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IRS Rules on COVID-19-Delayed Pension Payments

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What You Need to Know

  • The new private letter ruling updates rulings issued in 2020 and 2021.
  • It includes a more flexible description of the payment due dates.
  • It also includes the contact information for the IRS and PBGC officials who should get proof-of-payment information.

The Internal Revenue Service has issued a new interpretation that could affect business owner clients who have failed to keep up with their pension plan payments.

The IRS has told a taxpayer how to recover from the fact that, because of the effects of the COVID-19 pandemic, the taxpayer failed to meet minimum pension plan funding requirements for a plan year.

Janet Laufer, an IRS senior technician reviewer, issued a private letter ruling, PLR 202211001, approving the taxpayer’s request for a waiver of the usual funding standard.

Laufer did not identify the taxpayer or indicate whether the taxpayer was a company or an individual.

The Ruling

Laufer said that her understanding is that the taxpayer “has been suffering from a temporary substantial business hardship due to issues arising from certain projects it was involved in, as well as the effects from the COVID-19 pandemic, both of which significantly affected its liquidity and profitability.”

“Taxpayer has implemented a series of actions to facilitate its long term improvement, and its financial projections illustrate that its cash flows will improve adequately to satisfy the plan’s funding obligation in the near future,” according to the letter.

Laufer said that, based on the description presented, the taxpayer has met the legal pension contribution standard for a “temporary substantial business hardship.”

Laufer required the taxpayer to:

  • Provide collateral that is acceptable to the Pension Benefit Guaranty Corp., the government-sponsored enterprise that insures many U.S. employers’ defined benefit pension plans;
  • Make plan contributions, based on a schedule that was whited out in the published version of the letter,
  • Send proof of the contribution payments to Chris Huxtable, an IRS official in Richmond, Virginia, and to the Corporate Finance & Restructuring team at the PBGC.

The Context

The new letter is similar to letters Laufer sent in December 2020 and April 2021.

One difference between the new letter and the old letters is that the old letters gave specific payment due dates. In the newer letter, the IRS whites out out the dates.

Another difference is that the new letter gives specific proof-of-payment contact information.

The IRS uses private letter rulings to show taxpayers how it’s applying tax laws and tax rules.

The IRS warns, repeatedly, that a private letter ruling applies only to the taxpayer that receives  the letter, and not to other taxpayers. But many taxpayers and tax advisors tend to see letter rulings as rough indications of how the IRS is handling certain questions.

What It Means

The contact information in the new letter ruling could be helpful to clients and advisors who are wondering where to send proof-of-payment information.

That the IRS whited out the payment due dates could be a sign that the IRS is starting to think of COVID-19 as a concern that will last for years, rather than as an unusual, short-term crisis, and that officials are starting to take a more general approach to describing payment due dates.

(Image: Shutterstock)