The IRS annually announces its compliance priorities for the upcoming year, including its emphasis on certain retirement plan issues. This emphasis occurs primarily through the IRS plan audit process. This year’s focus will be of interest to many ACSI clients.
The IRS announced there will be a heightened scrutiny of “one-participant” 401k plans. A one-participant plan is maintained by a business owner who does not have any employees, or whose employees have not met the plan’s age and service minimum eligibility requirements. The IRS focus will be to determine if there are operational or tax-qualification failures, income and excise tax adjustments, or plan document violations.
Participant loans will receive greater scrutiny to ensure that the loans comply with the rules on maximum loan amounts and the repayment rules. Plans with an outstanding aggregate loan balance that is a high percentage of total plan assets, or with an outstanding aggregate loan balance that increases from year-to-year, may be a target for IRS review.
Worker classification, long a point of emphasis by the IRS for many different reasons (for example, for proper employment tax withholding purposes), will receive IRS retirement plan scrutiny to determine if “plan coverage” requirements are being avoided because employers misclassify employees as independent contractors.
The IRS also announced that Form 5500 “compliance checks” will look at plans reporting a significant decrease in plan participants, to determine if there is compliance with the “partial termination” vesting rules. For more about partial termination, see the recent ACSI article: Why Is “Partial Termination” A “Hot Topic” For Retirement Plans? – ACSI (acsi-ny.com).
A relatively small percentage of ACSI clients are audited by the IRS each year. However, given the volume of information requested by the IRS when an audit occurs, the technicalities of the audit, and the importance of the IRS deadlines for responding, ACSI encourages our clients to immediately contact us when an IRS audit letter is received.
ACSI (www.acsi-ny.com or email@example.com) is available to answer questions you may have about a potential audit of your Plan.