Many business owners worry about an income tax audit. But, if you sponsor an employee benefits plan, the IRS could audit it as well. Here are some common questions that plan administrators and sponsors might ask about plan audits.
Where’s the bull’s-eye?
The IRS targets plans in one of four ways:
- As part of a special IRS initiative focusing on a specific issue,
- On a tip-off,
- After discovering questionable or unusual items on a plan’s return, or
- By random selection.
The agency says audits aren’t merely a game of “gotcha.” The purpose is to develop corrective strategies and help plan sponsors execute these strategies.
How can you prepare?
Before a plan audit, the IRS usually requests a list of documents to review. An examiner then visits your office or facilities to conduct the audit.
Like a tax audit, a plan audit is best dealt with in consultation with a benefits expert. Make sure to authorize this person to act on your behalf in writing, using the required IRS form (Form 2848, “Power of Attorney and Declaration of Representative”), and that he or she is licensed to practice before the IRS.
What are auditors looking for?
The IRS typically examines a wide variety of plan operational areas. For starters, it will likely look into whether all eligible employees are properly participating, and whether the plan is properly crediting service and vesting in the plan.
Naturally, contributions and distributions are often investigated closely, too. And the agency may examine whether the plan document and trust meet current tax law, as well as whether you’ve timely and accurately filed federal returns and reports.
Who can help?
If you receive a notice of an IRS plan audit, please give us a call. We can work with your benefits advisor to gather the necessary documents and help you navigate the process.