Flyboyjohn Posted July 29, 2014 Share Posted July 29, 2014 Does the IRS still publish statistics on the number of plans they disqualify every year? In the modern era of SCP, VCP and Audit Cap I would have to guess that the number is very low (and probably in only the most egregious and publicity worthy situations) but I need to persuade a bankrupcty judge that it's not an every day occurrence. Thanks Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted July 29, 2014 Share Posted July 29, 2014 Not sure, but I'm lost on the mention of how disqualification would relate to bankruptcy. We know if an IRA is disqualified, it loses its favorable tax treatment and is no longer considered an IRA. I believe there is case law where a petitioner got access to the respondent's IRA by showing the court that the IRA engaged in prohibited transactions that made it 'no longer an IRA'. I believe a qualified plan is different. I never considered ERISA protection (DOL purview) as having any relation to income tax treatment (IRS purview). Good Luck! CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
My 2 cents Posted July 29, 2014 Share Posted July 29, 2014 Perhaps the question has to do with whether the plan is still qualified. If a plan is disqualified, would there still be the same protection from creditors as there would have been had the plan not been disqualified? Would there be an incentive for creditors to try to get an otherwise qualified plan disqualified so they can reach the person-in-bankruptcy's assets? Just wondering. Always check with your actuary first! Link to comment Share on other sites More sharing options...
Flyboyjohn Posted July 29, 2014 Author Share Posted July 29, 2014 If the bankruptcy Trustee can show that the plan has a disqualifying defect then the plan assets lose their bankruptcy exemption and go into the bankruptcy estate. I'm dealing with a particularly agressive Trustee who gets a commission of 10% if she can find a plan defect and I'm arguing to the Judge that even if there are petty defects even the IRS would not disqualify the plan, hence the need for statistics if available. Link to comment Share on other sites More sharing options...
jstorch Posted July 29, 2014 Share Posted July 29, 2014 I'm not aware of IRS disqualification stats, but for another argument you could just cite to the IRS correction procedure, EPCRS Rev. Proc. 2013-12, which allows self-correction (SCP) of small defects and correction even of defects found on IRS audit (Audit CAP). EPCRS shows that the IRS does not want to disqualify a plan and that a plan can readily correct even significant errors and maintain its qualification. Of course, the trustee might push to have the corrections actually made. Link to comment Share on other sites More sharing options...
Flyboyjohn Posted July 29, 2014 Author Share Posted July 29, 2014 Yep, I'm talking up EPCRS as the likely alternative to IRS disqualification but that guts the Trustee's opporutnity to reap her big windfall commission. Link to comment Share on other sites More sharing options...
jpod Posted July 29, 2014 Share Posted July 29, 2014 I thought the issue of the plan's qualified status is irrelevant unless the debtor is someone who could have been responsible for the plan's loss of qualified status (like the owner of the employer, for example). Is that the case here? Link to comment Share on other sites More sharing options...
My 2 cents Posted July 29, 2014 Share Posted July 29, 2014 Does the plan cover only the person in bankruptcy or would there be collateral damage? Always check with your actuary first! Link to comment Share on other sites More sharing options...
Flyboyjohn Posted July 29, 2014 Author Share Posted July 29, 2014 It's a one-participant DB plan so the only party hurt would be the debtor. Link to comment Share on other sites More sharing options...
My 2 cents Posted July 29, 2014 Share Posted July 29, 2014 It being a one-person plan might change the game. I suspect that if there were statistics on plan disqualifications, based on anecdotal evidence I would expect them to show much higher rates of disqualification for one-person plans as compared to larger plans. And if there was anything that looked fishy (example: big contribution shortly before declaring bankruptcy, which could look like an attempt to defraud creditors), that might not predispose the IRS to be gentle if any defects were to be found. I still feel somewhat queasy at the thought that the bankruptcy trustee could have been put in a position where she stood to gain personally if she succeeded in getting the plan disqualified. I don't normally work with bankruptcy filings - is the bankruptcy trustee's duty primarly to the creditors or would the bankruptcy trustee's duty be more oriented towards seeking an equitable resolution? Always check with your actuary first! Link to comment Share on other sites More sharing options...
jstorch Posted July 29, 2014 Share Posted July 29, 2014 I agree with My 2 cents that a one-person plan has more risk of being disqualified. Is there enough at stake to file VCP to get official IRS pronouncement that the plan will be treated as qualified? Would bankruptcy trustee have any argument that the plan sponsor should not be allowed to spend the funds for the filing? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now