Peter Gulia

Thank you for your observations about the wisdom of stating such a provision. My question is much narrower: Would the IRS recognize that a provision of the kind described does not cause a document to fail to state a tax-qualified plan? I see C.B. Zeller’s point about “definitely determinable”. 26 C.F.R. § 1.401-1(a) calls for “a definite written program” and “a definite formula . . . for distributing the funds accumulated under the plan[.]” 26 C.F.R. § 1.401(a)-1(b) calls for a plan’s benefit to be “definitely determinable[.]” Here’s what should matter about definiteness: When the plan’s administrator must decide whether to approve a claim, will the administrator—by reading the governing document and any text the governing document properly refers to—have enough information to decide whether the plan provides what the claim asks for? (And what should matter for an IRS review would be: Can the document, including the referred-to text, result in a disqualifying provision?) But I’ll answer my own question. For advance written determinations on whether a document states a tax-qualified plan, the IRS does not recognize incorporation by reference except as permitted by a statute, rule, other authority, or the IRS’s administrative grace.

Some plan sponsors would prefer to adopt, once, a provision that allows whatever loans and distributions can be provided without tax-disqualifying the plan. Some would like such a provision to include what becomes allowed under future Acts of Congress. If a sponsor of a prototype or volume-submitter document presented such a provision, would the IRS approve? If a sponsor of a new individually-designed plan presented such a provision, would the IRS approve?

Without seeing the employer’s written plan, we don’t know what conditions it sets. If the plan is no more restrictive than fits Internal Revenue Code § 21(b)(2) and § 129(d)-(e): Might a fee for the childcare provider’s service and availability have been a reimbursable expense when the employee paid it?

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution. But here’s one further reason why a classification might matter. Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

I must have mistakenly whacked some buttons in rendering my post. CARES 2301.pdf x-12R-20.pdf

An IRS interpretation states: “If the Eligible Employer lays off or furloughs its employees and continues the employees’ health care coverage, but does not pay the employees any wages for the time they are not working, the employer may not treat any portion of the health plan expenses as qualified wages for purposes of the Employee Retention Credit because no portion of the health plan expenses would be allocable to wages paid to the employees.” That website display includes: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.” https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-amount-of-allocable-qualified-health-plan-expenses-faqs A letter from three members of Congress asks the IRS to interpret differently CARES Act § 2301. https://www.finance.senate.gov/imo/media/doc/050420%20Letter%20to%20Treasury%20on%20ERTC%20health%20benefits.pdf I attach the statute’s § 2301. And the Joint Committee on Taxation explanation. Imagine your client wants to file its tax return with the position the Congressmen suggest, that the credit applies for health plan expenses even if no other wages is paid. Your client tells you it wants your written opinion to help protect against penalties. Your client doesn’t ask for a more-likely-than-not opinion; a substantial-authority opinion would meet the purpose. 26 C.F.R. § 1.6662‐4(d)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=2498c4ede6da62c6daa26b3f833d07b7&mc=true&node=se26.15.1_16662_64&rgn=div8 Could you, acting within your profession’s conduct rules, render the requested opinion? Would you? My queries are not about anything for my law practice. Rather, I’m tooling-up to teach my summer-semester course on Professional Conduct in Tax Practice. (My students include people in law, accounting, and actuarial firms, and some who render tax advice for other businesses.) The New York Times reported on the letter mentioned above, and I hope the story—and your ideas—might illustrate some points about how practitioners manage uncertainty in tax law. I'll be grateful for any ideas you're willing to share.

Beyond the points mentioned above and others: If a plan’s sponsor relies on an IRS-preapproved document, consider that a document’s sponsor might (later) write CARES Act provisions with fewer choices than this plan sponsor seeks to specify. A user may not rely on the IRS opinion letter that accompanies a preapproved document unless the user makes no change beyond those the document or the IRS’s Revenue Procedure allows. A plan’s sponsor might not know today what would be within or beyond some document not yet written.

Thank you, this information helps me.

Even in years with no disaster or public-health emergency, many administrators of employee-benefit plans—whether acting directly, or by some agent—routinely extend a Form 5500 due date from July 31 to October 15. If the Labor department doesn’t grant a coronavirus delay, is there a practical consequence beyond the make-work of completing and sending an extension form? I ask because BenefitsLink writers often school me about gaps in my knowledge or experience.

Yes, thepensionmaven described a TPA firm. And asked for a reference to Circular 230’s return-of-records rule. And later in the discussion described an example about accountants. My post has in it a quotation of an accountancy rule, and a citation of and hyperlink to the particular Circular 230 rule thepensionmaven asked for. My post doesn’t state anything about what a TPA must, may, or should do. Larry Starr explains his firm’s method. I mostly agree that external law does not ordinarily impose a duty to make copies of copies of records already in a client’s possession. Some TPAs need not follow any professional-conduct rules. Some TPAs have a worker who follows the American Retirement Association’s rule, which applies even if the member is not governed by the rules for practice before the Internal Revenue Service. Some TPAs have a worker who wants the TPA to follow a rule for lawyers, accountants, actuaries, or another profession. (Some regulators assert that the profession’s rules apply to whatever a licensee does, even if her work is not of a kind that requires the profession’s license.) Returning to what I imagine might be thepensionmaven’s interest, sometimes a hint about some return-of-records rule—even if the rule might not or does not apply—helps persuade a removed TPA to cooperate in furnishing what the next TPA seeks. Consider too Larry Starr’s observation that a prospect of incurring fees might motivate a client to become less lazy about looking for what it already has.

Beyond the rules for practice before the Internal Revenue Service, a certified public accountant likely is regulated by States’ accountancy laws. For example, here’s a regulation of New Jersey’s State Board of Accountancy. N.J.A.C. § 13:29-3.16 Records a) A licensee or the licensee’s firm shall furnish to the licensee’s client or former client, upon request made within a reasonable time after original issuance of the document in question: 1) A copy of a tax return of the client; 2) A copy of any report, or other document, issued by the licensee to or for such client; 3) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee; and 4) Licensee-prepared client records that would ordinarily constitute part of the client’s books and records, are contained in the licensee’s or his or her firm’s working papers, and are not otherwise available to the client. Copies of such records shall be produced to the client in the same manner, media, and format as the record was created by the licensee. b) A licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed. I picked New Jersey as an example because I remember from my experience in advising CPAs that New Jersey harshly enforces this rule. The Circular 230 rule (if it applies) has more tolerance. 31 C.F.R. § 10.28 https://www.ecfr.gov/cgi-bin/text-idx?SID=2eeaa78d7df8a20eb74ecf9cb721ece2&mc=true&node=se31.1.10_128&rgn=div8

Here's a text of the Senate-passed bill. Paycheck Protection Program and Health Care Enhancement Act bill.pdf

To read the rule Luke Bailey describes: https://www.ecfr.gov/cgi-bin/text-idx?SID=d7e5f18218c1cca961286a6fa1b6f4cf&mc=true&node=se26.20.301_17701_67&rgn=div8

So how long can a super-smart TPA wait?

Just curious, how long can the software makers wait before one must invent an answer to get the recordkeepers' computers ready?

The key to understanding the SECURE provision is that the employment-based retirement plan’s distribution is not a payment of money; it is a distribution of the contract, the one that is no longer the plan’s investment alternative. (The plan should provide, or at least not preclude, a distribution by a delivery of the contract.) Under Internal Revenue Code § 401(a)(38)(A)(ii), a plan doesn’t tax-disqualify because the plan allows “distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract[.]” “If a trust described in section 401(a) and exempt under section 501(a) purchases an annuity contract for an employee and distributes it [the annuity contract] to the employee in a year in which the trust is exempt, and the contract contains a cash surrender value which may be available to an employee by surrendering the contract, such cash surrender value will not be considered income to the employee unless and until the contract is surrendered. . . . .” 26 C.F.R. § 1.402(a)-1(a)(2) https://www.ecfr.gov/cgi-bin/text-idx?SID=85324826c4efd646e65f48bddbb1cf78&mc=true&node=se26.6.1_1402_2a_3_61&rgn=div8 Caution: This discussion is limited to helping employee-benefits practitioners. Anything I post here is not advice to anyone.

Congress granted the Secretary of Labor power to delay due dates, but not to change ERISA § 103’s command to engage an independent qualified public accountant. ERISA § 518 [29 U.S.C. § 1148], amended by CARES Act § 3607.

Gilmore, the practical answers might come from some cautious lawyers in retirement-services businesses, especially big insurance and trust companies. When I was inside counsel, the operations guys often reminded me that anything I said had to be functional across a dozen or more different computer systems (often, with no new or revised programming). And I sometimes considered that even the slightest weakness in my legal reasoning (or just an unfortunate change in a regulator’s, arbitrator’s, or court’s appetite) could be magnified by tens of thousands of plans, with tens of millions of individuals, and hundreds of billions of dollars. Further, a recordkeeper’s counsel has to manage these issues for a context in which all but the biggest plan sponsor/administrators have no lawyer but everyone must pretend that no one gives tax or legal advice to anyone beyond the recordkeeper itself. Those facts of business life lead to doing what can be sourced to the government agency, with little or no room for interpretation. Your originating post suggests your client plans are stuck with what the recordkeepers provide. Don’t be surprised that a recordkeeper might give big-ship answers.

RatherBeGolfing, thank you for helping me think this through, especially the reasoning. The situation is a nice reminder about not letting a good impulse overtake careful thinking and sound judgment.

Larry Starr, thank you for helping me think this through. I’m imagining the possibility that what a plan paid as an ordinary distribution could nonetheless be a coronavirus-related distribution within § 2202(a)(4) that gets the tax-withholding treatment of § 2202(a)(6)(A). Would your outlook be different if the trustee or other payer acts on its own without asking anything from the plan’s administrator (relying only on the distributee’s certification)?

I assumed one need not change tax-withholding, and is (at least) permitted to withhold 20%. I’m asking whether a withholding-only recognition of a coronavirus-related distribution is permissible and feasible. Is it as easy as putting one more paragraph in a form? (And perhaps one more switch in the computer system.) Or am I missing something? If a service provider can help a distributee get lower or no tax-withholding without imposing a risk on plan fiduciaries (and with not too much burden on the service provider), might doing so be a nice courtesy?

To “determin[e] whether any distribution is a coronavirus-related distribution”, the statute allows an eligible retirement plan’s administrator to rely on a claimant’s certification. CARES Act § 2202(a)(4)(B). Could a recordkeeper put on a form for an ordinary distribution, in a part in which a distributee may specify a withholding choice for a distribution not an eligible rollover distribution, a § 2202(a)(4)(A)(ii) certification—to be relied on only for tax-reporting (if the IRS later sets a 1099-R code) and tax-withholding? To the extent that a plan’s directed trustee or other payer may rely on the plan’s administrator’s instructions to support tax-reporting and tax-withholding, could a payer rely on an administrator’s instruction (perhaps a standing instruction) that a distributee who completed that certification gets coronavirus withholding treatment?

Tomorrow’s Federal Register will publish an interim rule in which the Federal Retirement Thrift Investment Board waives a requirement. But it does nothing for another plan. Some notaries will officiate if the notary can see and hear the signer, handle documents safely, and use sensible ways to guard against a forgery or alteration. Nat’l Notary Ass’n, Important Coronavirus Guidance For Signing Agents And Mobile Notaries, https://www.nationalnotary.org/notary-bulletin/blog/2020/03/notaries-precautions-coronavirus

Finding a person who has obtained authority to receive a payment for a decedent’s estate might slow down paying a corrective distribution. Many people have so much property, including bank accounts and investment accounts, transfer by beneficiary designations, transfer-on-death, and other non-probate means, that no one seeks an appointment as a decedent’s personal representative, or even to use a small-estate regime.

A payer tax-reports a distribution (and withholds taxes from it) based on what the plan's administrator directed before the payer paid. A distributee's tax treatment of a distribution is between the distributee and the tax authorities.