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Required Full Vesting


Hoard1
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On Plan termination of a Profit Sharing Plan the Service is taking the position that since there were no contributions to the plan for several year there was a plan termination in prior years requiring full vesting. Has anyone else delt with this issue and possible responsces.

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I've had the service take this position before. The requirement is that a p/s plan have substantial and recurring contributions. This is to demonstrate the permanence of the plan, and to avoid a termination (i.e. complete discontinuance of contributions). If a legitimate business reason exists to not make contributions in those years, and if that is a temprorary condition, then it can be argued no termination occured, until you actively terminated the plan. Give more facts....

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Last contribution to the plan was 8/31/86. This issue was raised during the IRS review for plan termination. Employer is terminating the plan because they can't afford to make contributions. At what point would you say the plan terminated (discontinuance of contributions under 411 (d) (3))? Forfeitures occured subsequent to the 86 Plan Year. How far back can they go to require restoration of unvested account balances?

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If the IRS were looking to disqualify the plan, it could only go back to the open tax years. Assuming a Schedule P has been filed with the 5500 and assuming no exceptions apply, then the IRS would only be able to disqualify the plan for the previous three years. That three year statute of limitations applies to assessments and collections and is set forth in Section 6501 of the Internal Revenue Code. Ask the IRS reviewer to provide citation to authority for requiring full vesting retroactively thirteen years. Assuming no one backs down, it would appear that the IRS could assert that the plan does not meet 411(d)(3) and thus should be disqualified retroactively to the earliest open year??

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  • 2 weeks later...

I would think that the IRS could request the 1120's for the "open" tax years, probably to verify the amount of contributions or that no contributions were in fact made. The interesting issue is how can the IRS require 100% vesting now almost thirteen years after the de facto termination. Has the EP Specialist given you any authority for that yet???

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