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Employee Plans Compliance Unit (EPCU) - Completed Projects with Summary Reports – Ineligible Employer – 403(b) Project

Overview

The Employee Plans Compliance Unit (EPCU) designed the Ineligible Employer-403(b) Plans (Project) to educate IRC Section 501(c)(3) organizations whose tax-exempt status had been automatically revoked pursuant to IRC Section 6033(j) to ensure an employer eligibility failure had not occurred in the sponsoring of an IRC Section 403(b) plan.

The Project goals were to:

  • Determine if the box 12 code on Forms W-2 was correctly reported;
  • Determine whether or not the organization sponsored an IRC Section 403(b) plan;
  • Verify the sponsor eligibility for an IRC Section 403(b) plan;
  • Advise the organization on corrective actions necessary with regards to their IRC Section 403(b) plan; and
  • Educate IRC Section 403(b) sponsors regarding a written plan document.

The EPCU sent contact letters to 67 entities from the Automatic Revocation of Exemption List that also filed a 2010 Form W-2 reporting employees with IRC Section 403(b) elective deferrals.

Results

Responses showed that the majority of the plan sponsors were educational organizations still eligible to sponsor their IRC Section 403(b) plan. However, some employers incorrectly reported IRC Section 403(b) plan deferrals in box 12 showing that the accuracy of the box 12 codes is still a concern.

Background

IRC Section 6033 generally requires all entities exempt from federal income tax under IRC Section 501(a) to file an annual return to report their operations and activities. The Form 990 series return is used for this purpose. The Pension Protection Act of 2006 added IRC Section 6033(j), which requires small organizations to file an annual notice with the IRS using Form 990-N. This section also provides for the automatic revocation of exempt status for an entity’s failure to file a required return or notice for three consecutive years.

Organizations subject to automatic revocation of their exempt status include IRC Section 501(c)(3) organizations. Generally, to again be recognized as tax-exempt, the organization must apply for recognition of exemption regardless of whether the organization was required to apply for tax-exempt status originally.

The focus of this Project was to educate the former IRC Section 501(c)(3) organizations to ensure an employer eligibility failure had not occurred in the sponsoring of an IRC Section 403(b) plan.