The IRS Determination Letter Program Is Changing  

In IRS Announcement 2015-19, the Service outlined changes to the employee plans determination letter program for qualified retirement plans.

According to Announcement 2015-19, effective January 1, 2017, the IRS will eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed plans and will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination.

As a result of the elimination of the  five year remedial amendment cycles, the extension of the remedial amendment period provided in Section 5.03 of Revenue Procedure (Rev. Proc.) 2007-44 will not be available after December 31, 2016, after that date the remedial amendment period definition in Treas. Reg. §1.401(b)-1 will apply. However, the IRS intends to extend the remedial amendment period for individually designed plans to a date that is expected to end no earlier than December 31, 2017.

Effective immediately and through December 31, 2016, the IRS will not accept determination letter applications that are submitted off-cycle, except for determination letter applications for new plans, as defined in section 14.02(2) of Rev. Proc. 2007-44, and for terminating plans.

The IRS is seeking comments on the following issues on specific issues regarding the implementation of these changes to the determination letter program:

1. What changes should be made to the remedial amendment period that would otherwise apply to individually designed plans under Code Section 401(b)?
2. Treasury and the IRS have received numerous comments concerning the rules relating to interim amendments, as described in section 5 of Rev. Proc. 2007-44. In view of the changes being made to the determination letter program, what additional considerations should be taken into account in connection with the current interim amendment requirement?
3. What guidance should be issued to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan?
4. What changes should be made to other IRS programs to facilitate the changes described in this announcement, including revisions to the Employee Plans Compliance Resolution System set forth in Rev. Proc. 2013-12, 2013-4 I.R.B. 313, as modified by Rev. Proc. 2015-27, 2015-16 I.R.B. 914, and Rev. Proc. 2015-28, 2015-16 I.R.B. 920?

Small Businesses Can Get IRS Penalty Relief for Unfiled Retirement Plan Returns

WASHINGTON - The Internal Revenue Service today encouraged eligible small businesses that did not file certain retirement plan returns to take advantage of a low-cost penalty relief program enabling them to quickly come back into compliance.

The program is designed to help small businesses that may have been unaware of the reporting requirements that apply to their retirement plans.

Small businesses that fail to file required annual retirement plan returns, usually Form 5500-EZ, can face stiff penalties - up to $15,000 per return. However, by filing late returns under this program, eligible filers can avoid these penalties by paying only $500 for each return submitted, up to a maximum of $1,500 per plan. For that reason, program applicants are encouraged to include multiple late returns in a single submission. Find the details on how to participate in Revenue Procedure 2015-32 on IRS.gov.

The program is generally open to small businesses with plans covering a 100 percent owner or the partners in a business partnership, and the owner's or partner's spouse (but no other participants), and certain foreign plans. Those who have already been assessed a penalty for late filings are not eligible.

The Department of Labor offers a similar relief program for businesses with retirement plans that include employees known as the Delinquent Filer Voluntary Compliance Program.

Started as a one-year pilot, the IRS program was made permanent in May 2015. The IRS has received about 12,000 late returns since the pilot program began in June 2014.

Page Last Reviewed or Updated by IRS: 14-Jul-2015  

Will the Department of Labor (DOL) Think That Your Worker is an  

Employee or an Independent Contractor?

David Weil, Administrator of the DOL, Wage and Hour Division, recently issued an Administrator's Interpretation No 2015-1 regarding the application of the Fair Labor Standards Act's "Suffer or Permit" Standard in the Identification of Employees Who are Misclassified as Independent Contractors.

Under the FLSA, the economic realities test (ERT) is now used to make the determination if a worker is an employee or an independent contractor. The ERT test provides a broader scope of employment and focuses on whether the worker is economically dependent on an employer or in business for him or herself.While most misclassified employees are labeled "independent contractors, the DOL has seen an increasing number of instances where employees are labeled something else, such as owners, partners, or members of a limited liability company. In these instances the determination of whether the workers are in fact FLSA covered employees is also made by applying an economic realities analysis. The application of the economic realities factors must be consistent with the broad "suffer or permit to work" standard of the FLSA.

According to Mr. Weil, "All of the factors must be considered in each case and no one factor (particularly the control factor) is determinative of whether a worker is an employee. The factors should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence. Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus is its employee) or is really in business for him or herself."

Economic realities test factors:

(1) the extent to which the worker's services are an integral part of the employer's business (examples: Does the worker play an integral role in the business by performing the primary type of work that the employer performs for his customers or clients? Does the worker perform a discrete job that is one part of the business' overall process of production? Does the worker supervise any of the company's employees?);

(2) the permanency of the relationship (example: How long has the worker worked for the same company?);

(3) the amount of the worker's investment in facilities and equipment (examples: Is the worker reimbursed for any purchases or materials, supplies, etc.? Does the worker use his or her own tools or equipment?);

(4) the nature and degree of control by the principal (examples: Who decides on what hours to be worked? Who is responsible for quality control? Does the worker work for any other company(s)? Who sets the pay rate?);

(5) the worker's opportunities for profit and loss (examples: Did the worker make any investments such as insurance or bonding? Can the worker earn a profit by performing the job more efficiently or exercising managerial skill or suffer a loss of capital investment?); and

(6) the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise (examples: Does the worker perform routine tasks requiring little training? Does the worker advertise independently via yellow pages, business cards, etc.? Does the worker have a separate business site?)

Additional Information:

Click here  for the full text of the DOL Administrator's interpretation No. 2015-1, which contains detailed information on performing the ERT.

(Note: while the DOL has authority over the classification of an employee as it effects minimum wage, overtime compensation, unemployment insurance, and workers' compensation, the IRS still has the authority to determine an employee's classification for purposes of qualified retirement plans and employment taxes.)