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IRS Announces the Last Day of the Remedial Amendment Period for 403(b) Plans

Posted in IRS

The Internal Revenue Service recently issued Revenue Procedure 2017-18, which provides that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. As discussed below, this means that a sponsor of a Code Section 403(b) plan who timely adopted a Code Section 403(b) retirement plan document that was intended to comply with the Code will have until March 31, 2020 to retroactively correct any defects to the form of the plan document, either by amending its plan document or adopting a pre-approved plan document.

Background

Under final Treasury regulations that were issued in 2007, effective January 1, 2009, a sponsor of Code Section 403(b) retirement plan is generally required to maintain its plan pursuant to a written plan document that complies with the requirements of these final Treasury regulations in both form and operation.

In March of 2013, the IRS issued Revenue Procedure 2013-22, which set out new procedures for the IRS to issue opinion and advisory letters for pre-approved plan documents for Code Section 403(b) retirement plans (i.e., prototype and volume submitter plan documents). The IRS does not issue determination letters on individually designed Code Section 403(b) retirement plans.

Revenue Procedure 2013-22 also included information about a remedial amendment period that would allow a plan sponsor to retroactively correct defects in the form of its Code Section 403(b) plan document, provided that the correction is made prior to the end of the remedial amendment period. For this purpose, a “defect” is a provision, or absence of a required provision, that causes the plan to fail to satisfy the requirements of Code Section 403(b). Generally, the remedial amendment period is available only if an employer adopted a written plan document intended to satisfy the requirements of Code Section 403(b) on or before January 1, 2010 or, if later, the first day of the plan’s effective date. Revenue Procedure 2013-22 provided that any defect must be corrected on or before the last day of the remedial amendment period. However, the guidance did not state when the last day of the remedial amendment period would occur.

The Last Day of the Remedial Amendment Period Announced

With the issuance of Revenue Procedure 2017-18, the IRS announced that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. Therefore, if the form of a Code Section 403(b) retirement plan does not satisfy the requirements of Code Section 403(b) during the remedial amendment period but is properly retroactively amended by March 31, 2020, the plan will be considered to have satisfied the requirements for the entire remedial amendment period (which begins on January 1, 2010 or, if later, the effective date of the plan). Generally, a Code Section 403(b) retirement plan will automatically satisfy the IRS requirements that the form of the document complies with the Code Section 403(b) if the plan sponsor adopts a pre-approved plan document on or before the last day of the remedial amendment period.

According to Revenue Procedure 2017-18, the Department of Treasury and IRS intend to issue future guidance with respect to the timing of Code Sec. 403(b) retirement plan amendments made after Mar. 31, 2020.

Recaps from Proskauer’s 21st Annual Trick or Treat Tax Exempt Seminar

Posted in Governance

Proskauer’s 21st Annual Trick or Treat Seminar was held on Thursday, October 27.

The Seminar discussed:

  • Best Practices for Document Retention: One Size Does Not Fit All
  • An Overview of Unrelated Business Taxable Income
  • New Department of Labor Fiduciary Regulations: The Employer Perspective
  • Annual Update on Employee Benefits and the Affordable Care Act

Amanda Nussbaum welcomed everyone to the 21st Annual Trick or Treat Seminar, commented on the IRS Tax Exempt and Government Entities FY 2017 Work Plan and FY 2016 compliance results (including, examinations and revocations), and introduced the presenters. Continue Reading

New Electronic Form 8976 to Alert IRS About Section 501(c)(4) Status; 1023-EZ Application Reduced to $275

Posted in IRS, IRS Filings, Political Campaign Activity

The Protecting Americans from Tax Hikes (“PATH”) Act of 2015, enacted in December 2015, requires organizations to notify the IRS if they desire to operate under Section 501(c)(4) of the Internal Revenue Code (“Code”).  (Only organizations described in Section 501(c)(3) of the Code are required to apply for and receive recognition of their tax-exempt status; other organizations, such as social welfare organizations described in Section 501(c)(4), may apply to the IRS for recognition of exempt status but are not required to do so in order to be exempt.)  Continue Reading

Deferred Compensation for Tax-exempt Organizations: New Proposed Regulations under Code Section 457

Posted in IRS, IRS Filings

On June 21, 2016, the Internal Revenue Service (IRS) issued anticipated proposed Treasury Regulations prescribing rules under Section 457 of the Internal Revenue Code for the income taxation of deferred compensation arrangements for employees of tax-exempt organizations and state and local governments. The IRS also released new proposed Treasury Regulations under Code Section 409A.

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Proposed Regulations Issued for Supporting Organizations

Posted in IRS Filings

On February 19, 2016, the IRS and Treasury Department issued proposed regulations regarding (i) prohibitions on certain contributions to Type I and Type III supporting organizations and (ii) requirements for Type III supporting organizations. These proposed regulations reflect changes to the law made by the Pension Protection Act of 2006, which changed the requirements an organization must satisfy to qualify as a Type III supporting organization.

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IRS To EOs: We Can’t Help

Posted in IRS Filings

Every January, the IRS releases a series of revenue procedures detailing how organizations can obtain private letter rulings and determinations and listing issues on which the IRS will not rule during the coming year.  This year’s procedures make clear that tax-exempt organizations will no longer be able to receive a ruling or any comfort from the IRS that changes in their operations are consistent with their tax-exempt status.  In other words, exempt organizations are on their own.

Until recently, an organization could request a private letter ruling from the Exempt Organizations technical branch that a particular activity or transaction would not generate unrelated business taxable income or adversely affect exempt status.  The IRS would not rule on factual issues, such as whether a proposed transaction was at a fair market value price, and would not rule on a few specific issues, such as whether participation in a joint venture with a for-profit entity would affect exempt status.

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Recaps from Proskauer’s 20th Annual Trick or Treat Tax Exempt Seminar

Posted in Governance

Proskauer’s 20th Annual Trick or Treat Seminar was held on Friday, October 30.

The Seminar discussed:

  • Non-Profit Revitalization Act of 2013: Recent Developments and Outstanding Issues
  • Recent Developments in Independent Contractor Misclassification
  • Purpose Investing for Charities
  • Benefits Update

Amanda Nussbaum welcomed everyone to the 20th Annual Trick or Treat Seminar, commented on some of the trends in nonprofit law over the last twenty years, and introduced the presenters.

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New Flexibility for Joint Ventures Using Tax-Exempt Bond-Financed Property

Posted in Uncategorized

On October 26, 2015, the IRS released final regulations under Sections 141 and 145 of the Internal Revenue Code concerning the use of property financed with tax-exempt bond proceeds.  The bulk of the new regulations fill a long-reserved spot in Treasury Regulation Section 1.141-6 concerning allocation of bond proceeds to financed property.  In addition, in an important new development, amendments to Treasury Regulations Sections 1.141-3 and 1.145-2 now provide that partnerships that include governmental entities or Section 501(c)(3) tax-exempt organizations can use and own bond-financed property.  Permitted use is in proportion to the exempt’s ownership of the joint venture, except to the extent that the use generates unrelated business income for the exempt joint venturer.  The new regulations can be applied to outstanding bonds as well as new bonds.

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IRS Encourages Private Foundations to Consider Charitable Purposes in Investing Its Assets

Posted in Private Foundations

As we previously reported, the IRS has updated its guidance with helpful examples concerning program-related investments for private foundations.  In its recently issued Notice 2015-62, the IRS provides further assurance that private foundations may take the accomplishment of charitable purposes into account in investing decisions, in addition to financial return.

Among other restrictions, private foundations are subject to Section 4944 of the Internal Revenue Code.  Section 4944 imposes excise taxes on a private foundation that makes a “jeopardizing investment,” as well as on the foundation’s directors, officers, and management who knowingly participate in the making of the investment.  Jeopardizing investments do not include “program-related investments.”  These are investments made without any significant purpose of financial return.  Notice 2015-62 does not address program-related investments; rather, it addresses investments having a charitable as well as financial purpose.

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