Tax Watch: Help for retirement plan administrators

The Internal Revenue Service recently announced the release of new materials to help small businesses and plan administrators understand how to keep employee retirement plans eligible for tax-favored status. The materials explain the IRS programs available to assist plan administrators.

The materials also explain how to correct errors in the plans, often without having to notify or correspond with the IRS.

They include IRS Publication 4224, “Retirement Plan Correction Programs,” a pamphlet providing a synopsis of the correction programs by the IRS, the Department of Labor and the Pension Benefit Guaranty Corp. in Washington. This tool, according to the IRS, is especially helpful to plan sponsors and practitioners.

The IRS also has released a CD-ROM, Publication 4050, that offers a more complete guide to the programs. The pamphlet and the CD-ROM can be ordered by calling (800) 829-3676 or via the IRS’ website at irs.gov.

Facts on faxes to the IRS

* The IRS recently announced new guidelines for sending facsimiles -which will make it easier for taxpayers and tax professionals to correspond with the agency. The new guidelines expand the list of documents and information that the IRS will accept by fax.

These changes reportedly stem from recommendations made by organizations such as the National Society of Accountants in Alexandria, Va.

According to the IRS, the changes are aimed at reducing the burden on taxpayers and practitioners, and shortening the time it takes to resolve tax inquiries and cases.

Unfortunately, however, the fax guidelines apply only to taxpayers and their representatives who are engaged in continuing contact with the IRS, such as an examination or resolving questions about tax returns that are being processed.

In fact, faxing can take place only after a discussion with the IRS employee who is requesting the information.

These general guidelines apply to all divisions of the IRS and cover operations related to income tax, employment tax, excise tax, estate tax, gift tax and generation-skipping tax, as well as tax-exempt and employee pension plan determinations.

Although the IRS has previously accepted forms via fax in limited situations such as 1120-S elections and powers of attorney, the new guidelines permit an expanded number of forms and other types of documentation to be submitted that way.

U.S. streamlines insurance waivers

* The Department of the Treasury and the IRS recently issued guidance that updates and streamlines existing procedures for applying U.S. income tax treaties that provide for a qualified waiver of the insurance premium excise tax.

Under these procedures, a foreign insurance company may choose to enter into a closing agreement with the IRS. With this closing agreement, and the required letter of credit in place, those making premium payments to the foreign insurance company generally will not be required to withhold excise tax from the premium payments.

In addition to this guidance on the federal excise tax levied on insurance and reinsurance premiums paid to foreign insurance companies for U.S. risks, the Treasury Department and IRS announced two regulations for implementing the Terrorism Risk Insurance Act.

The Terrorism Risk Insurance Program is a temporary federal reinsurance effort designed to encourage the development of private-sector resources and arrangements for diffusing risk of loss to acts of international terrorism.

One of those final regulations addresses the disclosure and “make-available” requirements, and the other addresses the participation of state residual-market-insurance entities and state workers’ compensation funds under the Terrorism Risk Insurance Program.

The authority for the program expires Dec. 31, 2005.

On the home front, the Senate Finance Committee has begun hearings on the subject of company-owned life insurance.

The hearings are a first step to marking up a revised COLI provision in the National Employee Savings and Trust Equity Guarantee Act of 2003.

Amending the pension bill to defer the effective date of its COLI provision to the date of enactment, instead of the date of the committee’s action, would further limit the exclusion of death benefits paid under COLI policies.