Tax Cowboy

Thank you for the response. There are a number of other background facts I've been intending to post. Unfortunately we've had a death in the family over the weekend and taking some time off until after funeral. I'll be able to better update the facts at that time. Thank you

Group: Early 2020 (after 3 yr irs audit of ESOP and related entities) irs issues NOD (Notice of Deficiency) with language stating the IRS position is that the retirement plan is not qualified. Plan years under audit covers 2011-2018. Due to Covid and a number of other factors US Tax Court case is still pending. One of our arguments is that the plan was disqualified per the IRS NOD and that the IRS erred for a variety of reasons. Fast forward to this past week, Govt counsel calls and states that it's now the Gov'ts position that the plan was never disqualified. Q: If the Plan was never disqualified for the 2011-2018 tax years, and the 2017 5500 return was filed July 2018, is there any argument that a 3 yr SOL has run out for 2011-2017 tax years? The 3 year sol would have run out in all tax years except 2018. It's been my understanding that for the IRS to use the 6 yr SOL the burden of proof would then shift to them. Or does the IRS have carte blanche until they finish their audit even after 6 years? Thoughts and comments appreciated. Thank you

Thank you for responses. Very helpful. I've read that the plan administrator can choose a 'Limited Scope' audit. Is this true? Or does the independent auditor decide whether it's a limited in scope audit? Thank you

Group: Plan sponsor adopted an esop in Nov 2021. I'm told they have 200 participants. I note they fall into a large plan. Q: I've read that since the adoption date falls late in year (for short year) they don't have to file an independent audit until the following year (12/31/22 y/e)? I couldn't find a cite on the website where I found this information. Is this accurate? Anyone have a cite they'd be willing to share? Q: How is it decided if the audit is performed as limited scope? Does the IQPA? Plan sponsor? Thoughts and comments appreciated. Thank you

Thank you for the responses! very helpful. I was only able to find a few US Tax Court cases discussing a somewhat similar issue post 2005. ErnieG hit one of the issues on the head. That the cash value at end of yr 4 may be relatively high. I believe the PC has been informed that - due to internal insurance costs - the cash value by end of yr 4 will still be relatively low. If that's the case, this smells like a springing cash value. The other potential risk I thought about since posting this query: What happens if (and when) the IRS tax promoter division (or whatever their new name is this year) comes knocking? There's a lot of risks here with what I'm told by PC so I'm most likely going to bow out of working with PC and the advisor who wanted to bring me in. Thank you!

Group: PC and wife (66/70 yrs) has $20mm in IRA's. Already used lifetime gifting on other highly appreciated assets with a FLP many years ago. I'm told these assets are outside of his FLP. He has said one strategy he's looking at has the following steps: 1. Set up qualified Def Contribution (DC) plan. 2. Rollover $20mm tax-free from IRA into DC. 3. Use funds to purchase High Cash Value insurance at $2.5mm per year premium for 4 years. Per spouse. 4. After yr 4, sell insurance policies to his FLP. 5. PC is relying on DOL PTE 92-6. My reading of advisory opinion is the DOL essentially allows sale of insurance policy out of insured's qualified plan. 6. PTE 92-6 seems to say that the fair market value to purchase the insurance policy is its cash surrender value. Which is far less than the tax if PC were to distribute all IRA funds. I'm beginning to review for pitfalls/risks and asking the collective wisdom of the group if they have researched this transaction. Q: My initial thought is that a traditional defined contribution plan has a limit of 51% insurance and max of 49% annuities. Is this correct? Therefore, in the above facts, it's doubtful a majority of funds can be used to purchase life insurance. Q: I recall the issue the IRS had with welfare plans in 2000's was the springing cash value in future years? Even if purchase the insurance policy after yr 4 this transaction seems to have similar issues. Or at least the potential issue for the govt to raise in tax court. I believe IRC 269 is the govt catchall fraud argument for any abusive transaction. Thoughts and comments appreciated.

Group: I'm a new user to ftwilliam software. Even though I've drafted and worked with a number of S ESOP plan documents over the years. Ftwilliam seems to be one of a few firms in 2021 with an IRS Pre approval letter they received for their ESOP Plan document which was dated June 2020 from IRS. (ftwilliam didn't release the letter to users until Mar 2021) Even with the pre approval letter are you (as ESOP practitioners) still filing an application for determination of initial qualification (form 5300? 5307?)? Thoughts and comments appreciated.

Group: Client, who has an ongoing DOL audit and pending US Tax Court petitions related to its S esop, received a very weird looking email asking them to be part of the DOL Dallas TX data collection dept for national collection of data re monthly payroll. And that a representative will be calling to discuss various payroll related items. I don't believe in coincidences with the Govt. Are many of your clients receiving similar letters and emails? We also have a pending FOIA request for a number of items related to the clients ESOP. I'm inclined to not have client interact with DOL given all pending matters. Thoughts and comments appreciated. Thank you

Group: I inherited from another esop advisor a client whose S Corp (Acme Inc) is OWNED 100% by an ESOP. Said bank account is titled 'Acme Inc.' New TPA (former TPA retired) is suggesting there should be a bank account only in name of ESOP that reports all transactions. With no support or cite to a DOL reg. Fwiw, in a number of successful no change audits over last 12 years with S ESOPs, all with almost identical bank account names, no auditor has ever said there's an issue. Anyone have a cite/regulation or case that stands for position that an esop bank account needs to be titled with the name (ESOP)? Thank you in advance.

Thank you!!! I'm drafting as we speak. I may reach out for questions. Really appreciate it. Joe

Group: I'm drafting a Self Correction Plan (SCP) to correct insignificant operational failures for an ESOP and looking to see if anyone has a sample (redacted?) document they are willing to share? Also looking for robust article on SCP's its history and recent changes including Rev Proc 2019-19? other than what I've found in my initial research. Willing to pay if needed. thank you in advance.

Group: I may not have all necessary research tools to find the above query at my disposal just yet. Is there a resource (I'm willing to buy the resource if necessary) that illustrates when a plan sponsor discharges their duties as a fiduciary? I'm looking for a number of instances connected with setting up ESOP's, maintaining ESOP's and winding down/terminating such ESOP's? As example, I note from my reading of DOL Greatbanc (and 2018 Lubbock case) there are steps a fiduciary takes when choosing a valuation appraiser. Once all the steps are accomplished doesn't the plan sponsor discharge their duty to participants? Another example is when a fiduciary hires a TPA to perform 5500 filings and preparation of employee benefit statements (summary of annual reports/SAR's) is there any legal support to reflect that their duty to provide notices were delegated to said TPA's and the plan sponsors/trustee's reliance was reasonable? Reason for my query is I'm dealing with an unhappy TEGE/IRS auditor (on an ESOP matter) who doesn't like my initial argument that the plan sponsors/trustees discharge their duties by hiring experts. ie. valuation experts, TPA's even the CPA's, Tax/ERISA counsel, etc. I can't find the text/law/support that says the fiduciary discharges their duty and can not be assessed penalties/taxes/other sanctions. Is there an easy to use searchable database, related to all things ESOP's, for all DOL advisory bulletins? IRS LRM's? Treas Regs? I'm sure there is a treatise out there that I have not run across just yet and hoping one of my learned colleagues may have already done some leg work on this matter. Thank you in advance!

Group: I note on this forum there's been a few discussions on the IRS elimination of the 5-year cycle to amend certain ESOP Plan documents. Rev Proc 2016-3 (?) I thought I read that at this time there is still no requirement to apply for and receive a determination letter for prototype ESOP Plan documents. I can't seem to find a cite/rev proc/advisory opinion/case that says this. I note the form 5300 and 5307 (determination of adopters of modified volume submitter plans) seem to still be available on irs website. Q: Is there even a process to apply for a determination letter for an ESOP Plan document? Or is this still in a state of flux given the pandemic and new admin in White House? Q: Is it your usual practice, notwithstanding no requirement to apply, to submit the 5300 or 5307? The ESOP Plan document I've used over the recent years was designed by a volume submitter (who has a letter from 2009 time frame). The esop plan document and AA itself has been updated with changes in the law over the years. And this ESOP Plan document and AA was provided recently in a TEGE audit with a successful no change outcome. Thoughts and comments appreciated.

Group: Wasn't sure which section to post so I apologize in advance for duplicate posts. Is Ft Williams the best (or just one of a few) in marketplace to help create esop plan documents? Are they owned by Wolters Kluwer? I'm looking for a resource (or service provider. Ie attorney/TPA) familiar with esop plan document design and plans with participants in excess of 100. Along with knowledge in participant notice requirements for material changes. Not looking for freebies. And willing to pay to consult. Thank you in advance.

Thank you. This was very helpful.

Group: New client is in initial stages of audit of Esop. In reviewing her businesses 2013 ESOP Plan Document I noticed there was no Adoption Agreement prepared for client at time. Or at least none the client could find. And no restated esop documents. There are corporate resolutions and an SPD. Its my understanding that the former TPA (who I'm told was a volume submitter) at the time assisted in drafting clients esop documents. I thought it would be easy to contact them but I don't believe they're still in business. It seems a little late in the proverbial game to draft an adoption agreement corresponding with the provisions of the plan document. As part of our IDR disclosure to auditor would you give copy of old ESOP Plan Document with explanation that the TPA is no longer around to obtain a copy of any adoption agreement? Thoughts and comments appreciated.

Group: I may be going crazy given this day and age we are living in. I thought I read on one of the older benefits link.com messages/posts that the DOL - in some investigations - will not issue a closing letter but still close out their audit. Could this occur in a small case DOL Audit for an esop with less than $5k value? Or did I misunderstand the posting that the DOL Audit will always include some form of closing agreement or determination? Thank you in advance.

Group: I wasn't sure which area to post I'm hoping this is proper message board. Client's ESOP had a DOL investigation (Plantation, FL EBSA office) start early 2020. I represent client as their Tax/ERISA Attorney. Throughout 2020 I provide all requested documentation. Then from Sept '20 we don't hear anything. A few days ago I get an email from a new investigator saying he will be issuing new subpoenas. We've provided everything I can think of. Anyone else represent clients from this DOL EBSA dept? There happens to be a related US Tax Court matter in its beginning stages related to tax deficiencies and disqualification of clients ESOP. Any other practitioners been successful in filing declaratory actions in Federal Court? instead of waiting years on end for the DOL to conclude its investigation? Thoughts and comments appreciated.

Group: Clients' retirement plan form 5500 tax yr '17 was audited.beginning Aug 2019. We only had one request to amend plan documents. Such plan amendment was made months ago. We just received Form letter 1744 signed by area manager. Which notes audit has been completed and on 2nd page states amendment was signed. Is this the final closing letter? Can the IRS now open up following tax years? Thoughts and comments appreciated.

Thank you Alonzo. A few specifics is that this is a relatively smaller plan. 20 participants max. roughly $1mm of funds with American Funds. best

Group: Clients 401k has been audited and the TEGE Dept had found 3 errors of the 401k plan. The irs is still in process of issuing its sanctions amount. Q: As the 401k Audit itself only related to tax years 2017 to present, isn't there a SOL for any sanctions outside of the 3 year SOL? Assume no consents to extend were signed Q: If the errors are solely with the 401k plan administrator and outside of the control of the owners themselves, is there a way to determine how the IRS will determine sanctions? One determination is that a participant was never issued RMD's over a period of 3 years. In your experience what amount of sanctions does the IRS usually assess? Thoughts and comments appreciated. Thank you

I apologize for not getting back to my original post. One of the responses helped me tremendously by stating that the excess cash as of 12/31 can reduce the valuation if those funds are considered routine/normal biz operations including capital expenditures. Thank you again.

Group: I did not see a specific area to post this so I've posted here. And I may not be asking the question properly so please bear with me. 12/31 fincls/tax return reflects $400k in bank account of entity owned by ESOP. These are funds that were just paid into account and going to be used as loans for business purpose. I recall a discussion some time ago on a similar issue but not sure if there was a complete answer other than "it depends". For valuation purposes, can the appraiser make the statement and assessment that those funds are earmarked and not part of the overall valuation? Which will reduce the overall value. Also, I apologize that this is off topic, but I've recently had a contractor I worked with leave the profession and am looking for a project-based individual with experience in ERISA/ESOP related valuations and research. I am trying the Benefits Link job posting for the first time and thought I'd add my request here. Thoughts and comments appreciated.

Thank you.. Much appreciated.

Group: In general, can a taxpayer/ESOP (retirement plan) who is under audit, still voluntarily self correct matters they deem need correcting? We believe a former ESOP advisor failed to give basic advice on paying off an ESOP note in a timely manner. The TPA allocated stock based on an assumption that the ESOP note was proportionally paid. ie. 20% of note paid in yr 1 and TPA allocated 20% of stock. Also, a former employee of the ESOP TPA may have failed to account for one terminated employee. However, client ESOP is under audit and I'd like to have client file voluntary self-correction with Dept. of Labor and/or IRS EPCRS. Anyone ever been successful in voluntary self correcting while under audit? I note a taxpayer usually wants to make the correction prior to an audit. Thoughts and comments/resources/cases appreciated. Stay Safe. Warmest...