete the following referral documents using the Forms/Pubs/Products Repository templates and place paper copies in the file on the left side of the folder. QA mails all the forms to EP Classifications per IRM 7.11.10, EP Examination and Fraud Referral Procedures.

    Referral Agency Form Preparation Instructions
    EP Classification/EP Examination Form 5666, TE/GE Referral Information Report See IRM 7.11.10 for instructions.
    On line O, include the phrase "See Attachment A" and on line P, include the phrase "Proposed Adverse package submitted by QA. "
    DOL Form 6212-B, Examination Referral Checksheet B Follow the normal instructions.
    On line 12, include the phrase "See Attachment A."
    See June 3, 2003 IRS/DOL Coordination Agreement and the October 24, 2013 Addendum.
    PBGC Form 6533, Examination Referral Worksheet Follow the form instructions. Prepare only for plans subject to PBGC insurance.
  9. Assemble a proposed adverse package. Use tabbed sections for these documents:

    Item Explanation See a sample
    Printed index of attached items Use to organize. N/A
    Summary Memorandum to QA Short overview of the case history, current adverse issue(s), and case development up to current date. In memo, alert the reviewer of any special case considerations. Exhibit 7.11.11-6, Sample Summary Memorandum to QA
    Attachment A Explanation of detailed IRS assertion of why the plan is not qualified. Include, facts/background, issue (the reason for the proposed adverse action), law violated, government's position, and plan sponsor’s position. Exhibit 7.11.11-5, Sample Attachment A

    Note:

    Keep an electronic copy and email it to QA after the case is assigned to a QA reviewer.

    Draft Letter 1755 showing the beginning of the affected year and certified mailing selective options Gives the plan sponsor 30 days to file an appeal of the proposed adverse action. Forms/Pubs/Products Repository
    Pub 5153, Appeal Procedures: Adverse Determination Letter on Qualification of a Retirement Plan Explains appeals procedures and the effects of an adverse determination letter on the qualification of a retirement plan Forms/Pubs/Products Repository
    Notice 1214, Helpful Contacts for Your "Notice of Deficiency " Lists Taxpayer Advocate Service phone numbers by state Forms/Pubs/Products Repository
  10. Prepare Form 3198-A, TE/GE Special Handing Notice, write "Proposed Adverse, Pre-Issuance Review Request," and place it on the front of the case file.

  11. Ask your group manager to sign and date the Form 5464-A, EP/EO Case Chronology Record, after they review the case and the proposed adverse package.

  12. Ask your group secretary to update EDS to status 40 (Proposed Adverse Determination) which automatically updates to status 55 for manager approval. After the group manager approves, the secretary updates the case to status 31 (In Review) by entering an "x" on the EDS approval screen.

  13. Mail the case file (organize per the assembly guide in Exhibit 7.11.11-1 Sample Proposed Adverse Case File Assembly) to QA for a pre-issuance review. See Exhibit 7.11.11-3, Mailing Address List, for the address.

QA Responsibilities - Pre-Issuance Review

  1. When QA receives the case, the QA secretary gives the case to the EP QA manager who reviews the proposed issue. Within five business days, the manager decides to accept the case or return the case to the specialist.

  2. If the case is accepted, the QA secretary prepares and sends Letter 5276, QA Case Assignment, to the plan sponsor and updates the case to a QA reviewer.

  3. QA Reviewer: follow these steps:

    1. Evaluate the case file to ensure the specialist considered all possible alternative methods.

    2. Review the government's position for technical soundness and uniformity. The case may require technical advice if the IRS has been inconsistent on a qualification issue.

    3. Evaluate the case file and proposed adverse package for completeness, clarity, and adequacy of documentation.

    4. Ask the specialist to secure email the Attachment A and Form 5666 and make any necessary revisions.

    5. Return the case to specialist with Form 5456, Reviewer's Memorandum - EP/EO if it needs to be developed further. See IRM 7.11.9.2.2, Reviewers Case Return Procedures. Include instructions to update the administrative record to reflect any additional correspondence between the plan sponsor and specialist.

    6. Secure approval from the EP QA manager to send the Letter 1755 using the same QA procedures for approving Form 5456 if you agree with the proposed adverse letter.

    7. Review and complete Letter 1755. Use a stamp for the date and signature of EP Director, Rulings and Agreement on the letter. Copy for the file.

    8. Copy Attachment A and attach to the Letter 1755.

    9. Initial and date the file copy of Letter 1755 and Attachment A: both QA Reviewer and QA manager.

    10. Mail the original Letter 1755 and Attachment A by certified mail to the plan sponsor with a copy to the representative. Update the administrative record to reflect the new correspondence.

    11. Update the case to status 35 (Letter 1755 Sent) when you mail the letter.

    12. Discuss with EP QA manager whether it’s appropriate to refer to EP Examinations at this time and follow his/her instructions.

      Note:

      Normally, a referral is sent when the final adverse DL is mailed, but the EP QA manager may decide to send it now depending on the issues

      .

Proposed Adverse Letter 1755 (30-day letter)

  1. The Letter 1755 gives the plan sponsor 30 days (or possibly longer if requested in writing) to appeal the proposed adverse. Once the QA reviewer mails the Letter 1755, the plan sponsor may:

    • Provide additional information.

    • File an appeal.

    • Not respond timely or at all.

    • Agree, in writing, to the proposed adverse DL.

  2. If QA receives additional information from the plan sponsor, QA prepares a Form 5456 and returns the case to the specialist to consider the information.

    1. If the issue remains unresolved, the specialist updates the administrative record and the proposed adverse package to reflect the new information. Prepare a revised Attachment A and Letter 1755 if the additional information results in a change to the IRS’s position. Return the case file to QA for processing using Form 5457, Response to Reviewer’s Memorandum-EP/EO.

    2. QA mails the new Letter 1755 and Attachment A per IRM 7.11.11.4 (3)(j).

  3. If the plan sponsor:

    1. Files a written appeal or "protest" within 30 days after the date of the Letter 1755, QA forwards the case file to the Office of Appeals (Appeals) per IRM 7.11.11.6, Submit Case File to Office of Appeals.

    2. Doesn’t file a timely written protest or agrees in writing to the proposed adverse DL, QA forwards the case file to the Area Counsel office per IRM 7.11.11.7, Submit Case File to Area Counsel.

Submit Case File to Office of Appeals

  1. If QA receives a timely written protest per IRM 7.11.11.5 (3), they review it for completeness and accuracy. See Pub 5153 for a description of the parts of the protest including the declaration statement. After review, QA returns the case to the specialist with a Form 5456 directing him/her to prepare the case file to submit to Appeals, preferably within five workdays.

  2. QA: Update the case to status 32 on EDS.

  3. Specialist: Complete or respond to QA instructions. Add the plan sponsor’s protest and any additional correspondence to the administrative record bundle. Update the administrative record for the new items. Assemble the case in the following order:

    Item Explanation
    Printed index of attached items Use to organize
    Note to File The note is a short synopsis and commentary on the case's history up to the current date. Include an assessment of the plan sponsor's protest and why the Government's position remains unchanged. Include comments as to why you aren't protecting statutes of limitation, i.e., why there are no consent forms in the file.

    Note:

    Generally, you don't have to protect the statute of limitations for determination cases.

    Administrative Record All items that are part of the administrative record. See Exhibit 7.11.11-1
    Other Case File Documents All items in the case file that are not part of the administrative record. See Exhibit 7.11.11-1
  4. Specialist: Prepare Form 5457, get your group manager's agreement and send the assembled case file to QA using Form 3210, Document Transmittal. Attach Form 3198-A and note in the "Other" box: "Response to Letter 1755. "

  5. QA:

    1. Review the Form 5457 comments, case file documentation and case file assembly for proper content.

    2. Submit to the EP QA manager for approval.

    3. Transfer the case file to Appeals at the address in Exhibit 7.11.11-3, Mailing Address List, using Form 3210

    4. Update the case to status 54 (Transferred to Appeals)

    5. Attach a new Form 3198-A, TE/GE Special Handling Notice, and note in the "Other" box: "Adverse Determination Case."

  6. Appeals Officer: Review the case and make a final decision on whether to issue an adverse DL or a favorable DL. After you decide, prepare and mail the appropriate letter, or return the case to QA with instructions to issue the applicable letter.

  7. QA: Update EDS and return the case file to the specialist with any relevant case closing instructions or Appeals directions.

  8. Specialist: Close the case according to any Appeals or QA instructions.

Submit Case File to Area Counsel

  1. The QA reviewer follows these directions if the plan sponsor doesn't timely file a written protest to the Letter 1755 or agrees in writing to the proposed adverse DL.

    Note:

    If the plan sponsor submits a letter agreeing with the proposed adverse DL, update the administrative record to include their letter.

  2. Prepare Letter 1724, Final Adverse (No Appeal Requested), in EDS. See IRM 7.13.5.

  3. Update the Attachment A:

    1. Change the title, "Attachment A" to read "Determination Explanation."

    2. Change the title of the "Government's Position" to "Conclusion."

    3. Remove the "Plan Sponsor’s Position" section (if present).

    4. Attach the Determination Explanation to the Letter 1724.

  4. Prepare a "Memorandum to Area Counsel" to include in the case file. See Exhibit 7.11.11-7, Sample Summary Memorandum to Area Counsel. Copy the Memo for the file.

  5. Assemble the case file per IRM 7.11.11.6 (3), Submit Case File to Office of Appeals.

    1. Add the file copies of the Memo and Letter 1724 with the Determination Explanation attached after the index.

    2. Paper clip the original Memo and two copies of the Letter 1724 with Determination Explanation and place in the folder, but don't attach to either the left or right-side.

  6. Update the case to status 34 (District Counsel Approval) on EDS.

  7. Send the case file to the Area Counsel closest to the plan sponsor's address for a pre-issuance review using Form 3210. See the Chief Counsel website for the address.

  8. After Area Counsel returns the case file:

    1. Consider the suggested changes and proceed as appropriate.

    2. Get the EP QA manager's approval to issue the final adverse Letter 1724.

    3. Mail the Letter 1724 with Notice 1214 by certified mail.

    4. Update the administrative record to include the Letter 1724, Determination Explanation, and Notice 1214. Include any certified mailing information, including return receipt.

    5. If you didn’t send a referral to EP Examinations per IRM 7.11.11.4, send one now with a copy of the Letter 1724. See IRM 7.11.10, EP Examination and Fraud Referral Procedures.

  9. The plan sponsor has 92 days from the date on the letter to file a timely petition with the Tax Court.

  10. Keep the case file for 120 days from the date the Letter 1724 was issued.

  11. If Area Counsel:

    1. Requests the case once the plan sponsor files a petition and the case is docketed in Tax Court, transfer the case file to the appropriate Area Counsel office.

    2. Doesn't request the case file by 120 days after docketing, or if the plan sponsor name doesn't appear on the docket list, close the case, update it to status 02 (Final Adverse) on EDS and forward it to the Federal Records Center. EP Determinations is bound by any subsequent Tax Court directives.

Sample Proposed Adverse Case File Assembly

To find a pdf of this chart, go to the "QAS Guidance" folder and click on the "Adverse Cases" folder on the shared server (Internal Use Only).

Left Side of the Folder
*Non-disclosable documents NOT exchanged with plan sponsor
Administrative Record Bundle
*All documents shared with or received from the plan sponsor
Right Side of the Folder
*Disclosable documents NOT exchanged with plan sponsor
Form 5666, TE/GE Referral Information Report Administrative Record Index Proposed Adverse Package:
  • Printed index of attached items

Form 6212-B, Examination Referral Checksheet B Form 8717, User Fee for Employee Plan Determination Letter Request
  • Summary Memorandum to QA

Form 6533, Examination Referral Worksheet Form 2848, Power of Attorney and Declaration of Representative
  • Attachment A

Form 5464-A, EP/EO Case Chronology Record Last Favorable Determination Letter or Opinion/Advisory Letter
  • Draft Letter 1755

Form 6088, Distributable Benefits from Employee Pension Benefit Plans Application form with all attachments
*including any attachments that may contain non-disclosable information (for example, a demo 6)
  • Publication 5153

Form 5621, Technical Analysis Control Sheet Final letters for interested parties
  • Notice 1214

Form 5456, Reviewer’s Memorandum - EP/EO All correspondence shared with or received from the plan sponsor (1196 letter, 1955 letter, fax’s received)
*Oldest on top, newest on bottom

Note:

Once any of these items have been shared with the plan sponsor/POA, incorporate them into the administrative record.

Form 5402, Appeals Transmittal and Case Memo Interested party items Memorandum to Appeals
Other Internal Documents NOT Exchanged with plan sponsor Amendments Memorandum to Area Counsel
Plan Document/Adoption Agreement
Purge items
Trust

Sample Administrative Record Index

Save a copy of the administrative record index electronically and include a hardcopy with the right side of the case file.

  1. The "Description of Document" part of the administrative record index should contain a full description of the document, not just a form number or letter number.

  2. Prepare the administrative record index in a way so that the subsequent reviewer may readily find any document or correspondence in the file.

The dates listed on the administrative record index should be:

  1. For letters: the date that appears on the letter.

  2. For documents received with a letter: the date that appears on the associated letter.

Administrative Record Index
Index # Date of Correspondence Recipient Originator Description of Document
1 January 31, 2014 Your Name, Specialist Plan sponsor’s name Form 8717, User Fee for Employee Plan Determination Letter Request
2 January 31, 2014 Your Name, Specialist Plan sponsor’s name Form 2848, Power of Attorney and Declaration of Representative
3 October 14, 2009 Your Name, Specialist Plan sponsor’s name Last Favorable Determination Letter
4 January 31, 2014 Your Name, Specialist Plan sponsor’s name Form 5300, Application for Determination for Employee Benefit Plan
5 January 31, 2014 Your Name, Specialist Plan sponsor’s name Cover Letter
6 August 19, 2015 Plan sponsor’s name Your Name, Specialist Letter 1196, Information Request Letter
7 August 19, 2015 Representative’s name, POA Your Name, Specialist Letter 1196, Information Request Letter
8 August 28, 2015 Your Name, Specialist Plan sponsor’s name / Representative’s name, POA Plan sponsor’s or POA’s response to Letter 1196 dated 8/19/15, responding to items 1-4. Failed to respond to items 5-7.
9 August 28, 2015 Plan sponsor’s name Your Name, Specialist Letter 1955, Second Information Request. Requested response for missing items.
10 August 28, 2015 Representative’s name, POA Your Name, Specialist Letter 1955, Second Information Request. Requested response for missing items.
11 September 12, 2015 Your Name, Specialist Plan sponsor’s name / Representative’s name, POA Plan sponsor’s or POA’s response to Letter 1955. Plan sponsor / POA indicates can’t find missing information.
12 September 15, 2015 Plan sponsor’s name Your Name, Specialist Closing agreement offer letter outlining missing amendments and sanction amount.
13 September 15, 2015 Representative’s name, POA Your Name, Specialist Closing agreement offer letter outlining missing amendments and sanction amount.
14 September 17, 2015 Your Name, Specialist Plan sponsor’s name / Representative’s name, POA Plan sponsor’s / POA’s response indicating that they are unwilling to enter into a closing agreement.
15 October 15, 2012 Your Name, Specialist Plan sponsor’s name Amendment
16 January 31, 2014 Your Name, Specialist Plan sponsor’s name Plan Document
17 January 31, 2014 Your Name, Specialist Plan sponsor’s name Trust Document
Plan Sponsor: ABC, Inc. Plan Number 001
Plan Name: ABC, Inc. Retirement Plan EIN: 00–0000000
Specialists Name: Your name here Plan Year(s) Beginning 201001 thru 201501

Mailing Address List

Division Address
EP Determinations Quality Assurance Staff express mail or delivery service Internal Revenue Service
550 Main Street
EP Determinations Quality Assurance - Room 7008
Cincinnati, OH 45202
EP Determinations Quality Assurance Staff mailing address Internal Revenue Service
PO Box 2508
EP Determinations Quality Assurance - Room 7008
Cincinnati, OH 45201
Appeals Office Internal Revenue Service
Boston Appeals Office
10 Causeway, Room 493
Boston, MA 02222-1047

Sample Letter of Notification for Potential Proposed Adverse Closure

Here is a sample "Letter of Notification for Potential Proposed Adverse Closure" . To find a template, go to the "QAS Guidance" folder and click on the "Adverse Cases" folder on the shared server (Internal Use Only).

Internal Revenue Service Department of the Treasury
550 Main St. Room XXXX Cincinnati, OH 45202
Date:
Person to Contact:
ID#:
Plan sponsors Name & Address Telephone Number:
Plan Name:
Plan Number:

Dear Sir or Madam:

We noted certain defects in plan operation and/or form during our review of your determination application. We have attempted to resolve these defects but have been unsuccessful. Therefore, the case is being forwarded to our Quality Assurance staff for second level review to consider disqualification of the plan. Once this second level review is completed the case may take various routes, including:

  • transfer to our Employee Plans Examination Function where an examination of the plan may be conducted;

  • return to the specialist for additional development; or

  • a letter may be issued which will formally notify you of the proposed disqualification and explain your rights to an appeal.



The appeal process is outlined in the enclosed Publication 5153. If you have any questions, please contact the person whose name and telephone number are shown above.


Sincerely yours, Employee Plans Specialist

Encl. Publication 5153
CC:

Sample Attachment A

Here is a sample "Attachment A" . To find a template, go to the "QAS Guidance" folder and click on the "Adverse Cases" folder on the shared server (Internal Use Only).

Attachment A

FACTS:

xxxxxx (the Employer), Employer Identification Number of (enter number), adopted the xxxx (the Plan) on (enter date). The Plan was originally effective (enter date). The Plan year ends on (enter date). (Choice: The Plan last received a favorable determination letter from the Internal Revenue Service (IRS) on (enter date). OR The Plan has never received a favorable determination letter.)

Form (Choice: 5300 or 5310) was submitted to the EP Determinations Function of the IRS on (enter date). The Employer has requested a determination concerning the (Choice: qualification or continuing qualification or qualification on plan termination) of the Plan. Optional: In connection with the determination letter request, the Employer has submitted amendments signed on (enter date) with an effective date of (enter date) (and/or a restated Plan signed on (enter date) with an effective date of (enter date). These amendments and/or Plan restatement attempted to bring the Plan into compliance with section 401(a) of the Internal Revenue Code of 1986 (the Code).

ISSUE:

Was the Plan timely amended for the changes required by the Tax Reform Act of 1986 (TRA '86)?

Would the failure to timely amend the Plan for the above law change result in the Plan failing to satisfy the requirements of section 401(a) of the Code?

LAW:

Section 401(a) of the Code states the requirements for qualification of a trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries.

Section 401(b) of the Code states that a "stock bonus, pension, profit-sharing, or annuity plan shall be considered as satisfying the requirements of subsection (a) for the period beginning with the date on which it was put into effect, or for the period beginning with the earlier of the date on which there was adopted or put into effect any amendment which caused the plan to fail to satisfy such requirements, and ending with the time prescribed by law for filing the return of the employer for his taxable year in which such plan or amendment was adopted (including extensions thereof), or such later time as the Secretary may designate, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes for the whole of such period."

Section 1.401(b)-1(a) of the Income Tax Regulations (the Regulations) states as a general rule that "under section 401(b) a stock bonus, pension, profit-sharing, annuity, or bond purchase plan which does not satisfy the requirements of section 401(a) on any day solely as a result of a disqualifying provision (as defined in paragraph (b) of this section) shall be considered to have satisfied such requirements on such date if, on or before the last day of the remedial amendment period (as determined under paragraphs (c), (d) and (e) of this section) with respect to such disqualifying provision, all provisions of the plan which are necessary to satisfy all requirements of section 401(a), 403(a), or 405(a) are in effect and have been made effective for all purposes for the whole of such period. Under some facts and circumstances, it may not be possible to amend a plan retroactively so that all provisions of the plan which are necessary to satisfy the requirements of section 401(a) are in fact made effective for the whole remedial amendment period. If it is not possible, the requirements of this section will not be satisfied even if the employer adopts a retroactive plan amendment which, in form, appears to satisfy such requirements. Section 401(b) does not permit a plan to be made retroactively effective, for qualification purposes, for a taxable year prior to the taxable year of the employer in which the plan was adopted by such employer."

Section 1.401(b)-1(b) of the Regulations defines a disqualifying provision as:

  1. (1) a provision of a new plan, the absence of a provision from a new plan, or an amendment to an existing plan, which causes such plan to fail to satisfy the requirements of the Code applicable to qualification of such plan as of the date such plan or amendment is first made effective, or

  2. (2) a plan provision which results in the failure of the plan to satisfy the qualification requirements of the Code by reason of a change in such requirements -

Revenue Procedure 95-12, 1995-1, C.B. 508, discusses the various extensions granted, and the deadline, for amending plans for TRA '86.

TRA '86

Employers were granted an extension under section 401(b) of the Code and the Regulations thereunder to make the amendments required by Act Section 1140 of TRA '86. This TRA '86 remedial amendment period was extended to the last day of the first plan year beginning on or after January 1, 1994.

GOVERNMENT’S POSITION:

For TRA '86

The Plan should have been amended for the requirements of TRA '86 by (enter date); however, the Plan was not amended for TRA '86 until (enter date). OR (The Plan has not yet been amended for TRA '86.)

See the last page of Attachment A for the Code sections violated because of failure to timely amend the Plan for TRA '86.

The Plan was not timely amended for TRA '86. Therefore, the Plan is not qualified under section 401(a) for Plan years beginning on or after January 1, 1989. OR The Plan is not qualified under section 401(a) of the Code since its inception on (enter date). Furthermore, this letter revokes our favorable determination letter dated (enter date) that held this Plan to be a qualified Plan under section 401(a) of the Code.

PLAN SPONSOR’S POSITION: (If available).

The representative of the employer believes that the amendments were adopted timely in accordance with the section 401(b) of the Code and the Plan is a qualified plan under section 401(a).

Law Changes Required For
Plan Years Beginning After 12/31/88
Citations to the
Internal Revenue Code
1. $200,000 Compensation Limit &
Family Aggregation.
401(a)(17)
2. Permitted Disparity. 401(a)(5)
3. Additional Participation Requirements. 401(a)(26)
4. Required Distributions. 401(a)(9)(C)
5. Minimum Participation Standards. 410(a)
6. Cash or Deferred Arrangements. 401(k)
7. Minimum Vesting Standards. 411(a)

Sample Summary Memorandum to QA

Here is a sample "Summary Memorandum to QA" . To find a template, go to the "QAS Guidance" folder and click on the "Adverse Cases" folder on the shared server (Internal Use Only).

INTERNAL REVENUE SERVICE
MEMORANDUM
Date:
To: Manager, EP Determinations Quality Assurance
From: XXXX, Group Manager, EP Determinations Group YYYY

Subject: Proposed Adverse Determination Case for ZZZZ Retirement Plan

We are forwarding the attached file for pre-issuance review of a proposed adverse for the following plan defects:
(Insert details including a short overview of the case history, current adverse issue(s), and case development up to the current point. Please also alert the reviewer to any special considerations in the case.)

In accordance with IRM 7.11.11.1.2, this case is being forwarded for your review.

If there are any questions, please contact __________ at (XXX) XXX-XXXX.

Sample Summary Memorandum to Area Counsel

Here is a sample "Letter of Notification for Potential Proposed Adverse Closure" . To find a template, go to the "QAS Guidance" folder and click on the "Adverse Cases" folder on the shared server (Internal Use Only).

INTERNAL REVENUE SERVICE
MEMORANDUM
Date:
To: Area Counsel, XXXXX XXXXX, TE/GE
From: Manager, EP Determinations Quality Assurance T:EP:RA:QA

Subject: Pre-Issuance Review of Final Adverse Determination Letter


In accordance with IRM 7.11.11.1.6 we are forwarding the case file and final adverse determination letter for the _______________________ Plan for your pre-issuance review.

If there are any questions, please contact __________ at (XXX) XXX-XXXX.