Under the Internal Revenue Service’s (IRS) VCP, retirement plan sponsors can correct mistakes in their plans. Scott Feldman, group manager of the Employee Plans Voluntary Compliance Unit of the Northeast/Mid-Atlantic, emphasized that if a plan sponsor discovers an operational or form failure, that sponsor should immediately make a correction.
“You want to be very careful that you’re doing self-auditing, and you’re making corrections when you find [mistakes],” said Ken Aufsesser, esq. at Ferguson, Aufsesser, Hollowell & Wrynn LLP. That way if the IRS performs an examination, it will substantially reduce the penalty, Aufsesser added.
Most IRS audits are based on Form 5500 mistakes, he said. Common errors in filing and VCP submissions include:
Common Administrative Filing Errors
- Compliance fee not paid or incorrect amount submitted;
- Penalty of Perjury Statement not completed properly;
- Social security number used instead of employee identification number;
- Plan assets/number of participants not complete;
- Abusive Tax Avoidance Transaction (ATAT) box not checked;
- Each page does not have proper header;
- Appendix/Schedules are changed, non-applicable sections are deleted; and
- Enforcement Resolution section completed by applicant (should be left blank).
Common VCP Submission Errors
- Non-applicable excise tax waivers requested;
- Multiple cumulative lists marked;
- Non-applicable law provisions listed (e.g. DB provisions marked for DC plans);
- Administrative Procedure changes insufficient for changes in current procedures;
- Specific Pension Protection Act (PPA) provisions are not listed; and
- Schedule 2 includes Initial Plan not adopted timely failure.
In its spring 2011 newsletter, the IRS provided tips on how to avoid common VCP submission mistakes (see “IRS Outlines Common Mistakes in VCP”).