401(K) Audit Procedures

IRS tells its auditors how to audit 401(k) hardship distributions. The IRS’s Tax Exempt and Government Entities Division has issued a memo that explains substantiation guidelines for IRS auditors when they examine whether a 401(k) plan hardship distribution is “deemed to be on account of an immediate and heavy financial need” under safe harbor standards. Whether an employee has an immediate and heavy financial need is based on all relevant facts and circumstances. The IRS stated a financial need might qualify even if it was reasonably foreseeable by the employee.