Partners and new comparability - old topic

[rcline46]

A law firm partnership has just discovered the 'deemed CODA' rules and is in a panic. My assurances that this has not been challenged, even with named partner groups, since the 1993 regulations doesn't seem to hold much water with them.

So I have been requested to find anything 'official' to give them solace.

I have looked at the ASPPA Q & As for 09, 11,12 and did not see anything. Anyone have something in any of the ASPPA Q &as?

How about the ALI-ABA Q & As?

My search here for deemed CODA and the like come back with the same result - IRS has not attacked any of these, but I am dealing with attorneys.......

Thanks for anything you find.

[QDROphile]

Good luck. You did not provide details, but it is entirely possible that the arrangement is not qualified and who better than lawyers to appreciate the reality. The other reality is what you have observed. There is no bright line and the IRS has let the grouping issue get away from them completley to the point of tolerance of just aobut anything. Adding the abuse that goes with partnership accounting does not seem to inspire the IRS to climb out of its hole. Despite no bright line, at some point the arrangement, and how it is conducted, can't stand up to challenge, but there is so much potential factual nuance against a background of IRS abdication that it is unlikely that the IRS will try to enforce unless it encounters egregious behavior. Someone has suggested that law firms are the biggest abusers (some very prominent names are on the list) and the IRS would like easier prey. It will probably take significant law reform to address the abuse. That is how we got 409A.

[Kevin C]

The only recent discussion I recall was in the DC Q&A session at the 2011 ASPPA annual conference. It was question 4. If you can get a copy of the recording, the IRS speaker went into a little more detail about the kind of provision they would challenge. It might help, unless their plan uses an unusual design like the one mentioned by the IRS as being a problem.

[PensionPro]

A deemed CODA is an arrangement “that directly or indirectly permits individual partners to vary the amount of contributions made on their behalf." If the IRS can make an argument during audit that the individual partners are exercising discretion over their employer contribution then they can call the arrangement into question. Employer can strengthen its argument if it has a DL for an allocation rate by individual. Also having resolutions/minutes from the partnership regarding contributions/allocations can help.

From EOB: In Q&A-4 of the Q&A session [ at the 2011 annual ASPPA Conference], the IRS said that, particularly in a corporate context,merely because each shareholder represents a separate allocation group does not result in a deemed CODA designation, and that the IRS routinely approves plans designed this way without raising a deemed CODA issue. What the IRS is more focused on at the determination letter level is whether there is under the terms of the plan the ability of a participant, on an individual basis, to affect the amount of bonus declared for the participant’s benefit by agreeing to a certain contribution level to the plan with respect to such a bonus. However, the IRS still might examine the operation of the plan as part of an audit.

[Tom Poje]

as close to anything in writing is the LRM (language required modifications) that was issued a few years ago. (just about the last page - page 133 of the pdf file)

the original lrm94 issued a few years before this had the same comments, but they were in bold type, and labeled "Note to reviewers"

no such comment anymore, and it is no longer in bold type, so maybe that implies the IRS is a little less concerned about the issue.

imagine, if instead of everyone in their own group, you set up one plan for all NHCEs and 5 plans for 5 partners.

As far as I know, the IRS would not even consider a possible deemed CODA if partner #3 made no contribution to his plan. as pointed out in the Q and A, one red flag is if it is determined that if is the bonus that can be taken in cash or put into the plan.

lrm.pdf