IRS TEGE Office Outlines 2021 Priorities

The IRS office of Tax Exempt & Government Entities has outlined its compliance program and priorities for 2021.

In the fiscal year 2021 program letter for the office, TE/GE Commissioner Tammy Ripperda and Deputy Commissioner Edward Killen note that “The challenges of COVID-19 during fiscal year 2020 required flexibility and patience in our workplace” and that while the pandemic is still with us, the office nonetheless is “ready and able to fulfill our mission to the very best of our ability” and that TE/GE enters “fiscal year 2021 mindful of the disruption of COVID-19 and heartened by our ability to react productively despite it.”

Ripperda and Killen remark that they “look forward to the new fiscal year with commitment, focus and high energy.” And they reiterate that the mission of the TE/GE “is to provide our customers top quality service by helping them understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all.”

The TE/GE on its website says that it will continue to pursue the compliance program described in its fiscal year 2020 program letter.  Among its compliance-related priorities in 2020 were: 

• examining 403(b) plans for universal availability, excessive contributions and proper use of catch-up contributions under Code Section 414(v); 
• examining 457(b) plans for excessive contributions and proper use of the special three-year catch-up contribution rule; 
• determining whether the deferral test, the participation rules and the Code Section 416 top-heavy contribution requirements are met for Salary Reduction Simplified Employee Pension (SARSEP) Plans;
• determining if Simplified Employee Pension (SEP) IRA plans properly include all employees who have met the plan’s eligibility requirements, including those working for related employers; and  
• assessing terminated plans with cash balance features that may have exceeded Code Section 415 limitations or generated a reversion which is subject to an excise tax. 

The TE/GE says that for 2021, issues approved by the TE/GE Compliance Governance Board as meriting inclusion in its compliance strategies include: 

Required Minimum Distributions in Large Defined Benefit Plans. This strategy is to ensure retirement plan sponsors comply with Internal Revenue Code Section 401(a)(9) to begin distribution of benefits by April 1 following the calendar year an employee reaches age 70½. 

Participant Loans. This strategy is to ensure that participant loans comply with Internal Revenue Code Section 72(p) rules on maximum loan balances and Section 72(t) re-payment rules for early distributions that occur before age 59½. The TE/GE plans to verify whether participant loans of retirement plans that hold a high percentage of participant loans to total assets of the trust are being repaid on time if the loan balance remains consistent or increases for more than one year. 

The TE/GE Compliance Governance Board also has approved correspondence contact through compliance checks to address potential noncompliance. The matters for which it will conduct such checks and make contact include: 

Inflated Assets. This initiative determines if plan sponsors are completing financial information on Form 5500-series returns with complete and accurate information. It will focus on plans whose assets have increased beyond what the IRS considers to be reasonable amounts from the beginning of the year to the end. 

Partial Termination/Partial Vesting. This initiative identifies employers whose Form 5500 indicates their plan had a significant decrease in plan participants. It will entail review of those plans to determine compliance with Internal Revenue Code Section 411(d)(3) vesting requirements, as well as the accuracy of other information on their Form 5500.