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Wednesday, February 29, 2012

If you submitted your retirement plan for a determination letter review, hopefully you got your determination letter back in quick order and it was perfect. However, everyone makes mistakes, even (sometimes) the IRS. It pays to double-check to make sure that all amendments you submitted are referenced in the favorable determination letter to the extent they were not covered by a prior determination letter. If all amendments since the last determination letter are not referenced in the current determination letter, you could have a potential issue down the road in an IRS audit or during the next determination letter application submission. The good news is that the IRS has a program for reviewing and correcting determination letter errors. The program requires you submit a request in writing detailing the corrections you believe are required.

But what if, during the course of your determination letter review, the IRS required you to submit a proposed amendment? The general rule is that the proposed amendment has to be adopted within 91 days of the date on the determination letter. So how does this rule apply if you submit a request to correct the letter?

According to the IRS, you should go ahead and adopt the amendment within 91 days of when the original letter was issued. The rationale (as communicated informally by IRS agents) is that if the IRS does not agree with your proposed correction to the letter, you will be bound by the original deadline. Therefore, as a protective measure, you should adopt the amendment within 91 days of when the original (potentially incorrect) determination letter was issued. The IRS will only extend the 91-day period if (1) the IRS agrees that the determination letter was issued in error and (2) the error relates to the proposed amendment.

 

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