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Richard Hochman Testifies at IRS Appearing in his capacity as President/COO of McKay Hochman and testifying on behalf of the firm’s client base, Mr. Hochman endorsed the creation of the Enrolled Retirement Plan Agent (ERPA) designation, at the June 21st Hearing at IRS Headquarters. The ERPA designation had previously been suggested by the Advisory Committee on Tax Exempt/Government Entities (ACT), but was left out of the Proposed Regulations. Rich has been a leading proponent on the issue of who can represent employers on retirement plan issues; since the IRS Power of Attorney Form 2848 was changed in early 2004. His testimony was a continuation of his advocacy on this important issue. Background Employee benefit professionals have a somewhat limited role when it comes to interactions with the IRS. They might submit plan documents using the Form 5300 series (5300, 5307, 5309, 5310) for Determination Letters, they could File the Annual Return Form 5500 or they could make a filing under the EPCRS Correction Program. They might also assist an employer on an IRS initiated examination. Before the 2004 change, benefit consultants acted on an employer’s behalf on all these issues. For example, when submitting for a Determination Letter, they previously used Code H, “Unenrolled Return Preparer”, as their authority for signing the Power of Attorney to assist with the submission process. The problem now is that the Form 5300 series are not tax returns, nor, for that matter, is the Form 5500. The 5500 is an information return. Thus, Code H is not available to these professionals anymore. The IRS has advised that when making a submission, for a Favorable Determination Letter, the employer could include a Form 8821, which would allow their consultant to receive copies of all correspondence that the IRS mails to the employer. It does not, however, authorize the consultant to get involved in the submission process if questions arise over specific plan language. The same is somewhat true for EPCRS submissions. The consultant could provide the IRS with answers to questions, but once again, they could not be directly involved in any negotiations between the employer and the IRS as to the corrective amounts to be deposited to the plan. A question exists if the consultant could sign on an employer’s behalf on the Form 5558, requesting an extension of the Form 5500 filing. Understanding the potential disenfranchisement that was created and the unique nature of the service providers in the retirement plan industry, many of whom are McKay Hochman clients, in June of 2004 Rich, with a few other industry representatives, requested meetings with the IRS to discuss the problems. After those meetings, The Advisory Committee on Tax Exempt /Government Entities (the ACT) decided that the issue was important enough to warrant their having a project to address the issue. The project findings and their proposed solutions were issued in their June 2005 Report. One of their recommendations was the creation of the Enrolled Retirement Plan Agent (ERPA) designation, under the jurisdiction the Office of Professional Responsibility. They had initially hoped that the program could be established by the fall of 2005. Like many things in our Nation’s Capital, proposals progress slower than desired. The IRS recently issued new proposed regulations under Circular 230 addressing the ability of professionals to practice before the Service. Unfortunately, the ACT recommendation was not included in those Regulations. Instead, the IRS said those interested could comment on the ERPA designation issue as part of the Hearing on the Proposed Regulations. Accordingly, Rich attended those hearings and supported adopting the designation on a fast track basis. He also offered the services of McKay Hochman to assist the IRS and Treasury in any way it could. It is extremely important that McKay Hochman clients have the ability to fully represent the employers whose plans they work with. Accordingly, McKay Hochman will continue to play a leading role in assuring that ability. Robert Kaplan, McKay Hochman’s Director of Education and Consulting Services, also testified at the hearing co-presenting with Brian Graff, Executive Director of the American Society of Pension Professionals and Actuaries (ASPPA). Their testimony likewise favored the creation of the ERPA designation. Below is a copy of Rich’s testimony. Rich Hochman's Testimony to the IRS on the Enrolled Retirement Plan Agent (ERPA) HEARING ON CIRCULAR 230 NOTICE OF PROPOSED RULEMAKING AFFECTING INDIVIDUALS WHO PRACTICE BEFORE THE IRS While many in management positions at the IRS’ Tax Exempt/Government Entities Group are very familiar with both my company, McKay Hochman Co., Inc. and myself, please allow me to begin by introducing myself. BACKGROUND In my earliest days with the firm, the bulk of our clients were financial institutions of all sizes. Over the last two decades our client base has expanded to include law firms, accounting firms, actuarial firms, third party administration/recordkeeping firms and brokerages. That expansion notwithstanding, the majority of our clients who sponsor pre-approved plan documents do not have on staff the attorneys, accountants, enrolled agents or enrolled actuaries who are presently licensed to practice before the IRS with regard to retirement plan issues and concerns. With the release of the updated Form 2848, Power of Attorney, on April 1, 2004 many of our clients became “disenfranchised” with respect to their ability to appropriately represent employers with regard to their qualified retirement plans. While the IRS has suggested that these individuals can provide many of the same functions through the use of FORM 8821, I would contend that the procedures are more cumbersome and time consuming, and the practitioners are restricted in their ability to discuss possible alternative solutions to solve outstanding problem issues. Shortly after the release of the new Form, many clients contacted me about problems that they were encountering in their client representation that they had previously not encountered. I took those concerns to the Determination Letter unit in Cincinnati headed by Mr. Robert Bell, as well as to Mr. Paul Shultz, the then head of the IRS’ Rulings Unit and Carol Gold the Director of TE/GE. Shortly thereafter, I was one of the industry representatives that met with the Advisory Committee for Tax Exempt/Government Entities (the ACT) to discuss the problem and what alternative solutions could be developed. I insisted then, and continue to do so at this time, that an appropriate solution be quickly developed, so that industry practitioners and professionals who are not currently eligible to practice before the IRS could continue to represent their clients; especially with the EGTRRA restatement period then looming before us. In fact, the first EGTRRA restatement cycle for individually designed plans has opened and will likely close before remedial action is taken. This summary brings me to the reason for my appearance before you today. Following up on its discussions with industry representatives, the ACT in June of 2005, issued a Project Report on “Establishing the Enrolled Retirement Plan Agent Under Circular 230”. The most recent release of proposed rulemaking did not include the Proposals in the ACT’s Report, but the Treasury Department and the IRS have nonetheless requested public comments on the proposal. While I will only make limited comments about the proposed regulatory changes and their impact on the qualified plan industry, my intention is to primarily address the ACT’s Enrolled Retirement Plan Agent (ERPA) proposal. Before spelling out the reasons there for, I would like to express McKay Hochman’s enthusiastic support for the ACT’s proposal and our commitment to assist in whatever way we can to bring the program to a quick beginning. We do this because it is in the best interests of our client base, their adopting employers and the retirement plan industry as a whole. Since the annual return/report Form 5500 is considered an “information return” rather than a tax return, the repeal of Section 10.7(c)(1) (viii), which currently authorizes an “unenrolled” preparer to represent a taxpayer with regard to a “return” they prepared, should have little impact on the qualified retirement plan industry. Many of our clients had already lost their ability to use code “H” “Unenrolled” Return Preparer in their representation of retirement plan clients. ADDRESSING The ACT’s ERPA PROPOSALS The creation of the ERPA designation can change that. Since the designation would create the ability to practice before the IRS, the program can also incorporate a system of sanctions for those who breach the established standards. Right now, only the professional actuarial societies have established disciplinary proceedings and forums. However, with the creation of the ERPA designation it would be possible to sanction those who prey on employers by offering abusive tax avoidance schemes such as the “S Corporation” ESOP and the 412(i) programs that are now categorized as “listed transactions” under the Service’s ATAT program. This would be the proverbial “win-win” for both the IRS and the vast majority of industry practitioners who are not trying to cut corners or operate on the edge of the law and regulations. It is fair to say that within each of the four groups currently authorized under Circular 230 to practice in front of the IRS, there are a number of individuals who have an expertise in the qualified plan arena. However, with the exception of the enrolled actuaries, who routinely work with retirement plans on a day to day basis, the vast majority of attorneys, accountants and enrolled agents now authorized to practice have limited knowledge of qualified plans and therefore are not the best advisors to employers and participants regarding plan design options. Over the years, with all the changes made to ERISA and the Tax Code, it has become almost impossible to remain competent in the qualified benefit field, while simultaneously maintaining expertise in other tax matters. This fact becomes very clear to the consultants at my firm as we approach each March 15th to April 15th and we field questions from accountants trying to determine the appropriate plan contribution for their employer clients. I, for one, no longer claim to have expertise outside the qualified plan field, though I took many tax courses in Law School. Of the many industry practitioners I know, only a handful are Enrolled Agents. Providing the necessary training to stay abreast of the many qualified plan statutory and regulatory provisions has fallen upon a small number of companies and professional trade associations. ASPPA and NIPA among other industry trade associations have begun to offer credentialing programs. However, there is no uniformity between these programs and no set examination practice. After careful review the ACT has determined that it would be inappropriate to endorse any of the existing certifications and instead has decided that any examination to obtain the ERPA designation should be modeled after the program currently in effect for the Office of Professional Responsibility’s Enrolled Agent designation. Since ERPAs would limit their client representation to a limited number of Internal Revenue Code sections that specifically impact qualified plans, any examination and continuing education requirements should similarly be limited to those specific Code sections. The ACT took a significant amount of time to outline those specific sections and their proposal should be given deference. As the Service moves from the “Service” mode more towards “Enforcement” to bring about compliance, their employer contacts will be increased. At the recent Northeast Area Conference, attendees were advised that the Service expected to make 2,000 “soft contacts” in addition to a full load of examinations. Many employers are not fully conversant about their plans and their terms and operation. Rather they have contracted the services of third party administrators (TPAs) to properly operate their plans. Would Service Agents not be better off talking directly to those operating and maintaining the qualified status of the plan rather than the sponsoring employer, who knows all about the widgets they assemble, but not very much about the company plan? The TPA is likely in a better position to answer operational questions than even the plan’s Attorney or Accountant, unless they perform the TPA/benefit consultant function. Few, if any, of so-called “individually designed plans” are drafted from scratch anymore. Most are pre-approved prototype or volume submitter plans with some amended section or sections. With the EGTRRA Determination Letter program now open for individually designed plans, it would be more beneficial to the Determination Letter Process and the assigned Service Agents, if they could speak directly to the TPA who drafted the plan amendment language rather than having to talk to the Employer and playing the game “telephone” like they did as a little kid and getting seemingly strange answers. While I am personally in favor of birthing and growing a qualified plan, most industry service providers who get fees based on the amount of plan assets would rather spend their time with “takeover” plans. Invariably, many takeover cases come with an operational problem of some variety. The IRS recently updated the Employee Plan Compliance Resolution System (or EPCRS) to deal with administrative errors that occur with qualified plans. Once again it would be extremely helpful for plan compliance reasons if the party performing the plan administration function were able to take the plan through the correction process. If any negotiation is necessary only an attorney, accountant, enrolled agent or enrolled actuary will be able to sign off on any necessary negotiations. The TPA who will be responsible for actually cleaning up the administrative error(s) may be disconnected from the correction determination. This is not a winning situation for the IRS, which has to be assured that any promised corrections are actually made. SUMMATION Once again I want to thank the Treasury and the IRS for this opportunity to address this important issue. McKay Hochman Co., Inc. stands ready to assist in any way we can to bring about this important program that works to the advantage of both practitioners and regulators and creates the “win-win” we are all looking for. Having consistently trained our client base to do their jobs correctly and in accordance with current law and regulations, it will be rewarding to see that those who try to cut the corners and make minimal efforts will be marginalized by the system. If you have additional or follow-up questions, I can be reached at 973-492-1880 or at my e-mail address rhochman@mhco.com.
To learn more, call 973-492-1880 or e-mail info@mhco.com. © 2012, McKay Hochman Co., Inc. All rights reserved. |
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