‘Other Circumstances’ Added As Allowable Reason for Applying for Determination Letter

The IRS has issued Revenue Procedure 2019-4 explaining how the agency provides advice to taxpayers on issues under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division, Employee Plans Rulings and Agreements Office (Employee Plans Rulings and Agreements). It also details the types of advice available to taxpayers, and the manner in which such advice is requested and provided.

Of note, the new Revenue Procedure makes a change to Revenue Procedure 2018–4 Section 8.02 to add new section 3, “Other Circumstances,” to provide a new category for which determination letters can be requested. Though the category is added, the IRS does not specify what “other circumstances” for which it applies.

In 2016, the agency issued Revenue Procedure 2016-37 ending the remedial amendment cycle (RAC) system and replacing it with a new approach to the remedial amendment period. At the time, the IRS said a plan can request a determination letter only if it has never received a letter before; the plan is terminating; or the IRS makes a special exception. The IRS said it anticipates making exceptions based on program capacity to work on additional applications, and the need for rulings in certain areas. The agency said it will measure need in a variety of ways including annual input from the Employee Plans (EP) community.

The agency subsequently asked for comments about the potential expansion of the determination letter program. Groom Law Group recommended consideration of the following plans as appropriate applicants for updated determination letters: “Plans with a cash balance or similar benefit formula whose last determination letter was before the effective date of the final IRS hybrid plan regulations; plans that address income replacement and inflationary pressures through adoption of a variable annuity feature; and traditional pension plans that convert to a cash balance-type formula.”

Other suggested categories of plans that should be able to seek determination letters include plans that “undergo major changes that otherwise make certain compliance testing unnecessary,” such as safe harbor 401(k) plans. The attorneys also point to the situation wherein “plan changes are accompanying significant workforce adjustments, such as downsizings or corporate separations.”

Finally, the attorneys recommended the IRS offer determination letters in the case that corrective plan amendments are submitted as part of an Employee Plan Compliance Resolutions System (EPCRS) submission, or in the case that a governmental plan has undergone “a significant change in the governing state or local law.”

The IRS at the same time has issued Revenue Procedure 2019-5 setting forth procedures for issuing determination letters on issues under the jurisdiction of the Director, Exempt Organizations (EO) Rulings and Agreements.

Links to both Revenue Procedures may be found at https://www.irs.gov/irb/2019-01_IRB.