DL Volumes High, But Within Expectations: IRS

Speaking at the annual American Society of Pension Actuaries Conference (ASPA) in Washington, D.C., Carol Gold, Director, Employee Plans at the IRS, said the agency has already processed some 80,000 determination letters in 2003.   She told conference attendees that while the Service got about 30,000 a year before GUST, they have received about 140,000 this year.  

Included in those numbers are determination letters on new cash balance plans.   However, the IRS halted issuing determination letters on cash balance plan conversions in 1997, and “will continue to do so” for now, Gold noted.

While a significant increase, it appears to fall short of the volumes anticipated by the IRS.   In a separate session, Paul Schultz, Director, EP Rulings and Agreements at the IRS noted that the IRS had anticipated as many as 275,000 this year – but had only received 48,000 individually drafted document determinations, rather than an anticipated 100,000; a gap he suggested was related to a migration of these documents to pre-approved formats.   Still, the 80,000 prototype document determinations was only about half the expected levels.   

Staff Realignments

Gold noted that a key factor in their ability to handle the volume was the realignment of staff to focus on the determination process, some 95 employees in all.   However, she also noted that the Service was looking at ways to stabilize the flow of determination letters in the future, including consideration of consolidating the prototype and volume submitter process, as well as a possible “staggered” 5-year cycle.   In his session, Schultz noted that comments received by the IRS to date indicate that providers/plan sponsors who use individually drafted documents or who take advantage of a volume submitter program favor the staggered process, which would spread the filing process over a longer cycle, rather than imposing a single deadline on all plans with a particular plan year end.   Schultz said that 85% of plans currently use a calendar year-end.

Looking to the future, Gold noted that the IRS was examining ways to tailor their examination process with risk assessment tools.   She noted that the IRS had profiled some 1 million 5500 filers, and from that identified 19 different segments, with an eye toward identifying the types of plans/employers that are more or less likely to be compliant.   The IRS is currently engaged in validating that data, she said.

Also on the IRS radar screen were:

• Abuse of tax avoidance - having developed education for field officers, and linking up with the Department of Labor, the IRS is keeping an eye on schemes that promote large deductions not commiserate with the benefits provided, Gold said.
• Employee plans team audit - focusing on firms with more than 2,500 employees, which Gold said represented 69% of all single employer plans, and covers 60% of all participants in private employer plans
• Non-filers - the IRS is comparing determination letter requests with 5500s, as well as employer claims for deductions.

Those initiatives, particularly news that the IRS and DOL are comparing "notes" appears to be paying dividends (see  Feds Team Up To Track Late 5500 Filers ).   "Merely talking about the fact that we are looking has generated a lot of business for the DOL's voluntary compliance program," said Gold.