When the IRS talks, it’s time to listen

When the Internal Revenue Service develops a laundry list of the things that they will focus on, when it comes to retirement plans, we need to listen.

The IRS Tax Exempt and Government Entities Compliance Governance Board has approved the following to be prioritized and resourced, primarily through plan audits.

  • Review worker classifications to ensure that employees are not misclassified and retirement plans satisfy coverage requirements. Misclassification as employees as a non-employee or leased employee has always been an issue.
  • Review small tax-exempt organizations that sponsor retirement plans with a focus on plan investments and whether there are any prohibited transactions between the plan and its participants.
  • Review one-participant plans to determine if there are operational or qualification failures, income and excise tax adjustments, or plan document violations, especially Solo 401(k) plans.
  • Review required minimum distributions in large defined benefit plans to ensure compliance with Internal Revenue Code Section (IRC Sec.) 401(a)(9). I have seen way too many plans failing to satisfy the required minimum distribution for their owners, who work past age 70 ½ or 72.
  • Determine if earned income and plan allocations are correct for self-employed individuals, particularly those that file Schedule C, Profit or Loss from Business (Sole Proprietorship). Again, another huge issue for Solo 401(k) plans and other small proprietor plans.
  • Review participant loans to ensure compliance with rules under IRC Sec. 72(p). Too many loans out there that participants might have defaulted or loan provisions that violate the Code section.

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