IRS compliance letters to Public Schools

[Guest Fred Bee]

FYI, The IRS appears to be sending compliance questionnaires to public school districts in Washington, Missouri, and New Jersey, according to the National Tax Sheltered Accounts Association (NTSAA). The association's website contains what appears to be copies of the mailing. Here's a link: http://www.ntsaa.org/news.php

A second letter is mailed to school districts whose responses suggest that their plans might be discriminatory. This letter offers forgiveness in exchange for the school's making contributions to the 403(b) accounts of employees who missed out.

According to a bulletin published by Lincoln Investment Planning, Inc., the IRS discovered that certain groups of employees, such as substitute teachers have few participants in the 403(b) at some schools. See the bulletin at http://www.lincolninvestment.com/emp/pdfs/IRS403bSummary.pdf

[joel]

FYI, The IRS appears to be sending compliance questionnaires to public school districts in Washington, Missouri, and New Jersey, according to the National Tax Sheltered Administrators Association (NTSAA). The association's website contains what appears to be copies of the mailing. Here's a link: http://www.ntsaa.org/news.php

A second letter is mailed to school districts whose responses suggest that their plans might be discriminatory. This letter offers forgiveness in exchange for the school's making contributions to the 403(b) accounts of employees who missed out.

According to a bulletin published by Lincoln Investment Planning, Inc., the IRS discovered that certain groups of employees, such as substitute teachers have few participants in the 403(b) at some schools. See the bulletin at http://www.lincolninvestment.com/emp/pdfs/IRS403bSummary.pdf

Correction: The "NTSAA" stands for the National Tax Sheltered Accounts Association.

[Guest mjb]

School districts need to refer these latter to tax counsel for review. Contrary to what has been written there is no requirement under IRC 403(b)(12) that eligible employees must be notified of their eligibilty to make salary reduction contributions. The statute only requires that the program be available to eligible employees. Any correspondence stating that a violation occured because there is no evidience that employees were notified of their eligibillty should be reponded to by requesting the citation to applicable authority under the IRC for a requirement of notification. (proposed regs are not applicable law).

More importantly the individuals described in the letter, e.g., bus drivers, cafeteria workers, substitute teachers may be excluded under one or more of the following categories:

1. normal work week of less than 20 hours

2. eligibiltiy to participate in a 457 plan

3. status as an independent contractor