The “Voluntary Compliance Staff” at the IRS has found five recurring mistakes in VCP submissions. In a Spring 2011 newsletter, the IRS provides tips for how to avoid these mistakes:
1. Missing compliance fee check. Beginning June 1, 2011, your entire VCP submission will be automatically returned if it does not contain a check for the compliance fee
- Compliance fees are fixed and can’t be reduced or waived by the IRS.
- Most plan sponsors, including sole proprietors and governmental entities, are required to pay the fee.
- Terminating Orphan Plans may be exempt from the fee requirement, but this exemption applies to very few plans.
- We will no longer contact you to ask for the missing fee.
- If we return a submission for lack of payment, you may resubmit it with the appropriate fee. However, we’ll treat the resubmission as a new case, subject to the compliance fee in effect on the date of your new VCP submission.
2. Some late interim amendments not properly identified. Specifically describe any late interim amendments associated with a change in tax law that are to be included in your VCP submission. These may include changes required by the Pension Protection Act of 2006 or the Heroes Earnings Assistance and Relief Tax Act of 2008. List each PPA or HEART Act provision that was adopted late. A general statement that is limited to “The plan was not timely amended for PPA or HEART” is not acceptable. Compliance statements are legal documents that must fully describe all plan document failures.
- On Appendix F, Schedule 1, part A, check the box for “other” and enter “see attachment” in the text box.
- On your separate attachment, include a complete description of each provision that was not timely adopted.
- If you need assistance describing the individual amendments, you can use the descriptions for PPA provisions in Notice 2007-94 and for HEART provisions, Notice 2009-98.
- Remember that Appendix F, Schedule 1 is only for interim amendments that were adopted late, but before the end of your plan’s last remedial amendment cycle that included those late amendments (use Schedule 2 if your late interim amendments, such as good faith EGTRRA or PPA amendments, are adopted after the close of the remedial amendment cycle in which they should have been adopted.)
3. Appendix F, Schedules 1 & 2 not completed properly. Check the right boxes. For example, the IRS cautions:
- Only check boxes for amendments that apply to your type of plan.
- If you’re late for your amendment cycle, check only the single Cumulative List box on Schedule 2 that relates to your cycle.
- Don’t check boxes to request excise tax waivers unless they actually apply to your VCP submission. If they do apply, include an explanation of why you should be granted the waiver.
- On the Applicant’s Representations page on Appendix F Part III, be sure to check one of the boxes to indicate whether the plan sponsor or plan engaged in an abusive tax transaction. If applicable, include details in a separate written statement.
4. Appendix F or Applicant’s Representations not signed by the correct person. The IRS cautions that you should ensure that the right person signs the forms.
- Make sure the Applicant’s Representations in Part III of Appendix F (also known as the penalty of perjury statement) are signed by an authorized officer of the plan sponsor, and not by the sponsor’s legal representative.
- Your Power of Attorney, Form 2848, if included, should be signed by an authorized person such as an officer of the plan sponsor.
- Generally, the above items cannot be signed by a plan trustee or plan administrator unless the plan is a multiemployer plan or a governmental plan governed by an independent board of trustees.
5. Remember the limits of your compliance statement. Review of your VCP submission is limited to the failures and correction methods that you identify. The IRS staff will not:
- Review the language in your plan document or plan amendments submitted to resolve late amender plan document failures
- Conduct a compliance review of all paperwork included with your submission to see if there areother plan document failures that may not have been noted in the VCP submission.
If you include a determination letter application with your VCP submission, it will not be reviewed. It will be transferred to our EP Determinations staff to process. They will then review your determination letter application independently. Once your VCP case is closed, your issued compliance statement cannot be used to resolve additional failures that may be subsequently discovered by EP Determinations or Examinations staff.
The complete newsletter is available here.