Possible to request/receive specific plan provision approval to be included in IRS' favorable letter?

[Guest Twitch]

Can anyone cite for me where to find instructions for requesting the blessing of a specific plan provision when submitting the plan for a favorable determination letter? We have a client who would like their favorable letter to give the nod to one provision in particular. Will the IRS include a thumbs-up to this provision if we ask for it pointedly in our submission cover letter? I think that I read some time ago that this was the case, but am unable to document it. Any assistance from anyone who has done, or has tried to do this, would be very appreciated.

[QDROphile]

Reviewers have told me that they have certain prescribed statements that may be included in a determination letter, and cannot customize. I have had them refuse to put in statements that confirm specific points of interest even when they were focused on them. I have not asked to speak to a superior about the positions.

[Guest Twitch]

While they will never change the letter, does anyone know if it's true that if you highlight some feature in the cover letter that the IRS FDL is assumed to have considered the point? And if so, can anyone provide some substantiation for this? Thanks.

[mbozek]

T: what is this provison that you want the IRS to specifically note? As previously stated the IRS reviewers are required to stick to the script and review the applicable provisions of IRC 401(a) that apply to the plan.

[Guest Twitch]

The specific area our new client wants to get the nod on relates to an existing life insurance subtrust provision.

If we ask specifically about this provision in our submission, while we wouldn't get a customized FDL from IRS addressing that area, would the fact that we requested that this be reviewed in particular, and receive the standard FDL, mean that the FDL implies that this provision has their blessing? Or is this a situation where any attempts at special requests within a FDL submission might as well just not be included at all, because they're simply not addressed in the FDL process?

Thanks for your input as I am relatively new to this process, and this is the first such request I've had run across my desk.

[mbozek]

What is the purpose of the sub trust? There is no need to get IRS approval that LI can be used as an investment in a qualified plan. Is the sub trust being recommended as a way to get LI out of the estate of the employee so that it will not be includible in his gross estate? If so then the issue is whether the sub tust violates the non alienation and exclusive benefit rules for Q plans because the assets are not held in a qual plan trust. I dont think the IRS will approve this issue. There is a risk that the IRS would reject this provision if it is pointed out because it is inconsistent with the requirements for qualified plans.

[Belgarath]

FWIW

As far as I am able to tell, the "subtrust" concept was invented, or at least popularized, by an attorney named Andrew Fair. And yes, the purpose is to remove the qualified plan life insurance proceeds from the taxable estate of the participant.

Personally, I think the whole thing is an exercise in sophistry. I wouldn't touch one of these with a 10 foot pole. I'm not aware (although I certainly may be wrong on this) that the IRS has issued any formal guidance or PLR on this. Mr. Fair's treatise on the subject is interesting, however, even if you ultimately don't agree. I last saw his writeup in about 1998, so I don't know if he has updated since. At the time, he asserted that there had been some estates with life insurance in the subtrust arrangement he described where the IRS had accepted the exclusion of the life insurance proceeds.

You could likely find out by doing a web search, which is how I found the article way back when. The title of the article back then was, "THE QUALIFIED PLAN AS AN ESTATE PLANNING TOOL by ANDREW J. FAIR, ESQ."

[Guest asire2002]

Here is my take on your question. A DL gives you a ruling on the tax-qualified status of the plan and trust -- it does not give you a ruling on related matters. So, if your inclusion of the subtrust language does not conflict with the qualified plan requirements, receiving a DL does no more than confirm that -- it does not constitute a ruling regarding the estate tax implications of the subtrust.

You can rely upon the DL as proof that the plan satisfies all the requirements of 401(a) and 501(a) in form, so long as you don't materially misstate any facts. If you have questions about particular provisions, I definitely would emphasize those provisions in the submission cover letter. This is because under 7805(b) and applicable regulations under TR Section 601.201, the IRS will not generally revoke a DL retroactively if there has been no material change in the facts as stated in the application, and the cover letter is part of the application.

[GBurns]

Thanks asire2002, I thought that I was missing something.

All the DLs that I have ever seen only address the tax-exempt status of the Plan (trust) and not the design or operational features etc. This looks more like an issue for a PLR or Info Letter rather than a DL.