IRS Strips Down Complex Voluntary Compliance Rules

>That’s because the Internal Revenue Service (IRS) has revised and simplified the tax agency’s Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2003-44 (See  IRS Web Site  for more information). The IRS did so, according to news reports, by:

• expanding it to include more types of plans (especially plans offered by small businesses)
• providing sample formats and simplifying the required information for submissions
• streamlining the voluntary correction program (VCP) by consolidating seven subcategories into one
• providing a fixed fee schedule for all voluntary submissions.

>There are three components of EPCRS: 

• the Self-Correction Program (SCP), in which employers or plan administrators identify and correct problems with their plans without the requirement to notify the IRS
• the Voluntary Correction Program (VCP), in which proposed corrections are submitted for IRS approval; once approval is granted, employers have written, reliable assurance that the IRS has approved their corrections
• the Audit Closing Agreement Program (Audit CAP), under which plans may be corrected with IRS approval while the plan is under audit.

>EPCRS will now cover savings incentive match plans for employees that are structured as individual retirement accounts (SIMPLE IRAs), as well as simplified employee pensions (SEPs). Sponsors of SIMPLE IRAs and SEPs may only use the voluntary self-correction program (SCP) of EPCRS for insignificant operational failures (not following the terms of the plan), while qualified plans and Section 403(b) tax-deferred annuities may use SCP for significant and insignificant operational failures. SCP allows plan sponsors to correct their plans without paying fees or sanctions to the IRS.

“Retirement plan laws are complex and ever changing. We will do everything we can to help businesses stay up-to-date and within the rules,” said Carol Gold, director of IRS’s Employee Plans Division, according to SmartPros.com  “It’s easy for retirement plans to fall into noncompliance on any number of technical or administrative issues. Our priority is to offer plan sponsors and administrators a number of avenues to correct the plans.”

Simplilfying Revisions

>The revised procedure:

• provides for a single payment of compliance fees for most submissions and eliminates the requirement that the fees be paid by certified check
• adds correction methods and instructions for SEPs and SIMPLE IRAs
• simplifies the group submission procedure and expands the group and anonymous submission procedures to include all submissions under VCP
• provides rules for problems relating to plan loan failures, recent tax law nonamenders, imprecise or unavailable data, failure to obtain spousal consent, terminated plans, and early inclusion of participants because of an improper entry date.

>If the IRS finds a problem when examining a plan, the plan sponsor may pay a fee and correct the problem under the correction on audit program (Audit CAP). Revenue Procedure 2003-44 amended Audit CAP by changing the factors considered in determining sanctions.

>One of the most important elements of the revised EPCRS is the change to the fee schedule, Thomas Schendt, a partner in the Washington office of Alston & Bird, told Washington-based legal publisher BNA. Although the new schedule eliminates some negotiating power for attorneys representing plans, the new fees reflect “what IRS has been doing in practice” and provide more certainty to plan sponsors, Schendt said. The fees also are now geared toward the number of people in a plan, rather than the amount of assets held in a plan, Schendt said.

>The group VCP process has also been improved by no longer requiring an individual power of attorney for each plan in the submission, Schendt said

>Administrators have been able to make submissions for voluntary corrections with IRS approval since 1992. Approximately 10,000 submissions for changes have been made in the past decade. Beginning in 1997, administrators were permitted to make self-corrections to plans without IRS approval.

>Revenue Procedure 2003-44 modifies and supersedes Revenue Procedure 2002-47, and is generally effective October 1. Plan sponsors may apply the provisions of Revenue Procedure 2003-44 on or after June 5. Unless the plan sponsor applies the procedure provisions earlier, the procedure is effective for SCP failures for which correction is not complete before October 1, for VCP applications submitted on or after October 1, and for Audit CAP examinations begun on or after October 1. Revenue Procedure 2003-44 is scheduled to appear in the Internal Revenue Bulletin 2003-25, dated June 23, 2003.