In the June 3, 2022, issue of the IRS Employee Plans News, the IRS Employee Plans group announced it is piloting a pre-examination retirement plan compliance program beginning in June 2022. Under this program, the IRS will notify a plan sponsor by letter that its retirement plan has been selected for an examination.
According to the IRS announcement, the letter gives a plan sponsor a 90-day window to review their plan’s document and operations to determine if the plan’s organization and operations meet current tax law requirements. If a plan sponsor does not respond within 90 days, the IRS will contact the plan sponsor to schedule an exam.
If a plan sponsor’s self-review reveals mistakes in the plan’s documents or operations, the plan sponsor may be able to self-correct those mistakes using the correction principles in the IRS voluntary compliance program (EPCRS), described in detail in Revenue Procedure 2021-30 (pdf).
If the plan sponsor finds mistakes during its review that are not eligible for self-correction, the plan sponsor will have the option to request a closing agreement with the IRS under the Voluntary Correction Program. A closing agreement will involve a sanctioned amount to be paid in lieu of statutory penalties.
The IRS will review the documentation provided as part of the self-examination to determine if it agrees with the plan sponsor’s conclusions and that the plan sponsor appropriately self-corrected any mistakes. At that point, the IRS will issue a closing letter or conduct either a limited or full-scope examination.
According to the IRS announcement, “Our goal with this program is to reduce taxpayer burden and reduce the amount of time spent on retirement plan examinations. At the end of this pilot, we’ll evaluate its effectiveness and determine if it should continue to be part of our overall compliance strategy.”