Guest Article

(From the August 29, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

EPCU Identifies New Employee Plans Compliance Projects

In a recent update, the IRS's Director of Employee Plans Exams identified three new compliance projects that are now within the focus of the Employee Plans Compliance Unit: plans that reported employer contributions on their Form 5500 series returns but show no participants, plans that reported being terminated on the Form 5500 series but show plan assets remaining, and plans that ceased filing the Form 5500 series but did not file the last form as "final." Also, a new project will begin later this year that will focus on plans that cover employees in Puerto Rico. Compliance requests will go out to those plans that changed their Form 5500 coding to indicate—in contrast to the prior year—that the plan is not intended to be qualified under the Internal Revenue Code.

These latest EPCU efforts underscore the importance of accurate reporting on the Form 5500 since all the inquiries are generated from information that was reported—or not reported—on the form. According to the update these EPCU efforts are bearing fruit. With the Form 5500 non-filers project, so far 150 contacts have been closed with 32 percent resulting in a return being filed. Another current project, which focuses on plans that reported over 10 percent of their assets invested in employer securities, resulted in a finding that in 32 percent of the 150 cases closed so far the stock was not being valued at fair market value. Another project, which examined Forms 5310 that reported a drop in participants of over 20 percent, eventually resulted in over 250 participants being treated as fully vested under the "partial termination" rule.

In addition the implementation of the Puerto Rican plan project described above, two other international projects are now operative. A project focusing on whether foreign entities that sponsor qualified plans are compliant with the requirement to maintain a domestic trust has so far indicated a high compliance rate (of 95 percent) according to the update. A second project, which is focusing on the reporting of early distributions (that are subject to the 10 percent early distribution tax) by individuals with foreign addresses, has so far indicated a low rate of compliance. The conclusion being drawn by the IRS is that global taxpayers are generally unaware of their U.S. tax filing obligations, including the fact that they are subject to an early distribution penalty—a matter that will be of increasing concern as employee globalization continues to expand, according to the update.

More information on the various EPCU compliance projects is provided on the EPCU webpage, at www.irs.gov.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.