IRS Announces Pilot Program to Allow Voluntary Correction Even After IRS Notice of Examination

The IRS just announced that it is piloting a “pre-examination” retirement plan compliance program beginning in June 2022. This program will notify a plan sponsor by letter that their retirement plan was selected for an upcoming examination. The notice will give the plan sponsor 90 days to review their plan’s document and operations to determine if they meet current tax law requirements. If that review reveals mistakes in the plan’s documents or operations, the plan sponsor may be able to self-correct the mistakes using the correction principles in its voluntary compliance program (EPCRS) See, Revenue Procedure 2021-30. [add cites to our articles and faqs]

If a plan sponsor finds mistakes aren’t eligible to be self-corrected, they can instead request a closing agreement using the VCP fee structure to determine the sanction, which is generally much lower than sanctions negotiated during a full IRS examination. The IRS will review the documentation submitted by the plan sponsor at which point there are 3 possible outcomes: if they agree that you appropriately self-corrected any mistakes, they will then issue a closing letter; alternatively, again depending on the documentation submitted, they may decide to conduct either a limited or full-scope examination.

At the end of this pilot program, the IRS will evaluate its effectiveness and determine if it should continue to be part of its overall compliance strategy.

The good news is that (a) you don’t have to wait for an IRS examination to review compliance, which can be initiated at any time, which preserves your right to use the self-correction and VCP programs and (b) even if you do get a notice of examination, if you are in the pilot program, you still have an opportunity to correct without being treated as fully under an examination.

Please feel free to reach out to any Boutwell Fay LLP attorney for more information about this promising development.