The IRS recently announced a new pre-examination compliance pilot program for retirement plans. Under the program, the IRS will send a plan sponsor a notification letter that its retirement plan was selected for an upcoming examination. The letter will give the plan sponsor a 90-day window to review their plan’s document and operations to determine if they meet current tax law requirements. If a plan sponsor does not respond within 90 days, the IRS will contact the sponsor to schedule an exam.
According to the IRS, if a plan sponsor identifies any mistakes during its 90-day review period, the plan sponsor may be able to self-correct the mistakes using the self-correction principles under the Employee Plans Compliance Resolution System (EPCRS), which is currently described in Rev. Proc. 2021-30. The IRS also noted that if a particular mistake is not eligible to be self-corrected under EPCRS, the plan sponsor may request a closing agreement from the IRS. However, the IRS indicated it would use the Voluntary Correction Program fee structure under EPCRS to determine the sanction amount a plan sponsor would pay under a closing agreement, which generally is significantly less than under Audit Closing Agreement Program.
Following review of their plans, sponsors must submit to the IRS documentation regarding their compliance and any corrections. If the IRS agrees with a plan sponsor’s conclusions, the IRS generally will issue a closing letter. If not, the IRS may conduct either a limited or full scope examination.
The IRS explained that its goal for this program is to reduce the burden on taxpayers and reduce the amount of time spent on retirement plan examinations. The IRS also indicated that it intends to evaluate the effectiveness of the pilot when it ends, though an ending date was not disclosed, to determine if it should continue to be part of its overall compliance strategy.
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