IRS Provides Guidance on the Determination Letter Program in Notice 2016-03 and Revenue Procedures 2016-6 and 2016-8 | Practical Law

IRS Provides Guidance on the Determination Letter Program in Notice 2016-03 and Revenue Procedures 2016-6 and 2016-8 | Practical Law

Internal Revenue Service (IRS) Notice 2016-03 explains that the Department of the Treasury (Treasury) and the IRS will issue guidance modifying Revenue Procedure 2007-44 to account for the termination of the determination letter remedial amendment cycles for individually designed retirement plans. IRS Revenue Procedure 2016-6 revises IRS procedures for issuing determination letters and Revenue Procedure 2016-8 revises the fees in the IRS user fee program.

IRS Provides Guidance on the Determination Letter Program in Notice 2016-03 and Revenue Procedures 2016-6 and 2016-8

by Practical Law Employee Benefits & Executive Compensation
Published on 06 Jan 2016 • USA (National/Federal)
Internal Revenue Service (IRS) Notice 2016-03 explains that the Department of the Treasury (Treasury) and the IRS will issue guidance modifying Revenue Procedure 2007-44 to account for the termination of the determination letter remedial amendment cycles for individually designed retirement plans. IRS Revenue Procedure 2016-6 revises IRS procedures for issuing determination letters and Revenue Procedure 2016-8 revises the fees in the IRS user fee program.
On January 4, 2016, the IRS issued:

Notice 2016-03

Notice 2016-03 explains that IRS Revenue Procedure 2007-44 will be modified to provide that:
  • Controlled groups and affiliated service groups that maintain more than one plan are permitted to submit determination letter applications during the Cycle A determination letter submission period beginning February 1, 2016, and ending January 31, 2017, if a prior Cycle A election with respect to the controlled group or affiliated service group had been made by January 31, 2012 (the last day of the previous Cycle A submission period).
  • Expiration dates included in determination letters issued before January 4, 2016, are no longer operative. Future IRS guidance will clarify the extent to which an employer may rely on a determination letter after a subsequent change in law or plan amendment.

Extension of Adoption Period and Determination Letter Submission Period

Notice 2016-03 also provides that IRS Revenue Procedure 2007-44 will be modified so that the deadline for an employer to adopt a current defined contribution pre-approved plan (one that was approved based on the 2010 Cumulative List) and to apply for a determination letter, if otherwise permissible, is extended from April 30, 2016, to April 30, 2017. This extension:
  • Applies to any defined contribution pre-approved plan adopted on or after January 1, 2016.
  • Does not apply to a plan that is adopted as a modification and restatement of a defined contribution pre-approved plan that had been maintained by the employer prior to January 1, 2016.
Furthermore, the Notice provides that an employer that adopted a defined contribution pre-approved plan prior to January 1, 2016, continues to have until April 30, 2016, to adopt a modification and restatement of the defined contribution pre-approved plan within the current 6-year remedial amendment cycle for defined contribution plans and to apply for a determination letter, if permissible. The Notice provides several examples to illustrate the extension.

Revenue Procedures 2016-6 and 2016-8

On January 4, 2016, the IRS also issued Revenue Procedures 2016-6 and 2016-8.

Revenue Procedure 2016-6

Revenue Procedure 2016-6 provides IRS procedures for issuing determination letters on the qualified status of retirement plans. The Revenue Procedure accounts for the termination of the staggered five-year determination letter remedial amendment cycles under Announcement 2015-19 by providing that, effective January 4, 2016, determination letters issued to individually designed plans will no longer contain an expiration date (which is currently required under section 13.02 of Revenue Procedure 2007–44). In response to comments on Announcement 2015–19, Treasury and the IRS intend to issue guidance on the status of existing expiration dates on determination letters issued before January 4, 2016.
The Revenue Procedure also includes changes that:
  • Modify the restrictions on off-cycle determination letter applications.
  • Explain that the IRS will accept determination letter applications for the third Cycle A from February 1, 2016 to January 31, 2017 (which is also discussed in Notice 2016-03).
  • Clarify the language in certain headings and sections.
  • Advise taxpayers to continue using the existing Form 8717, User Fee for Employee Plan Determination Letter Request, until the revised Form 8717 is published, but to refer to the applicable user fees in Section 6 of Revenue Procedure 2016-8.
  • Provide that a determination may be made that an application is not complete and cannot be processed due to a failure to disclose or distinguish contrary authorities.
  • Clarify that incomplete determination letter applications will not be returned.
  • Add Schedule SB to Section 12.02 for defined benefit plans as one of the required forms when requesting a determination letter in certain circumstances.
  • Clarify that a plan seeking a determination under Section 420 of the Internal Revenue Code (26 U.S.C. § 420) must provide that no transfer will be made after December 31, 2025.
Revenue Procedure 2016-6 is effective February 1, 2016, except for its changes relating to expiration dates in determination letters, which are effective on January 4, 2016.

Revenue Procedure 2016-8

Revenue Procedure 2016-8 makes companion changes to the IRS user fee program, adding a new user fee, decreasing numerous fees and sharply increasing other fees. The Revenue Procedure includes a revised user fee schedule for Voluntary Correction Program (VCP) submissions under the Employee Plans Compliance Resolution System (EPCRS), reducing the number of categories and decreasing the fees for VCP submissions under EPCRS. The VCP fees found in Revenue Procedures 2013-12 and 2015-27 but not included in Revenue Procedure 2016-8 have not changed.

Practical Implications

Notice 2016-03 and Revenue Procedures 2016-6 and 2016-8 provide useful guidance for employers as the IRS winds down the determination letter program remedial amendment cycles for individually designed retirement plans. Employers may rely on Notice 2016-03 until Revenue Procedure 2007-44 is updated to implement the changes discussed in the Notice. Revenue Procedure 2016-6 corresponds to Notice 2016-03 and is one step in the termination of the determination letter program. Employers should also be aware that, unlike last year, the IRS is changing the fee levels in the IRS user fee program.