Although not required, an employer has the option of seeking an advance determination as to the qualified status of its retirement plan by the Internal Revenue Service (“IRS”), rather than waiting for the IRS to review the plan in connection with an audit. This written advance determination is called a “determination letter.” A favorable determination letter from the IRS indicates that, in its opinion, the terms of the plan conform to the requirements of the Internal Revenue Code (“IRC”).
The advantage of obtaining a favorable determination letter is that the employer is afforded some assurance that its retirement plan is “qualified” (i.e., afforded favorable tax treatment for meeting certain requirements under the IRC). Receipt of a favorable determination letter allows the employer to make contributions to the retirement plan with the knowledge that its deductions for those contributions will most likely be allowed should the IRS audit its tax return.
On January 2, 2013, the IRS issued Rev. Proc. 2013-6, which revises procedures for issuing determination letters on the tax qualified status of employee retirement plans.
Going into effect on February 1, 2013, the newly updated Revenue Procedure appeared in Internal Revenue Bulletin 2013-1.
In Rev. Proc. 2013-6, the IRS updated the procedures in Rev. Proc. 2012-6 for issuing determination letters on the qualified status of pension, profit-sharing, annuity, stock bonus, and employee stock ownership plans (“ESOPs”) under IRC sections 401, 403(a), 409, and 4975(e)(7), and on the tax-exempt status of related trusts or custodial accounts under IRC Section 501(a).
For a complete copy of Rev. Proc. 2013-6, please visit the IRS's website at: http://www.irs.gov/irb/2013-01_IRB/ar11.html