IRS Field Auditor decides not to make issue of...

[J Simmons]

Today a practitioner/friend of mine who is handling a field audit explained that the plan under audit has k safe harbor language, but ER never provided the annual k safe harbor notice and did not make any k safe harbor contributions, as the plan provision called for. The ER and practitioner had thought that the plan would not be safe harbored, but would be subject to ADP/ACP testing for each plan year for which no k safe harbor notice was timely provided. The document was not one that so provided, it simply said that the plan is k safe harbored and that the k safe harbor contribution would be the match.

Auditor was considering insisting that the ER make the k safe harbor contribution described in the plan provision. Here's how this situation was resolved that that specific IRS auditor:

"The owner/employees did not have any 401k deferrals for the year being audited, and hardly any for other years. The agent could see basically how we were interpreting the document and then closed the audit. She did recommend we fix that part of the plan with an amendment."

Whenever I am involved in a plan audit, I'd like to be able to call and request this particular agent be assigned. But this is a second such situation where I've seen the IRS auditor start off wanting (a) the plan provision described k safe harbor contribution made, but (b) the plan to demonstrate ADP testing to pass. In both, the auditor closed the audit without the k safe harbor contribution being required. In this one, there wasn't even a need for any QNECs corrections.

[Lou S.]

Whenever I am involved in a plan audit, I'd like to be able to call and request this particular agent be assigned.

I whole heartedly agree!

Sounds like the auditor just made up his/her own rules to the benefit of the client, though not necessarily the benefit of plan participants.

[Guest Sieve]

I never seem to come face-to-face with those kind of auditors.

A client of mine had his accountant handle an audit recently, and the agent ignored the fact that there were not non-participation agreements from certain HCEs, and allowed them to be signed and dated during the audit allowing retroactive opt-outs (of up to 2 years or so) from Plan participation. Had I handled the audit, the agent probably would have proposed a $25,000 penalty.

Maybe that says something about the reaction IRS auditors have to me personally, ehh?

[J Simmons]

I never seem to come face-to-face with those kind of auditors.

A client of mine had his accountant handle an audit recently, and the agent ignored the fact that there were not non-participation agreements from certain HCEs, and allowed them to be signed and dated during the audit allowing retroactive opt-outs (of up to 2 years or so) from Plan participation. Had I handled the audit, the agent probably would have proposed a $25,000 penalty.

Maybe that says something about the reaction IRS auditors have to me personally, ehh?

Well, not so much what the IRS auditors might think of you personally, Larry, but maybe that the IRS auditors get their hackles up when a benefits lawyer pops up in the audit? From behind the scenes, I coach more accountants and TPAs dealing with audits than audits I handle with the IRS for the ER.

[Guest Sieve]

That may be true, John--and, in fact, our clients' accountants handle most plan audits--but why an agent would get his/her dander up and become more unreasonable with a benefits attorney involved makes about as much sense to me, from a practical perspective, as a judge or prosecutor objecting to a criminal attorney (as opposed to a family law attorney) defending a murder suspect. I don't approach a plan audit as an adversarial proposition (at least at the start), and I find that the better auditors take the same approach.