Jump to content

Requirement to apply for ESOP Plan document determination letter from IRS


Recommended Posts

Group,
For many years now I've been under the impression that there is no
requirement for a plan sponsor to apply with the IRS for an ESOP
determination letter.  Rather, my understanding has been that many
TPA's are volume submitters.  And in the few TEGE audits I've been involved with,
the auditors have all accepted the ESOP AA and Plan documents
provided without a determination letter. 
 
Is there a code cite/Dept of labor rule that requires an
ESOP plan sponsor to apply for a determination letter?
Thoughts and comments appreciated.
 
Best,
Joe Dadich, Esq.
 
Link to comment
Share on other sites

If you have a preapproved plan that has an IRS "opinion letter," and you are a word-for-word adopter of that preapproved plan, including choosing among permissible options in the adoption agreement, then you have the equivalent of an IRS determination letter. The IRS calls it "reliance" on the opinion letter. So get a copy of the opinion letter from the "sponsor."

If it turns out you don't have a preapproved plan with a current opinion letter, even though it was in the form of a BPD and an AA, so that in actuality it is an individually designed plan, or even if it is a preapproved plan, but you added provisions that were not approved by IRS, then you are at a disadvantage without the individual DL. The plan might or might not be qualified depending on its provisions, and in any event without either a DL or an opinion letter, the sun is at the EP agent's back, not yours.

Of course the above is only regarding the qualification in form of the plan document. The plan must also comply in operation, which is a whole other subject.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

As Luke pointed out, there is no requirement that a plan have a determination letter or reliance on a pre-approved plan. If it's a leveraged ESOP, then the lendor might require IRS approval. Regardless, it's standard practice to get IRS approval. Also note that there are no pre-approved ESOPs yet. Those were only recently allowed - submisstions were made by 12/31/18 and we don't know how long it will take for the IRS to approve them. Best guess is in 2020 based on some informal comments from the IRS.

Link to comment
Share on other sites

17 minutes ago, Tax Cowboy said:

Very good points!!

Thank you.

G8Rs, you mentioned that only recently has the IRS allowed submissions made

by 12/31/18.  Is there a regulation cite? or is new regulation buried deep

in 2017 new tax law?

 

See this IRS announcement. 

Link to comment
Share on other sites

On 5/29/2019 at 7:02 AM, ESOP Guy said:

See this IRS announcement. 

The announcement didn't come through, or it has been deleted.

Link to comment
Share on other sites

11 hours ago, Mike Preston said:

The announcement didn't come through, or it has been deleted.

The missing link to IRS website.

https://www.irs.gov/retirement-plans/pre-approved-plan-program-expanded-to-include-cash-balance-plans-and-esops

Link to comment
Share on other sites

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 account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...