Mandated Endorsements Under EGTRRA and ERTA

[WDIK]

I would appreciate any comments from board members on this topic.

I recently read a letter to the editor at InvestmentNews.com. (Sorry, I can't provide a link as it is a subscription only service.) The author described an audit situation where after the initial data collection had been completed the IRS called again asking for the "endorsements mandated by the Economic Recover [sic] Tax Act of 1981 and the Econonomic Growth and Tax Relief Reconciliation Act of 2001." When the documents could not be produced the IRS stated that the plan "was out of compliance and would either be subject to an immediate disqualification of the trust and an assessment of tax at the trust level - $60,000, plus interest and penalties - on [the] $145,000 Keogh." As an alternative the IRS indicated they might be able to negotiate a one-time sanction of $10,000. The latter was the result after $13,000 in legal fees.

Personally, none of our clients who have been selected for an audit have been asked for such documentation.

My questions:

1) Can anyone elaborate on these "endorsements"?

2) Do you think such a situation is an aberration or an area of increasing IRS focus?

3) Do you think most plans are out of compliance in this respect?

Thanks for your indulgence.

[rcline46]

The EGTRRA amendment is easy - you darn well better have done it with your GUST restatement. If not, the Non-amender program is much better.

Any IRS determination letters in the past? What kind of document? TRA 86 restatement?

[WDIK]

Sorry I wasn't clearer, but the endorsements are not referring the the document amendments. According to the letter, they are endorsements that "grant [a] spouse additional controls on [the] pension plan."

[namealreadyinuse]

Yes, didn't they just get busted as an EGTRRA nonamender? They certainly aren't very lucky, but that is the law and how an IRS audit should play out probably.

[WDIK]

It is certainly a possibility that the author of the letter did not understand the situation and was actually talking about the required document updates as opposed to some specific "innocuous forms" (as the author described them) relating to spousal controls. However, I am confused by the use of the specific terms "endorsements" and "additional spousal controls".

[Bird]

Someone faxed me a copy of that letter. I'm pretty sure the "endorsements" were actually amendments. It sounded like everyone involved, including the agent, was clueless and inept. It turned into a rant about how the IRS knows about these "unintentional non-compliance issues" and is attempting to raise revenue.

It was kind of a sad story, but somehow it didn't make me very sympathetic.

[Beltane]

Perhaps the 'endorsements' refer to the corporate resolutions of adoption??

[rcline46]

If this is what you are getting, request this be referred to the supervisor immediately as the questions are unclear. Kick it right back at them and request technical advice.

[Guest mjb]

There were no changes to the IRC in 1981 that required amendments to spousal rights in qualified plans. Changes to spousal rights were required under REA in 1984 but the amendments were supposed to be adopted in 1986 along with the 1982 TEFRA and 1984 DEFRA changes. The only change to retirement benefits in the 1981 tax act was universal IRAs. I am not aware any spousal rights provisions under EGTRRA. A tax advisor would have made this know to the agent at the beginning of the audit. Secondly did the client/advisor ask the agent to provide the formal statement of what provisions of the IRC/regs were not complied with or was this a case where the client did not retain counsel for the audit?

[WDIK]

Thanks everyone for the responses. It does appear that this is probably just an issue of incompetence and not some obscure point of law that I was afraid I missed.

mjb:

It appears to me from the letter that an ERISA attorney was retained after the fact and only for negotiation with the IRS. Quite unfortunate for the client.