IRS Stepping Up Employee Benefit Plan Examinations

May 3, 2004 ( - The Internal Revenue Service (IRS) is stepping up examinations of certain employee benefit plans.

>The increased examination of certain employee benefit plans comes as the IRS is seeing greater abuse of the tax treatment of these plans.   Narrowing the abuses down, the IRS said the abuses have three common characteristics:   the promotion of deductions without any commensurate benefit, a diversion of income from a pass-through entity that benefits very few people, and a promise of tax-free distributions.

To assist in the detection of these potential abuses, the IRS has provided guidance at .   The site lists seven transactions that potentially involve abusive behaviors:

  • 401(k) Accelerated Deductions
  • S Corporation ESOP Abuse of Delayed Effective Date for Section 409(p);
  • Collectively Bargained Welfare Benefit Funds under Section 419A(f)(5);
  • Certain Trust Arrangements Seeking to Qualify for Exemption from Section 419;
  • Abusive Roth IRA Transactions;
  • S Corporation ESOP Abuses;
  • Deductions for Excess Life Insurance in a Section 412(i) or Other Defined Benefit Plan.

In addition, the site offersa hotline that people can use to share information (anonymously, if preferred) about abusive tax shelters and emerging issues.