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Correcting Plan Errors – Audit Closing Agreement Program (Audit CAP) – General Description

A plan sponsor that does not come forward to the IRS, but which instead is discovered on audit to have significant problems in its plan, is entitled under the audit correction program to preserve the tax benefits associated with properly maintained retirement plans. Under this program, the plan sponsor pays a reasonable sanction that is based on an amount that is directly related to the amount of tax benefits preserved. The sanction imposed will bear a reasonable relationship to the nature, extent and severity of the failure, taking into account the extent to which correction occurred before audit.

Generally, under the Audit CAP, the plan sponsor or the plan is under examination and the plan sponsor:

  • enters into a Closing Agreement with the IRS; 

  • effects correction prior to entering into the Closing Agreement; 

  • pays a sanction negotiated with the IRS.

Learn more about how to correct plan errors.

Page Last Reviewed or Updated: 29-Aug-2014