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IRS Announces Intent to Examine Certain 401(k) Plans
Employers Should Consider Compliance Audits
At the end of February 2011, the Internal Revenue Service (the "IRS") announced its intent to conduct a full-scope examination of §401(k) plans whose sponsors did not return the IRS's Questionnaire for its 401(k) market segment analysis program. In May 2010, the IRS contacted 1,200 §401(k) plan sponsors who were instructed to complete the Questionnaire online by visiting a secure website and using a PIN number provided in the cover letter. The purpose of the Questionnaire was to identify those areas where additional education, guidance, and outreach is needed to ensure that §401(k) Plans are operated in compliance with the tax law.
Noncompliant Plans Are At Risk of Being Disqualified
In light of this announcement and as a matter of best practices, employers sponsoring §401(k) plans may wish to conduct their own internal audits to determine if their plan is compliant. Noncompliant plans run the risk of being disqualified, resulting in adverse tax consequences to the trust holding the plan's assets, the employer and its employees. However, if employers discover an error in their plans' operations, they may seek to correct any defects under the IRS's voluntary correction program, known as the Employee Plans Compliance Resolution System ("EPCRS"). The advantage of using EPCRS is that any correction properly made will not be subject to examination if the IRS were to discover the mistake during its own audit.
NFC Offers Internal Audit and Correction Services
Nukk-Freeman Cerra is available to conduct the internal audit on employers' behalf, and, if applicable, assist in correcting any defects in accordance with EPCRS program. Please feel free to contact Liza Hecht (lhecht@nfclegal.com), Christine Gottesman (cgottesman@nfclegal.com) or the Nukk-Freeman attorney with whom you work to discuss this matter, or if you have any questions regarding your employee benefit plans.
Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.
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