The Internal Revenue Service (IRS) has released Rev. Proc. 2012-50, which will delay the IRS determination letter filing deadline for governmental plans to January 31, 2016.
As background, governmental plans are required to file for IRS determination letters in "Cycle C" of the IRS's five-year-cycle determination letter program. The initial Cycle C ended on January 31, 2009, but the IRS effectively extended the filing deadline by allowing governmental plans to submit in "Cycle E," which ended on January 31, 2011. The extension did not, however, change the requirement that governmental plans file in Cycle C. Therefore, even though many governmental plans filed only last year, absent an accommodation, those plans would be required to file again at the start of the next Cycle C, beginning on February 1, 2013.
This issue is compounded by the fact that (1) many of the filers in the original Cycle C and Cycle E still have not received rulings on their determination letter applications; and (2) the favorable determination letters that have been received "expire" on January 31, 2014 (the end of second Cycle C). This creates a potentially uncomfortable situation for governmental plan administrators and counsel who would be required to seek authorization from the sponsor for a second filing soon after receipt of the initial determination letter (if one was received at all).
The new release specifically provides that (1) a governmental plan sponsor may file in the Cycle E, ending January 31, 2016, in lieu of Cycle C; and (2) if the plan sponsor elects to file in Cycle E, the "expiration date" of a determination letter previously received is extended to January 31, 2016.
This will come as welcome relief for governmental plan sponsors. The time and expense associated with IRS determination letter filings is significant. In many cases, that expense has been incurred without the affirmation of a favorable determination letter or confirmation from the IRS when such letter would be forthcoming. Plainly, the IRS was not equipped for the volume of submissions or the complexities of the governmental plan universe. (Notwithstanding the language of the Rev. Proc. that suggests that the extension is being done for the convenience of the governmental plan community.) Accordingly, this extension appears to be a fair and appropriate course for the IRS as it seeks to facilitate full tax-qualification compliance for state and local governmental plans.