Tax Cowboy

In a US Tax court case re ESOP disqualification the government filed its certification of the admin file. My question is how long does petitioner have to file an objection (if any) and file a motion to supplement record?

I apologize if this isn't the proper group to post. Anyone use Judy Diamond to obtain updated lists of retirement plans for marketing purposes? I always thought the DOL website would have similar information but maybe not in a all on one solution which provides reports and analysis based on 5500 filings. Does anyone use judy diamond? Other marketing provider to target retirement plans for marketing? Thank you in advance.

Group: It's been a while since I filed a Declaratory action for retirement plan disqualification filed in USTC. In the Reply to Govt Answer am I correct the only paragraphs I should reply to relate to where the Govt has burden of proof. Under USTC rule 213 says: Rule 213 Form and Content: "In response to each material allegation in the answer and the facts in support thereof on which the Commissioner has the burden of proof, the reply must contain a specific admission or denial; however, if the petitioner lacks knowledge or information sufficient to form a belief as to the truth of an allegation, the petitioner must so state, and that statement will have the effect of a denial. " I've always thought that unless there's a new issue under US tax court rule 142 the burden almost always stays with petitioner. Or of course if the court shifts burden under 7491. Which seems to be very rare. Thoughts on how do you prepare your Reply? Do you Reply to each Answered paragraph? Thoughts and comments appreciated.

Group: IRS audited clients retirement plan an esop. In the USTC declaratory action retirement plan is disqualified. Typically on an appeal from USTC the bond amount determined from tax deficiencies. However since the Dec action doesn't have a tax deficiency how do you proceed with appeal? File a bond with $0? What companies have you used for appeal bonds? Thank you

Group: Seeking an expert to assist a US Tax court case on a few narrow issues dealing with S-ESOP prudent investing standards. Please reply privately. Thank you

Group: I wasn't sure which area to post this. Brief facts: Case no. 1: In June 2022 IRS TEGE issued a notice of plan disqualification for an ESOP client. The agents notice clearly stated "The plan is disqualified" thereby allowing TP to timely file in US Tax Court within 90 days. In Dec. 2022 Govt files to dismiss based on lack of jurisdiction. Pending USTC Case no. 1 is still pending and no order from USTC. Pending USTC Case no. 2. - May 2023 IRS TEGE issues a one page notice of disqualification stating: The Plan is no longer disqualified under 401a and 501a. No 886-A and no further information. Q: Is there a motion you'd file to stay proceedings? I don't see IRC 6213a applying to retirement plan declaratory actions? Here is what 6213 a states: 6213(a) states that “no assessment of a deficiency in respect of any tax . . . and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer. I'm looking at guidance for which US Tax Court rule (or Fed Rules) allow me to motion the Court to stay Case no 1? other than saying it would deprive petitioner of due process rights to not allow him to have that matter resolved. Thoughts and comments appreciated.

Group: Over the years I've seen Plan Sponsors (for ESOP's) setting up sinking funds to pay for future participant benefits. Where do I find the citation/authority for types of assets a plan sponsor can use to fund the repurchase obligation? Is there a specific DOL citation? Treas regulation? I was thinking about this awhile back at a conference for civil/criminal tax matters and one speaker referenced that there's no guidance even on investing in Crypto. Other than a DOL letter/notice (?) with a stern warning that retirement plan investments in 'crypto' may be a breach of fiduciary duties. I don't have the date readily available. I may be conflating the two items as this didn't per se relate to ESOP's. But, could a ESOP trustee invest in crypto as their asset for the repurchase obligation? Seems the IRS/DOL leaves this in a grey area on purpose. Thoughts and comments appreciated.

To clarify Peter, The Plans trustee did determine the appraiser was qualified for the tax years in question. Beginning 2008 through 2020. But the appraisal report doesn't have two of the required declarations. Probably important is that the appraiser was not a party to the transaction. So that isn't an issue. I've requested time to correct this issue but I'm preparing for worse case scenario in a disqualification. As we taxpayer was issued a draft Rev Agent Report. Trying to find an argument (Treas reg cite, US supreme court case, other persuasive regulations, etc) to show a court that the error in not inserting the declaration should not take away the participants value by disqualifying the plan. Seems like the US tax courts will throw away the Baby with the bath water due to an inadvertent oversight of not including the declaration. Thoughts and comments are always appreciated.

Group: I'm aware of the requirements for the appraiser to sign and declare certain statements on the valuation report annually for an esop. An esop adopted in 2007 is under audit and the appraiser has passed away. One issue the IRS had brought up is that the appraisal didn't have a statement indicating they hold themselves out to the public and conduct appraisals for other plans. And that the appraisers identifying number which I believe would have included it's EIN were not provided as well. I've had other audits where these issues were not relevant. And the IRS didn't disqualify the plan. Since this Taxpayer can't call the appraiser to testify what is the solution to prevent disqualificstion of plan? Seems odd the Govt would disqualify a plan merely because an EIN wasn't stated on summary or appraisal itself. And that a court would disqualify a plan, depriving participants of their benefits, for such a minor error. If the irs does disqualify the plan my thoughts were to have taxpayer testify that the trustees were provided the appraisers' identifying number when they hired the company. Thoughts and comments appreciated.

Group: I may not state this properly. The facts as I know them. * ESOP owned by an S Corporation was adopted and set up in 2013 by clients ESOP advisor. (no longer working with TP) * The original sale of stock was 100% of corporate stock sold for $20k to the ESOP. (I'm not concerned about this $20k value, fyi) Promissory note, loan agreement, security agreement prepared and signed by Plan trustee. * Terms state the note will be paid off over 10 years in a balloon payment. * Client audited for 2013 and 2014 years. IRS issues no-change letter accepting all filed returns. (final notice issued early 2015.) The IRS during that audit didn't address or bring up as an issue the non-payment of the note. * A 2nd audit ensued in 2018. The TP had not paid the ESOP note. The most recent revenue agent report states part of the rationale for disqualifying the plan was because the $20k note was not paid. * TP is not in Court for this plan. There's a few other IRS issues that are defensible. * The disqualification of the plan may result in a large tax for a number of reasons not germane to this inquiry. Related to the $20k note, my initial argument (I haven't began much research just yet) is that since the TP was still under audit and the TP asked to pay off the $20k note as a corrective action, the IRS should have allowed the TP the ability to pay off said note. Even if the IRS didn't allow the payoff, the TP was still within the terms of the note. The IRS did not allow TP to pay off the loan. Q: Are there no defenses available to a TP who (for one reason or another) did not pay the original ESOP note? even though the terms hadn't come due yet. Q: Are having the terms of a 10 year balloon payment in violation of ERISA 4975? What's odd is I've represented other ESOP's where - during an audit -the TP was afforded the ability make catch up payments for the original note on the sale of stock. Seems like the Govt - which may have the right - can be selective depending on what day of the week it is. There's no rhyme or reason to which TP's are afforded the right to make catch up payments. Thoughts and comments are appreciated. Or cases on point or any other regulations that may assist TP would be much appreciated.

Thank you for these resources! Much appreciated.

Group I'm looking for a comprehensive checklist to review an ESOP plan for compliance. Anyone have a checklist they're willing to share and/or a resource that does a pretty good job. Anyone using artificial intelligence/chatgpt /othet apps to review ESOP plans and compliance? I have an old checklist and just want to see if there's something I'm missing or should change. Thoughts and comments and resources are much appreciated.

thank you for the resources. much appreciated

Group: Anyone have a good resource they use that shows to side-by-side comparison with SAR's, Phantom stock other RSO's and non-qualified executive compensation packages that will include tax consequences for employees and employers, limitations if any, along with necessary documentation (plan documents, corporate resolutions other documents?)? Or a company that can assist in creating the above. Thank you in advance.

Very helpful CB and Cusefan!!

Group: Potential client has had a DB plan for approximately 20 years. The adoption agreement states the following under Unit Benefit Formula "(1) Uniform formula. 10 % of Average Compensation multiplied by Years of Credited Service. (i) Years of Credited Service above 25 will not be taken into account. (this box checked) (ii) Years of Credited Service above 10 will not be taken into account. " Does this mean on an annual basis any eligible employees are not entitled to a contribution past year 10? Or Is this merely part of the actuarial equation the TPA uses for annual valuation purposes? Client was informed that a non-owner employee/100% vested participant is due $315k if terminated plan as of 12/31/22. I'm told there is approx $2.mm in various stocks/bonds/some annuities at this time. Only two participants. Owner (age 72) and one rank and file employee (age 47) who's worked there for 20 years He's just trying to get a handle on whether or not the TPA is accurate is the $315k amount. As he doesn't believe that's the true amount and that any distribution should be lower than. Thoughts and comments appreciated. Or other guidance and resources are appreciated. I note I may not have provided all facts and am awaiting on information. Thank you

Thank you. I believe I may have found a work around to allow leased employees (in excess of the 20% limitation) to become eligible for participating in this clients' esop.

Group: In reviewing a client's ESOP Plan docs adopted 2013 the employer excludes leased employees from participating. However, then I read the payroll and employee census and see a leasing company was the employer of record and issued W2's in the leasing Co name. At the time of adoption there were approximately 22 employees including 2 HCE. IRS has begun to audit the plan and we have already received IDR's asking about the leased employees. My research thus far is as follows: Under TEFRA 1982 Tax Equity and Fiscal Responsibility Act (TEFRA) Public Law 97-248 to curb certain abuses, the 1982 TEFRA act promulgated a law that leased employees are not subject to the same pension rules if the leased employee is covered by a plan maintained by the leasing organization that allows for immediate participation, full and immediate vesting, and employer contributions of at least 7.5 percent of the employee's salary. In other words, Leased employee are subject to employer/plan sponsor pension rules if lease Co doesn't allow immediate participation , full and immediate vesting and employer contributions at least 7.5% employees salaries. Then under TRA of 1986 public law 99-514 seemed to modify the 1982 law by adding the following: Additionally, IRC§414(n)(5)(A) states that the safe harbor provisions do not apply if leased employees constitute more than 20 percent of the recipient's nonhighly compensated workforce. Q: To prevent the plan from being disqualified is there any argument that the leased employees are under control and direction of plan sponsor and the leasing company doesn't provide a money pension plan with immediate vesting and participation? (I may be getting the rules confused) The '86 law seemed to remove the safe harbor and no other work around to prevent disqualification. Q: Would the result change if instead of leasing company there was a PEO? Any cases or other treatise to review for my research would be greatly appreciated. Thank you

Thank you for responses! Very helpful.

Group, I apologize if this has been answered some time ago but how many years back can the Department of Labor go when investigating potential breach of fiduciary duties related to an ESOP? I thought there was a 3 yr SOL under IRC 6501 similar to an irs assessment. But can't seem to find a case on point. I seem to be getting conflicting information in my own initial research and discussing with clients general counsel. Anyone have a case where DOL was outside of their SOL in asking for information from 10 years prior? Thoughts and comments appreciated.

Group: Client's esop has been under audit for 2018-2020 by irs TEGE. The IRS recently issued its notice of deficiency stating the plan was ineligible. (much of which related to a former esop advisor and much longer story) The TPA has calculated that there are 2 participants who left the company in 2020 and have not received any distributions for their vested shares. The distribution amount would be approximately $20k each. We are assessing what steps to take for plan participants shares, if any. Q:Is trustee/plan administrator still obligated to pay distributions for a plan year that has resulted in being disqualified? Q: Wouldn't any share value be zero? $0. So partipcants even if fully vested, would have no value. Client plans on filing in tax court to challenge. Q: Does trustee have ability to freeze plan until a court has resolved the issues? Thoughts and comments appreciated. Thank you

Thank you for this Much appreciated.

Group: In researching ESOP Loans and potential prohibited transaction violations of ERISA under 406(a) I'm curious more than anything whether Sam Zell was assessed for violating 406 as that transaction seems to be a direct transaction with a potential for conflict of interest? Did his bankruptcy discharge any potential prohibited transaction violations? Did the esop loan meet erisa 408 exemption? Is erisa prohibited transaction rule 406(a) intended for esop loans? Thoughts and comments appreciated. Resources and court cases would be helpful as well as I'm beginning research on this topic. Thank you

Thank you. Very much appreciated. I am working with the clients new TPA to ensure reporting moving forward is filed correctly and any amendments approved by auditor. Thank you, jd

Group: Client's ESOP is under audit. Along with a number of affiliated entities. Due to health reasons clients' former TPA resigned in early 2021 and a new TPA was hired. The auditor has inquired about an alleged $22k contribution in the plan year under audit (2018). However, the 5500 does not reflect any contribution. I can't seem to reconcile where the former TPA came up with the $22k of contributions. Nor can I reconcile plan stock forfeitures. We have already informed the auditor that a former TPA prepared the annual reports and 5500's. and are working with the new TPA. I'm well aware that the taxpayer/client may still be held liable for any record keeping fines/tax assessments notwithstanding errors caused by the former TPA. Q: Would you inform the auditor that there were no contributions and the auditor's report inadvertently stated that there was a contribution? This does not change the participants share account values. Also state that the taxpayer is in process with new tpa to amend the report to properly reflect no contributions. Thoughts and comments appreciated.