Sec. 4980D excise tax - "affected individual"?

[t.haley]

I am trying to confirm that no excise tax under Sec. 4890D is due if no plan participants are affected by a failure. Example - plan fails to remove lifetime limit provision until 2014. The limit was never imposed on a plan participant in any way (i.e., no participant was denied benefits because they went over the limit). The way I read Form 8928, there is no excise tax due because there are no "individuals to whom the failure applies." Section 4980D nor the instructions to Form 8928 do not define the phrase "individual to whom such failure relates." Has anyone run across any guidance, etc. that speaks to this? A related question is whether a Form 8928 must be filed if there is no tax due. I would think the return would still need to be filed to report the failure. Any help would be greatly appreciated!

[Chaz]

My off-the-top-of-my-head thought is that it would be taking an aggressive position that no participants are "affected" by failing to remove a lifetime limit provision (the limit would seemingly "apply" to all participants, whether they went over the limit or not). How aggressive would depend on the particular circumstances. I suggest speaking with counsel.

[t.haley]

There is language in the instructions to Form 8928 relating to correction of a failure which states that a failure is deemed to be corrected if a "person to whom the failure relates is placed in a financial position which is good as such person would have been in had the failure not occurred." This seems to indicate that there is not a "person to whom the failure relates" unless there was some sort of financial injury. If the lifetime limit was not imposed on any plan participants (and thus did not impose financial injury on any plan participants), I would argue that there were no affected persons and therefore no excise tax due.

[Chaz]

I see your point but how would a plan know if a participant ended up foregoing medical treatment because of the limit? How would a plan measure putting such participant back in the same financial position as before?

Doesn't that relief apply only to failures that were corrected within 30 days?

I'm not saying your position is not plausible but the result of this would be to permit plans to inform participants that there is a limit and roll the dice and address it only if a participant submits a claim in excess of it (it would more likely be an issue with an annual limit). I can't imagine the IRS permitting such a scenario.

[jlea]

Has anyone filed Form 8928 yet? Any practical experience with the level of review, etc.?