Discriminatory plan

[Belgarath]

Has anyone ever heard of this? Corporate PS plan being audited by the IRS. Auditor maintains the plan is discriminatory because the compensation from the W-2 is rounded to the nearest dollar, and for the year in question, the HC and 2 NHC got rounded up, and 12 NHC got rounded down. By my estimation, given the percentage of compensation that was contributed, this would result in 9 cents being reallocated among 12 people.

If this were April 1 I'd think it was a joke. However, apparently it isn't.

There's always something new in this business...I never thought I'd be asking such a question, but does anyone know of any statutory/regulatory authority that allows rounding of the compensation. Sheesh.

[WDIK]

Give the auditor a dime and tell him/her to keep the change.

[rcline46]

Refuse to change and ask the auditor to get Technical Advice or his/her manager to respond.

[Belgarath]

Thanks. In general, I prefer not to play the manager card as they are apt to merely close ranks. The odd thing is, it seems to me that this auditor is pretty sharp - picked up a couple of items that in my experience, most auditors would miss - and I agree with the finding on these items. The rounding just seemed pretty obnoxious to me, so I was hoping there was something I could point to that would obviate this step. I thought about 10 pennies in an envelope myself, with instructions to allocate the extra penny for interest in any way deemed appropriate.

Maybe it's a new initiative - ha'pennies for halfwits or something. Oh well, I'm sure something will be worked out.

[Mike Preston]

Capitulate. Surely it satisfies the definition of an inconsequential error that can be self-corrected, notwithstanding the number of years since it took place.

This is the sort of thing that degrades the entire industry, in my opinion. The IRS agent should be ashamed of himself/herself.

[david rigby]

... for the year in question, the HC and 2 NHC got rounded up, and 12 NHC got rounded down.

This is not evidence of discrimination. It is evidence of rounding. Has rounding been consistent year-to-year?

[GBurns]

Doesn't it depend on the nature of the rounding, to determine discrimination?

If the HCE's are rounded up for anything over .50 (cents) and the NHCE's are not for the same anything over .50 (cents), that is discriminatory regardless of prior years and precedent.

I have had auditors from the IRS, DoL and various state agencies who will spend from 8:30 AM to 3:00 PM for $8 in additional taxable income. They knew that it would most likely be small, definitely under $100 max, but they just had to try. By the way, the $8 was for sales & use tax for a company with gross sales in excess of $5,000,000. But still the worse has been DoL W&H doing certified Davis Bacon payrolls, line by line ad nauseum looking just in case they do find something.

Some audits are really examinations of accuracy and investigations into propriety and procedure. As a result they have to nit pick, after all if the books are out $1 it means that they do not balance and that some error exists somewhere.

[Tom Poje]

and so if you were to run a 414(s) compensation test would the amount be de minimis? granted there is no standard definition, but a common guideline of 'less than 3%' would not be a problem.

or, if you were to actually test the plan using actual comp, would the plan fail - especially if you impute disparity or something similar?

[Belgarath]

Thanks for all the comments. Just fyi - the rounding has been done in the same manner every year, and it makes no difference if HC or NHC - 50 cents or above is rounded up, less than 50 cents is rounded down.

And, it is a basic plain vanilla integrated plan. No cross testing.

Anyway, the client will simply ask the auditor to tell them how to allocate it, and act accordingly. 'Cause there are 12 NHC and only 9 pennies. At that point, I presume the auditor will simply drop the issue.

I'm thinking there are maybe some other difficulties that we don't know about that are not necessarily related to the plan, and they (IRS) are trying to harrass them with everything under the sun so they can use these things as bargaining chips. Only possible reason I can think of for this level of insanity.

[david rigby]

... they (IRS) are trying to harrass them with everything under the sun so they can use these things as bargaining chips.

I'm shocked! Shocked!