IRS Pilots Pre-Examination Compliance Program for Retirement Plans

Faegre Drinker Biddle & Reath LLP

Faegre Drinker Biddle & Reath LLP

In its recent June Employee Plans newsletter, the Internal Revenue Service (IRS) announced the launch of a 90-day pre-examination compliance pilot program. Under the program, the IRS will notify a plan sponsor that its retirement plan has been selected for pre-examination. The notification will provide the sponsor with 90 days to review retirement plan documents and operations to determine compliance with current tax law. If the sponsor does not respond within 90 days, the IRS will contact the sponsor to schedule an examination.

If the sponsor identifies compliance issues in the plan documents or operations during the 90-day period, self-correction may be an option under the IRS Voluntary Compliance Program (VCP). The IRS will review any issues identified by the sponsor during the pre-examination period, as well as any corresponding corrections (and related documentation), to determine if it agrees with the sponsor’s conclusions and correction methodologies. Based on that assessment, the IRS generally will either issue a closing letter or proceed with conducting a limited or full scope examination.

If an issue is not eligible for self-correction under current VCP principles, a closing agreement may be requested by the plan sponsor. The IRS has indicated that it will use the current VCP fee structure to determine the sanction amount under the closing agreement.

According to the announcement, the intent of the pilot program is to reduce taxpayer burden and decrease the amount of time spent on retirement plan examinations. Once the program ends, the IRS will further evaluate whether the program should become part of its overall compliance strategy. Until then, the program affords retirement plan sponsors a potential opportunity to correct mistakes at a reduced cost and possibly avoid a full IRS examination.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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