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Victor Alam, Esq. Menke & Associates, Inc. San Francisco, CA

IRS Determination Letter Process The ESOP Association 2013 Las Vegas Conference & Trade Show November 7-8, 2013. Victor Alam, Esq. Menke & Associates, Inc. San Francisco, CA. Susan Lenczewski, Esq. Moss & Barnett, P.A. Minneapolis, MN. Types of IRS Submissions for Qualified Retirement Plans.

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Victor Alam, Esq. Menke & Associates, Inc. San Francisco, CA

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  1. IRS Determination Letter ProcessThe ESOP Association2013 Las Vegas Conference & Trade ShowNovember 7-8, 2013 Victor Alam, Esq. Menke & Associates, Inc. San Francisco, CA Susan Lenczewski, Esq. Moss & Barnett, P.A. Minneapolis, MN

  2. Types of IRS Submissions for Qualified Retirement Plans • Prototype / Volume Submitter – Opinion Letter • IRS is considering developing a pre-approved plan program for ESOPs • Will likely be in volume submitter format to allow for sufficient flexibility in plan design • Individually Designed – Determination Letter • Currently, an ESOP may be documented only as an individually designed plan

  3. Opinion & Advisory Letters • Cycles - Revenue Procedures 2005-16; 2007-44 and 2011-14 • Six-year cycle • M&P and VS plans • Distinct from “determination letter” process for individually designed plans • IRS website lists all preapproved 401(k), defined contribution and defined benefit plans by vendor

  4. Determination Letters • Cycles – Revenue Procedure 2007-44 • Five-year cycle • Cycle determined by the last digit of the ESOP sponsor’s “Employer Identification Number” (“EIN”) • Cycles run on a fiscal year that begins February 1 and ends January 31 (e.g., current Cycle C began February 1, 2013 and ended January 31, 2014) • Special rules for newly adopted plans and members of a controlled group of corporations

  5. Determination Letters

  6. Preparing the Application • Process • Gather all plan documents • Insert plan amendments to create “restatement” • Check compliance/identify problems • Prepare any required amendments, VCP filing, if required • Prepare Notice to Interested Parties • Prepare Form 5300 • Prepare Power of Attorney (newly revised Form 2848) • Prepare check for the filing fee in the amount of $2,500 or prepare exemption

  7. Preparing the Application • Documents Needed for Filing: • Restated Plan document signed by officer of sponsor and/or trustee or with adoption documented • All amendments to prior restated plan signed and dated or with adoption documented • The plan’s latest favorable determination letter • A copy of the plan’s latest restated trust document with any amendments

  8. Timing to Obtain Determination Letter • On-cycle vs. off-cycle submissions • On-cycle based on EIN • Company EIN • Controlled group • Off-cycle filing not reviewed until all on-cycle plans are reviewed • Practitioners filing plans on different cycles can request amendment applicable to one plan be approved (early) for others

  9. Status of Current IRS Submissions • Check the status of current submissions on the IRS website: • http://www.irs.gov/Retirement-Plans/Determination,-Opinion-and-Advisory-Letter-for-Retirement-Plans---Check-the-Status-of-Your-Letter • ESOP Form 5300s, as of September 18, 2013: • Cycles A, B and C: all cases assigned • Cycle D: not assigned if postmarked after January 2010 • Cycle E: not assigned if postmarked after February 2010 • Cycles A2, B2 and C2: no cases assigned

  10. IRS Update and Guidance • Review period for ESOP submissions has increased; in some cases, ESOPs receive a determination letter months before having to file again • IRS initiatives to reduce review time • ESOP Cadre formed • Development of ESOP prototype under consideration • Most recent development announced September 18, 2013 • D-letter will no longer include dates of adoption for plan or amendments (for plans meeting “updated review criteria”) • “does not affect the scope of or reliance” on the letter

  11. IRS ESOP Review Process • IRS explained two-step process for ESOP determination letter review in Employee Plans Newsletter Issue 2013-2, June 24, 2013 • Step 1: review by an ESOP specialist, who checks completeness of the application and reviews the plan using: • the Cumulative List, • the “Memoranda” (Technical Assistance Responses) • a standardized “ESOP worksheet (rev. 08/11),” and • feedback from ESOP Technical Managers • Step 2: a different ESOP team specialist will contact the applicant or authorized representative about any technical issues identified in Step 1 and obtain additional information

  12. IRS Update and Guidance • IRS webpage for ESOPs launched in June 2013: • http://www.irs.gov/Retirement-Plans/Employee-Stock-Ownership-Plans-(ESOPs) • Links on this page to Responses to Technical Assistance Requests #1 through #5 (issued in 2009 and 2010) and other IRS guidance

  13. Hot-button issues • Dual purpose plans • S corporation/C corporation language • Debt forgiveness • Distribution provisions • Language in plan vs. separate policy • 409(p) prevention language • Transfer from ESOP to non-ESOP plan or portion • Transfer back from non-ESOP plan or portion to ESOP • Diversification

  14. Does a Determination Letter Expire? • Interim amendments (document changes required by IRS) • Discretionary amendments • Options if you do not timely amend • VCP • Audit cap

  15. Pros and Cons of Obtaining a Determination Letter (5300) • Do I really need a determination letter? • Required in order to use IRS’ Employee Plans Compliance Resolution System • Provided a relatively inexpensive form of insurance for the employer that the IRS has ruled that the plan is qualified • Not required for plan qualification • Common request by auditors, lenders and possible purchasers of company

  16. Pros and Cons of Obtaining a Determination Letter (5300) • A determination letter applies to qualification requirements regarding the form of the plan and not the operation of the plan (unless plan elects to file Schedule Q)

  17. Plan Termination and Determination Letter Process (5310) • Similar process as 5300 filing • Additional participant data required • Notice requirements • Plan must be updated to include interim amendments that are effective prior to termination date • IRS may require additional amendments before issuing determination letter • Restatement of plan document not required

  18. Should You File a 5310?Pros and Cons • Plans can be audited or investigated even after termination – provides assurance • Degree of certainty of plan sponsor and participants that plan will be treated as tax qualified • Other issues raised - possibility that determination letter will not issued • Time • Cost • Quicker review: As of September 18, 2013, all Form 5310 submissions postmarked during or prior to February 2013 have been assigned

  19. Questions? Presenters: Victor Alam valam@menke.com Susan Lenczewski Susan.lenczewski@lawmoss.com

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