Today, Donald Kieffer and Michelle Owen of the Employee Plans
branch of the Internal Revenue Service (the "IRS")
conducted a Phone Forum focused on the latest issues arising out of
the ESOP determination letter process. Below is a summary of some
of the items discussed.
1. Introduction - First, Mr. Kieffer gave an
overview of the current ESOP program and available resources
available on the IRS website (www.irs.gov).
Currently reviewing Cycle C Form 5300 submissions up to
Currently reviewing Form 5310 submissions up to October
Mr. Keiffer said the processing delay is largely due to (1) a
shortage of IRS staff qualified to review ESOPs, which are more
complicated than other qualified retirement plans, (2) new
legislation that added complexity to ESOP documents (such as IRC
Section 409(p)), and delay due to seeking necessary technical
guidance from the IRS national office.
2. ESOP Technical Guidance Available on IRS
Website – The Forum included an overview of the
following guidance that is accessible on the IRS website (www.irs.gov):
Memo 1: Distribution of stock subject to immediate, mandatory
resale is consistent with Code Section 409(h).
Memo 2: Acceptable plan language defining "qualified
participant" for diversification requirement of Code
Memo 3: Required timing and content of Section 409(p)
amendments, including regulations under 409(p), including language
for Section 409(p) transfers.
Memo 4: "Reshuffling/Rebalancing" memo –
acceptability of provisions for mandatory transfer of employer
securities and other assets to and from participant plan
Memo 5: Issues presented by provisions for mandatory transfer
by reshuffling which are designed to prevent the occurrence of a
nonallocation year for IRS 409(p) purposes.
3. New Accelerated Processing Procedures
– Ms. Owen then gave an overview of the procedures in
place to help the IRS process determination letter submissions more
Two ESOP cadre members are doing accelerating processing of all
applications (not previously assigned) under these new procedures
– includes both Forms 5300 and 5310 applications
– and the applications generally are being assigned in
postmark date order.
The accelerated contact will be made only on cases where
resolution can be made with a single contact (i.e. issues not too
complex), otherwise applications will be reassigned to the rest of
the ESOP cadre and held in inventory until work is requested by
other ESOP cadre members.
4. Recurring Issues on Current Submissions
– Ms. Owen discussed issues that are common to many ESOP
All amendments for Cycle C applications are not
Plan document, amendments and/or trust document submitted are
signed but not dated
Plan document, amendments and/or trust document submitted are
dated but not signed
Form 5300 application is not completed in its entirety
Attachment(s) to line items on application not submitted
Form 5309 missing
Language required by the technical guidance is not contained in
the plan submission
5. Future Developments – Mr. Keiffer
next presented an overview of future developments the IRS is
Development of final regulations under Code section 4975 to
supersede current regulations initially issued in the
Development of ESOP pre-approved plans program. However, given
the cycle of determination letters, Mr. Keiffer felt that
implementation could be up to 12 years in the future.
6. Some Additional Q &A –
(a) Mr. Keiffer stated that if a plan was submitted an on-cycle
application under 1st 5-year cycle (i.e. Cycle B application
submitted by 1/31/08) and you haven't yet received a
determination letter, you must submit an on-cycle application in
2nd 5-year cycle (i.e. Cycle B submission period ending 1/31/13).
Indicate in the cover letter the document locator number of the
prior pending application.
(b) He also confirmed that a submission on the "old"
Form 5300 will not be kicked back to you, but the IRS will ask for
the additional information now required on the "new" Form
5300 (April 2011).
(c) He does not like providing a determination letter for plan
language that provides a "floor price" in second stage
transacitons. He feels is it not a true reflection of value and is
based on a hypothetical event, that is, the future benefit
(d) Plan sponsors and practitioners can get more guidance by
sending questions to the IRS at
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.
This year registrants will receive a free copy of the New 2017 Edition of the WAGE AND HOUR MANUAL FOR CALIFORNIA EMPLOYERS by Attorney Simmons (over 980 pages). The book is the only one of its kind and is widely recognized as the leading text in its field.
The seminar is designed to provide a guide to Human Resource Officials, Personnel Specialists, Consultants, Supervisors and other management officials through the ever-increasing maze of state and federal employment discrimination laws. Registrants will receive a free copy of the New 2017 Edition of Simmons' EMPLOYMENT DISCRIMINATION AND EEO PRACTICE MANUAL FOR CALIFORNIA EMPLOYERS (over 810 pages).
The California Department of Fair Employment and Housing and the FEHC have both recognized the value of this manual and obtained copies for investigators, consultants and supervisors throughout California. The program will also examine other personnel relations laws and issues of significance to California employers including disability discrimination, pregnancy discrimination, "wrongful discharge," and "unfair termination."
Please join Sheppard Mullin for our monthly Emerging Company Webinar educating entrepreneurs and emerging companies on the key legal issues they face during the growth of their companies. These complimentary 1-hour webinars are held once a month via WebEx and include both an audio and PowerPoint component.
The election of President Donald J. Trump, combined with Republican control of Congress, makes fundamental U.S. federal income tax reform more likely than at any time since the enactment of the Tax Reform Act of 1986.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).