The Internal Revenue Service (IRS) Employee Plans Compliance Unit (EPCU) is sending compliance check letters to 200 tax-exempt entities in fiscal year 2013 that filed Form 990s and also showed contributions to an Internal Revenue Code Section 457(b) plan on their Form W-2s for 2011. Often referred to as "Top Hat" plans, 457(b) refers to "non-qualified deferred compensation plans for select groups of highly compensated employees, managers, directors or officers." The IRS is requesting that the contacted entities furnish the agency with documents and other clarifying materials in a "timely" manner to help the EPCU:

  • learn more about the operation of non-governmental 457(b) plans,
  • verify that the plans comply with the Internal Revenue Code requirements,
  • identify issues of noncompliance, and
  • recommend ways to remove any barriers to compliance.

As part of the review, another 200 entities will receive compliance check letters during fiscal year 2014. Although the check does not involve "an inspection of books and records to determine a filing liability for a particular tax period," the agency said it will consider auditing any nonprofit that fails to respond to the compliance check.  If the compliance check determines that an entity's Top Hat plan is not "established or operated in accordance with IRC Section 457(b)," the agency will outline the needed corrections, which may include "an audit of the plan or correction under the Voluntary Correction Program."

For more information, read the following IRS documents: "Non-Governmental 457(b) Deferred Compensation Plans" and "Employee Plans Compliance Unit (EPCU) – Non-Governmental 457(b) Plans Project."