Statute of Limitations on 415 violations?

[Guest Charlie Miller]

How far back can the IRS require corrections in the event of a 415 violation? Are the refunds taxable in the current year?

[Guest Fred Reilly]

I don't believe there is such a thing as a statute of limitations with respect to a plan qualification defect. A plan simply fails to qualify for the period during which the defect remains uncorrected. Of course, the limitations would run on effected tax returns (ie 1040, 1041, 1120, etc.). Passage of time would not cut off effect of disqualification to future years.

There is an old Revenue Ruling which states this position, I don't have the cite handy.

[Guest Charlie Miller]

Assuming IRS wants us to go back several years, how are corrections made? What is the timing of refunds? When are they taxed?

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Charlie Miller

PNC Advisors

Phila., PA

[Guest sacobb]

Sounds like you should consider looking at the various corrective programs offered by the IRS to determine if your plan will qualify for correction under one of the programs (i.e. auditCAP, APRSC,etc.)

[MWeddell]

First the bad news: Look carefully at the 415 regulations and you'll see that (if you're talking about a defined contribution plan that violated 415©) corrective action which may include refunds can only be made for certain types of errors.

Good news is that there isn't a deadline in the regulations, so I wouldn't assume you're out of compliance. The IRS will holler about this, but your client may have a large enough problem to want to challenge the IRS's initial position. The IRS acknowledges that there isn't a deadline, even if it doesn't like it. The IRS response to Question 20 from the 1996 Enrolled Actuaries Meeting gray book states in part: "There is no regulatory deadline for making the 415 correction. The expectation is that the correction should be made within a reasonable time after it is discovered. For example, the Service would not look favorably on a full year's delay in getting the correction made." In your situation, your client is probably not concerned with the IRS's "expectation" or what they "would not look favorably" upon but is a whole lot more concerned with what's the legal deadline.