IRS’s Budget, Structure Drive Changes in Retirement Plan Operation



The Internal Revenue Service’s determination letter program looks considerably different this year than in prior years. In a series of new revenue procedures issued on Jan. 3, the IRS finalized broad changes to the determination letter program.

Budget cutbacks and agency reorganization were catalysts for the changes in the determination letter program. 

Retirement plan sponsors had sought determination letters as an assurance from the IRS that their plans complied with the tax code, especially after changes in the law required plan amendments. 

The program changes are the culmination of an internal IRS reorganization that began in 2015 when attorneys from the agency’s Employee Plans Unit within the commissioner’s office were transferred to the Associate Chief Counsel’s office, Louis T. Mazawey, a principal at Groom Law Group, told Bloomberg BNA on Jan. 5. 

With that move the authority to issue most private letter rulings also transferred from the office of the Tax Exempt and Government Entities Division to the TE/GE’s counsel office, Mazawey said.

Many changes reflect the IRS’s announcement in 2015 that it was sharply curtailing the determination letter program after Cycle A of the current schedule at the end of January 2017, a development that also was driven partly by budget concerns, he said.

The IRS also hopes that the program changes will steer more plans to make use of the agency’s preapproved plan procedures, he said.

Revenue Procedures

Many of the changes are reflected in Rev. Proc. 2017-4.  Under this procedure, the five-year remedial amendment cycle for individually designed plans has been eliminated and plan sponsors can apply for determination letters only for as new and terminating plans and other special circumstances.

Those changes had been announced earlier in Rev. Proc. 2016-37.

Rev. Proc. 2017-4 also merges guidance previously contained in Rev. Procs. 2016-4, 2016-6 and 2016-8, including the latter’s user fee schedules for determination letter and letter ruling requests.

Also on Jan. 3 the IRS issued Rev. Proc. 2017-5 merging guidance for issuance of determination letters on organizations’ exempt status.

Private Letter Rulings as Substitute?

Rev. Proc. 2017-1, also released on Jan. 3, updates procedures for requesting letter rulings under the jurisdiction of the Office of Associate Chief Counsel, TE/GE.

Letter rulings could be fertile new ground for plans no longer able to use the determination letter process for their particular qualification issue, Mazawey said.

Virtually any question having to do with health and welfare plans and executive compensation can be the subject of a letter ruling under Rev. Proc. 2017-1, he said.

Employee Plans Rulings and Agreements can also issue letter rulings under Rev. Proc. 2017-4 but only in those specific cases spelled out in Section 24, Mazawey said.

A question going forward is “to what extent will the IRS willing to issue letter rulings on items that were covered in determination letters,” he said.

The fee for most letter rulings from Associate Chief Counsel is $28,300, which may deter some taxpayers and plans from requesting one, Mazawey said. However, the agency has shown increased willingness to conduct a pre-submission conference, an informal meeting at which the requester can gauge whether the IRS would be willing to issue the ruling.

“The cost and timing of the letter ruling request are key,” he said. “We will have to see how often the taxpayers submit letter ruling requests and how quickly the IRS processes them.”

See related story, IRS Ruling, Technical Advice Procedures Updated for 2017.

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