IRS Audit / Ancient Missing Amendments

[austin3515]

So an auditor is accusing a plan sponsor of late amendments from 2006/2007. So it occurred to me, wow, we have a statute of limiations for crimes, but we're looking over our shoulders forever with amendments.

I found this on a webpage, it's a listing of statutes of limitations for crimes I consider far more egregious than a missed Final 401k amendment:

Federal tax evasion (U.S. Code 26 Section 7201) – 6 years
Failure to file a tax return with the I.R.S. (U.S. Code 26 Section 7203) – 6 years
Major fraud involving at least $1 million against the federal government (U.S. Code 18 Section 1031) – 7 years
Non-violent violations of federal terrorism laws (U.S. Code 18 Section 3286(a)) – 8 years
Arson (U.S. Code 18 Section 3295) – 10 years
Embezzling funds from a federal financial institution (U.S. Code 18 Section 657) – 10 years
Using false or fraudulent citizenship papers (U.S. Code 18 Section 1423) – 10 years

Failure to amend in a timely manner for EGTRRA, or TRA 86: 100 million bazillion years.

Do I have a point or what??

[MoJo]

First, Austin, you have way, way too much time on your hands - to be able to look up the statute of limitations for those crimes....

Second, while I agree with you *in theory* - as a practical matter the errors that can occur in a plan can compound profoundly over an extended period of time (and indeed, may not even be detectible until long after and individual separates from service and starts taking benefits). I think Congress and the IRS have implemented this lack of a "statute of limitation" because of the lasting effects of problems that may arise in the future as a result. indeed, many of the "statutes" of limitations for retirement plans and for other types of things (lawyer malpractice, for one), don't even start to run until there is a cessation of the relationship (participant actually takes benefits out of the plan, or the relationship between a lawyer and client is terminated).

I like to tell people there is no such thing as a free lunch in retirement plans. the tax advantage of qualified plans are HUUUUUUGGGGGGEEEEEEE - and that tax advantage comes with strings attached - you have to play by the rules - ALL of the rules.

[lisam]

I was at a conference in the beginning of the month, a suggestion a presenter had would be to request a copy of their management approval to be auditing for that year. Their ability to audit should be the current restatement and previous one (no longer the GUST documents) and if they seek to go back further it requires approval from their manager. I have never tried this, so do so at your own risk.

[austin3515]

Oh, I'm sure that would result in a very amicable audit!

Mojo -

I didn't research those SOL's - I found them all listed in a single article. Clearly there is a difference between signing the final 401k reg amendment late, and for example, doing a bottom up QNEC under the old rules in 2014. One is clearly a clerical error while the other is a blatant disregard for the rules. The latter is fair game, while the former smells like never being able to sleep at night. Perfection is a very tough standard. Just asking for a little forgiveness, and forgive me, but different standards for IBM versus John Doe Manufacturing with 10 employees.

[MoJo]

Perfection is a tough standard, but it must be a goal, nonetheless. There are ways to fix late amenders - and the IRS even has offered a discount for those who missed the most recent deadline. I guess I would question whether John Doe Manufacturing with 10 employees had the right service provider/advisors in place in establishing and maintaining a plan and whether they were paying attention - which portends other issues that may be significant. I work for a bundled shop - and even though we started the PPA restatement COMMUNICATIONS to our clients 18 months ago, and hit them up with many communications including phone calls and in-person visits, we still had 56 who never responded to the request for information to complete the restatement, and 110 who never returned signed documents.

Being "asleep at the wheel" is not a fiduciary best practice.....

[austin3515]

Part of it too is that we switched this plan to a prototype where we can do the amendments. The Plan was New comp and until the EGTRRA restatements we had to use the Volume Submitter (and back then we could not amend for them).

I will say this, if the penalty is more than $250 I will be incensed.

[MoJo]

Compare the penalty amount to the tax consequences of disqualification..... For a small plan that the owner has the largest interest in, the VCP filing fee is a bargain. And potentially a wake up call....

[austin3515]

Man you can be tough on good, hard working, law abiding citizens sometimes.

[MoJo]

First, that's what keeps them tough, and hard working.

Second, failure to amend on time by definition means they aren't "law abiding."

Third, I like the tax advantages of qualified plans (and have used them extensively). I don't want anyone to provide any ammunition to those in Washington who quite regularly talk about ways to reduce those tax benefits (and raise tax revenues).

Finally, I'm a pussy cat compared to the IRS - who these days are pussy cats compared to the DOL. I make my living trying to keep my clients out of the jaws of either or both.....

[austin3515]

Second, failure to amend on time by definition means they aren't "law abiding."

Yes, but I think it is unfortunate you're suggesting "failure to abide by the law" is a universal concept, where you either do or you don't. Have you ever gotten a speeding ticket? Let your registration lapse? Rolled through a stop-sign at 10PM on a deserted street? You know what they say about people in glass houses Mojo!

[Kevin C]

I will say this, if the penalty is more than $250 I will be incensed.

I would expect the proposed penalty for a late amendment discovered on audit to be at least a little more than the non-amender VCP filing fee would have been if the late amendment had been submitted without being discovered on audit. Depending on the circumstances, it could be significantly more than that.

[austin3515]

This Plan has fewer than 5 participants.

[MoJo]

Yes, Austin, I've done ALL of those things - and I ACCEPT the consequences of that behavior. I don't moan and groan about how those things should not be "illegal" - there are reasons why they are (and I'm glad they are because if they weren't, there would be chaos and injury).

Same is true for not amending a plan..... It happens - but there are consequences. If there weren't, there would be chaos on injury.

BTW, the lack of sophistication of the plan sponsor isn't really an excuse. They are sufficiently sophisticated to be an employer and to sponsor a plan. Keeping it up to date ranks right down there with making sure payroll is on-time (and if it isn't, there is a DOL consequence) and that taxes withheld are deposited on-time (and if it isn't, there is an IRS consequence). We tend to get into the belief that businesses can't follow rules and woe is them for having to comply (which includes labor laws, OSHA, environmental laws, tax laws, zoning laws, insurance requirements and lots of other things that we actually ALL appreciate because they protect us from abuse at the hands of those who think they can do anything). But by and large they do comply, and if they can't they shouldn't be in business - or at least shouldn't be sponsoring a plan.

[austin3515]

Keeping it up to date ranks right down there with making sure payroll is on-time

:D Mojo, you do make me laugh out loud...

[MoJo]

Austin: I guess if you think adhering to standards for the common good - and accepting consequences for failing to do so - is funny, then I'm a riot.

But I find the obverse to be quite disconcerting.....

[My 2 cents]

Austin: I guess if you think adhering to standards for the common good - and accepting consequences for failing to do so - is funny, then I'm a riot.

But I find the obverse to be quite disconcerting.....

I think the word you want is "converse". Unfortunately for all of us, the English language is as complicated and hard to work with as the retirement plan rules.

[austin3515]

Confession: I had to look up the word obverse and it was used correctly.

[My 2 cents]

See what I mean? And here I have been going around all of this time thinking that "obverse" meant the side of a coin with the face and that "converse" meant something like "the opposite".

[LIBERTYKID]

Think about it. There are no statue of limitations on either late amendments or murder. Though I am sure you are a Saint.

[My 2 cents]

Think about it. There are no statue of limitations on either late amendments or murder. Though I am sure you are a Saint.

Most of us do not consider the two to be equally awful transgressions.

[MoJo]

It depends on who you murder, and whether or not the missed amendment has any material impact on *my* benefits in the plan.... [snark!]

[austin3515]

T

There are no statue of limitations on either late amendments or murder.

Best post I've read in a long time... Fabulous.