IRS eyes 401(k) matching contributions

 

Employee Plans Compliance Unit (EPCU) - Current Projects - Improper Deductions Project

Why did I receive an EPCU Compliance Check Letter?

Our records show the Form 1120 deduction amount exceeds the Form 5500 series return contribution amount by at least $1,000.

What is EPCU attempting to determine?

We want to determine whether certain plan sponsors who maintain one defined contribution plan may have taken an improper deduction. An improper deduction occurs when the Form 1120 deduction amount exceeds the Form 5500 contribution amount. Only employers with a tax year ending identical to that of the plan year ending will be reviewed. Item 2(a)(1) on Schedule I or Item 2(a)(1) on Schedule H  filed with the Form 5500 provides the total dollar amount of employer contributions for the plan year. This amount will be compared with the dollar amount listed on Item 23 of the Form 1120.

What actions do I need to take?

Please provide the information requested in the Form 886-A attached to your letter.

You may furnish other documents or clarifying material that you believe will be helpful for us to review. You should make every effort to answer the questions as accurately as possible. Failure to provide this information could result in examination of your corporate return or your plan.

If you need additional time, please contact the person whose name is listed on the cover letter to request an extension prior to the response due date.

If You Have Questions

Please feel free to contact the person listed in the cover letter with questions about this project and how it relates to your situation. You may make contact by phone, mail or e-mail. Please include “Improper Deduction Project” in the Subject line of the message.

Background

An employer contribution amount deducted on the Form 1120 must comply IRC 404(a)(6) and IRC 412(c) (10).

The activities of this project include extensive research to determine if there is a discrepancy between the employer contribution amount reported on the Form 5500 and Form 1120.

The EPCU will mail the compliance contact letter and information request to a random national sample of plan sponsors and will issue a closing letter notifying the plan sponsor of our findings.

The information gathered from this project will result in a report issued by the IRS describing responses and identifying areas where we need additional education, guidance or outreach.