Here's What a Federal Shutdown
Means for the IRS and Taxpayers
Forbes | January 19, 2019 | Kelly Phillips Erb
Senior Contributor
The 2018 filing season is slated
to open on January 29, shutdown or not.
Millions of taxpayers expect to be ready on January
29 when tax season opens, but will the Internal Revenue Service
(IRS) be ready? In anticipation of a federal government shutdown,
the IRS released its contingency plan for the filing season
because, yes, tax season will go on even during a shutdown.
The agency said it does not "anticipate
utilizing the plan" but that may be optimistic. On Thursday,
House Republicans approved a bill to keep the lights on until
mid-February but a similar bill in the Senate failed to garner
enough votes. While Republicans control the Senate, they only
have 51 votes, but 60 votes are needed to pass an appropriations
bill, which means they would have needed support from Democrats.
It turns out they needed more than that: Five Republican Senators
voted no and one abstained (it's worth noting that House Majority
Leader McConnell (R-KY) cast a no vote as a procedural
matter in order to raise the matter for reconsideration).
You can see how your Senator voted Click Here.
Without a deal, the government officially ran out of
money for the fiscal year and shut down at midnight. Of course,
shutdown is a loaded word since not every facet of government
shuts down. For example, the IRS will maintain some functions,
and those are outlined in their contingency plan. Specifically,
the agency notes that "If the IRS is confronted by a
lapse in appropriations during the 2018 Tax Filing Season
(January 1 – April 30, 2018) the IRS will need to continue return
processing activities to the extent necessary to protect
Government property, which includes tax revenue, and maintain the
integrity of the federal tax collection process, along with
certain other activities authorized under the Anti-Deficiency
Act."
The Anti-Deficiency Act (text here) is a series of laws dating back more than 100
years. The Act is codified at Title 31 (Money and Finance) and is
intended to stop federal agencies from spending federal dollars that
aren't authorized, as well barring them from accepting
voluntary services (meaning that employees can't work for free
during a shutdown). The penalties for violating the Act are
pretty severe, which is why federal agencies provide a written
contingency plan.
During a shutdown, agencies are allowed to perform
activities that are supported by funding that doesn't expire at
the end of the fiscal year, as well as other activities that are
either expressly permitted under the law or are deemed necessary.
Sometimes those activities cross over. For example, Social
Security payments are funded outside of an annual appropriation,
so those employees will continue to work, as well as those IRS
employees who support them (even though IRS funding is not
outside of annual appropriation). For full article: Click Here
What Does The Plan Say?
PLANSPONSOR | By Summer
Conley and Michael Rosenbaum
Understanding the documents is
key.
A frequently overlooked fiduciary duty is that of
acting in accordance with plan documents to the extent consistent
with the Employee Retirement Income Security Act (ERISA). While
it may not be light reading, committee members should be familiar
with the terms of those documents governing the plan, including
the plan document. Even though the committee may delegate daily
plan administration, knowing the plan’s provisions is still
relevant for retained responsibilities, as well as
for monitoring the people delegated those administrative
responsibilities.
Often clients call to ask us a question regarding
how a benefit should be calculated or who should receive a
benefit, etc. Our first response is always, “What does the plan
say?” Just because something is legally permitted doesn’t mean it
is permitted under the terms of the plan document. And just
because “we’ve always done it this way,” doesn’t mean the plan is
being administered in accordance with its terms.
Keep in mind that the plan document means the most
recent restatement plus any subsequent amendments that have been
adopted. Too often, clients look at a plan document only to
discover they are missing an important amendment changing the
provision in question. For prototype plans, the plan document
generally means the base document, the adoption agreement and any
amendments. Look at those adoption agreements carefully, as they
reflect the key points of the plan. Frequently, a box is checked
incorrectly, creating a drastically different result than
intended. Additionally, these documents can be long and
confusing, as they try to cover a variety of plan options -
sometimes leading a committee to move toward a more streamlined,
individually designed plan.
Committee members aren’t the only ones who should
read the plan document. The company’s benefits employees who
handle the plan’s day-to-day administration should also review
it. They are the ones on the front line dealing with what
compensation is included or excluded, how the match is
calculated, who is eligible, and more.
The failure to follow the terms of the plan, even
when it benefits the participants, is an operational error. If
discovered on audit by the IRS, this can lead to costly penalties
and possibly even plan disqualification. OK, plan
disqualification is pretty draconian and rare - we’ve never seen
it - but the cost associated with it is generally the IRS’s
starting point when determining the appropriate penalty.
If you determine that the plan document hasn’t been
followed, rather than run the risk of the IRS discovering a
problem and imposing penalties, we recommend that the committee
take appropriate steps to correct the error. The IRS’s Employer
Plans Compliance Resolution System (EPCRS) sets out procedures to
correct plan operational errors, either through self-correction -
just what it sounds like - or a voluntary submission to the IRS
for a fee. The easiest and least costly correction is generally
to retroactively amend the plan document to reflect actual
administration. However, subject to a few exceptions, this
requires a submission to the IRS. Further, retroactively amending
the plan to take away a benefit is generally not allowed.
In addition to understanding the plan document and what
it provides, the committee should regularly review other
plan-related documents including the investment policy statement
(IPS). Investment policy statements are not required but can be a
great guide path for the committee in selecting investment options
and can be evidence of its good process. But - and
this is a big but - having an IPS the committee doesn’t follow is
worse than not having one at all. If the IPS says funds will be
replaced after three quarters on the watch list and the committee
doesn’t do that, you arguably have a fiduciary breach even if
there’s a good reason not to replace the fund. To avoid issues
like this, we recommend: 1) that investment policy statements be
drafted as guidelines for the committee to use in its investment
selection and monitoring process rather than as hard and fast
rules, and 2) that the statement be reviewed on a regular
basis.
Understanding what the documents governing the plan
say is another tool to make sure the plan is operated
appropriately. So pull up a comfy chair - not too comfy - and
read away. For full article: Click Here