IRS announces establishment of uniform system for employee plans voluntary compliance

The IRS has announced the establishment of a uniform system for resolving employee plans closing agreement requests that could not be addressed under the Employee Plans Compliance Resolution System (EPCRS). Plan sponsors may now request a closing agreement to resolve certain income or excise tax issues involving tax-deferred retirement plans established under Code Secs. 401(a), 403(a), 403(b), 408(k) or 408(p).

The IRS will decide when entering into a closing agreement with a plan sponsor is appropriate. IRS Employee Plans will not consider a request for a voluntary closing agreement in certain situations:

(1) Where the plan, plan sponsor or entity responsible for signing the closing agreement is under IRS examination or investigation or has any matters in appeals or before the Tax Court;

(2) If the issue is eligible for resolution under the Voluntary Correction Program (VCP);

(3) Where issues involve 457(b) or 457(f) plans;

(4) If the plan, plan sponsor or any other party to the closing agreement was or may have been a party to an abusive tax avoidance transaction; or

(5) Where there has been a willful or intentional plan to avoid or evade paying or reporting taxes.

To obtain a voluntary closing agreement, the plan should be prepared to show that: it is willing to furnish necessary facts and documentation to establish its tax liabilities; the agreement is in the best interest of both the IRS and the plan; the federal government will suffer no disadvantage from entering into the closing agreement, and any Internal Revenue Code violation or tax deficiency was unintentional. To participate, an authorized representative of the plan or the plan sponsor should submit a detailed request in writing that includes:

(1) An explanation of the problem, including how and why it occurred, number of people affected, and amount of contributions, distributions, etc.;

(2) An explanation of how the identified problem or issue will be corrected;

(3) An explanation of how the tax, interest or penalties were calculated;

(4) Calculations of any tax or correction method included in the request; and

(5) P) proposed sanction amounts and an explanation justifying the amount.

In most cases the IRS will not bargain or negotiate any tax liability but may discuss penalty abatement. In addition, a closing agreement request does not preclude an IRS examination of the plan or plan sponsor.

Source: IRS website, December, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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