In a recent joint conference of the American Society of Pension Professionals & Actuaries (ASPPA) and the Internal Revenue Service (IRS), an IRS official provided some insight regarding the type of responses on the Form 5500 that may increase the probability of audit. The IRS official outlined four situations that generate special notice:
Because many plans--especially large plans--frequently invest in alternative investment vehicles such as hedge funds, limited partnerships, and private equity, it is not uncommon for them to report a significant amount in the "Other" category, simply because a suitable asset category is not provided on any other line on Schedule H. At the time the Schedule H asset categories were last revised, the use of such alternative investments was much less common. Department of Labor officials have informally acknowledged the need for expanded asset categories on Schedule H while observing that a revision is not expected in the very near future. Until that time, plan trustees and administrators should consider providing details on any assets included in the "Other" asset line in order to increase transparency, with the goal of mitigating the risk of triggering an audit.
By Eric Wallin, CPA, Senior Manager, firstname.lastname@example.org