February 24, 2016
The Internal Revenue Service (IRS) has provided clarification regarding new “compliance questions,” principally for retirement plans, that appear on the 2015 Forms 5500 and 5500-SF. These questions should not be answered.
Background
The 5500-series forms must be filed by administrators of various types of employee benefit plans, including retirement plans. When the 2015 Forms 5500 and 5500-SF and supporting schedules were released in December 2015, they included various IRS “compliance questions.” According to the instructions released with the forms, these questions were “optional,” but filers were “encouraged” to answer them.
IRS Announcement
This past Monday, the IRS posted an announcement on its website that answers should not be provided for the IRS compliance questions that have been added to the forms, because the proposed questions were not approved by the Office of Management and Budget when the forms were published. The announcement specifies — by form, schedule and line-number — the questions that should not be answered.
However, there are other questions on the 2015 forms that are designated "Compliance Questions," similar to questions that have appeared on prior years' forms. Depending on the type of filer, these questions may have to be answered. An example would be the questions in Part IV of Schedule H (except for Lines 4o and 4p, which are mentioned in the announcement as questions that should not be answered).
The instructions to the 2015 Form 5500-series have been revised to reflect what the IRS stated in the announcement. The revised instructions can be found on the website of the Department of Labor’s Employee Benefits Security Administration.
Here are examples of the subjects addressed in the IRS compliance questions referenced in the announcement:
Observations
The new compliance questions indicate areas in which the IRS apparently has particular concerns. In the 2015 Form 5500 instructions, the IRS states that the compliance questions in Part VII of Schedule R (to be filed by retirement plans) “are critical to the IRS to effectively focus on specific factors of the Federal tax law compliance.”
Here is how the IRS might respond to answers to certain compliance questions in connection with an examination of a Form 5500 for a qualified retirement plan, if and when answers become mandatory:
In the interim, before answering the compliance questions is required, plan administrators may wish to use the 2015 questions as a checklist to help discover any possible compliance issues. If deficiencies are found, corrective action can be taken before any related compliance questions have to be answered. For example, if a required amendment was not timely adopted, a submission could be made under the Voluntary Correction Program (VCP) of the IRS’s Employee Plans Compliance Resolution System by paying a compliance fee and requesting a compliance statement that, in effect, approves the late adoption of the amendment. If the IRS discovers on its own that a required amendment was not timely made, the cost of compliance could be considerably greater than under VCP.
For further information, please contact the author of this article, Larry R. Goldstein, or any other member of the McGuireWoods employee benefits team.