IRS Audit on Profit Sharing Plan

[chc93]

We just got a call from a client with a Profit Sharing Plan. Contribution for 06/30/08 plan year end was about $300K. Contribution for 06/30/09 plan year end was $0. IRS auditor said that the profit sharing plan was being audited since the corporate tax returns showed a large deduction for 06/30/08, and zero deduction for 06/30/09. IRS was auditing the profit sharing plan to make sure there are no problems with the plan.

We've never heard of this from any other client or plan, where the corporate tax returns were reviewed to look for possible plan audits based on contribution deductions. Maybe a defined benefit pension plan, but why a profit sharing plan. But the basis of the plan audit was a review of corporate tax returns. Anyone hear of this?

[mwyatt]

Maybe we should spring for business newspaper subscriptions for our brethren in the IRS. $300k deduction for year end 6/30/08 and $0 for 6/30/09 kind of brackets the market meltdown I think. Your tax dollars at work.

[John Feldt ERPA CPC QPA]

Perhaps the industry of the plan sponsor in general wasn't performing badly (financially) - I would hope they take into account more factors than just noticing the contributions took a dive - they'd have large caseload that meets just that criteria.

[chc93]

As far as we know, the IRS auditor simply said that they looked at the contribution levels in the corp tax returns. Besides, even if the industry (and the company) did OK, I don't think that should mean that a drop in contribution to a *profit sharing plan* (even if significant) should indicate a problem with the plan. As you say, if they are starting to look at contributions in corp tax returns for "problem" plans, they will have more work than they can imagine.

[mwyatt]

Especially if they're focusing on 2008.

As an aside, I have noticed in my review of cross tested plans in the office that things seem to be turning around (felt like the Maytag Repairman last year, as not much need to run General Test with a $0 contribution), but getting inundated with review requests now for 2009. Also nice to see that assets did so well in 2009 for most of our clients (although we won't compare to EOY 2007 values - still a ways to go to get back to even).