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Voluntary Correction Program (VCP) – General Description

Generally, if the retirement plan that you sponsor is not currently being audited by the IRS, you can apply under the Voluntary Correction Program (VCP) for IRS approval of the correction methods you propose to use to correct errors in the plan document or its operations that, if not corrected, could result in the plan losing its tax-favored status. You must mail the IRS a written submission and pay a compliance fee to use the VCP.

The VCP is one of three programs for correcting errors that together are called the Employee Plans Compliance Resolution System (EPCRS). The other two EPRCS programs are the Self-Correction Program (SCP) and the Audit Closing Agreement Program (Audit CAP).

Why use VCP?

Correction through the VCP preserves the plan’s tax-favored status. Retirement plans that are not tax-favored or “qualified” have significant costs that directly affect the plan, its participants and your business. The effects of having a nonqualified retirement plan are discussed in Tax Consequences of Plan Disqualification

A tax-favored retirement plan (401(k) or other qualified plan, 403(b), SEP or SIMPLE IRA) will generally lose its tax-favored status if “failures” occur, meaning that the plan sponsor does not take certain actions, which include the following:

  • Maintaining a valid, up-to-date plan document,

  • Following the terms of the plan document while operating the plan, and

  • Following the requirements of federal tax laws while operating the plan.

VCP helps by allowing you to:

  • Obtain a written agreement, called a compliance statement, showing that we have approved your proposed correction method,

  • Bring your plan back into compliance with federal tax law,

  • Provide the benefits communicated to your employees in your written plan document,

  • Protect your tax deductions,

  • Ensure that participants’ retirement savings continue to accumulate tax-deferred,

  • Avoid unfavorable tax consequences that would normally result from the disclosed failures (provided that you timely complete all corrective actions described in the compliance statement), 

  • Avoid paying the larger audit compliance fees or audit closing agreement sanctions that would apply if the failures are corrected after being discovered in an IRS audit or review of a determination letter application, and

  • Request relief from certain federal income or excise taxes associated with some plan errors.

Compared to the Self-Correction Program (SCP), reasons for using VCP include:

  • Some failures are not eligible for SCP,

  • Sponsors may prefer the comfort of a written IRS approval even for failures that are eligible for SCP, and

  • Certain federal income and excise tax relief is available under VCP that is not available under the SCP.

How does VCP work?

  1. You mail a VCP submission to us.

  2. Our review is limited to the failures and correction methods that you identify. We will not look for failures not described in the VCP submission.

  3. If we need more information, we will contact you or your representative to ask for the required information.

  4. If your submission includes all of the necessary information and we approve the proposed correction, we will send you a compliance statement in which we state that, if you complete the approved correction within 150 days, we will generally not seek to disqualify the plan because of the disclosed failures.

  5. If we do not approve the proposed correction method, we will work with you and your representative to find an acceptable correction. Once a correction is agreed on, we will issue a compliance statement to you.

  6. If we cannot agree on a reasonable and appropriate correction, then we will not issue a compliance statement. The compliance fee you paid will generally not be refunded.

  7. Except under unusual circumstances, we will not audit your plan while we are considering your VCP submission.

Steps to using VCP

  1. Find the failures – review the plan document and operations to determine what failures have occurred.

  2. Submit – voluntarily report the problem in a VCP submission that describes the failures and the methods you will use to correct the failures and prevent them from happening again, and pay the compliance fee.

  3. Correct – you can correct the failures before or after the submission is filed. The compliance statement will include a 150-day deadline by which corrective actions must be completed. Note that if you correct the failures before you submit, you may have to undo the correction if we do not approve the method you used. 

  4. Keep records – keep your compliance statement and documentation proving that the corrections were completed before the deadline. Store them with your plan document.

Find the failures

Failures may come to your attention as the result of an internal audit or when the plan’s document and operations are reviewed by your adviser or a third-party administrator. Lists of common failures and suggestions as to how they can be corrected are found in IRS Fix-It Guides for various types of plans.


To request approval of a correction under the VCP, you need to mail a submission to us. The submission includes the following: 

  1. Forms 8950 and 8951

  2. A document that includes:
    • A description of the failures to be corrected
    • A description of the corrective actions that the sponsor proposes to do
    • A description of the changes in its administrative procedures that the plan sponsor will adopt to prevent the failures from happening again

  3. A compliance fee

  4. Various other documents listed in the EPCRS Revenue Procedure

The EPCRS Revenue Procedure states what your submission must contain, how it should be organized, and where it should be mailed.

Compliance fees

The compliance fee for a VCP application is typically based on the number of participants in the plan, ranging from $750 for plans with 20 or fewer participants to $25,000 for plans with over 10,000 participants. The VCP compliance fee is designed to be lower than the cost of plan disqualification or audit closing agreement sanctions. Some submissions are eligible for discounts, depending on the type of failures involved and how many participants were affected. SEP plans and SIMPLE IRA plans have a flat $250 compliance fee.

Help! Do I have to write all this out myself? 

Some sponsors hire an attorney or accountant to prepare their submissions. However, that is not always necessary.

Model submission documents - We have created model documents that prompt you for all the necessary information, including the descriptions of the failures, corrections, and changes in administrative procedures. We recommend that you use the model documents, which include the following:

  • Appendix C - Part I (Model VCP Submission Compliance Statement) – this can be used to report any failure.

  • Appendix C - Part II Schedules – these can be used to report some very specific common failures.

  • Appendix D - Acknowledgement Letter - if you include this with your submission, we will mail the letter to the address you indicate to inform you that your submission has been received and the VCP case number assigned to it.

Certain tax relief and VCP

Some plan failures (and some appropriate corrections) will cause a participant or the plan sponsor to be liable for an excise tax or additional income tax. In your VCP submission, you can ask that we not pursue certain excise taxes or certain additional income taxes that a plan sponsor or participant would be liable for because of either a failure or a correction.


To obtain our approval, the plan sponsor generally must fully correct the failure. Usually this means that the plan and the participants must be placed in the same position they would have been in if the failure had not occurred.

Example: The plan sponsor did not make a contribution required by the plan document. Full correction would be to make the required contribution plus an additional amount to reflect the lost earnings during the period from the date the contribution should have been made through the date the corrective contribution is made.

Correction principles and methods

The EPCRS revenue procedure provides general guidance on how failures should be corrected and includes the details on some correction methods that are acceptable.

  • For general correction principles, see Section 6 of Revenue Procedure 2013-12.

  • Correction methods that we have already approved for many common failures are described in Appendices A and B of Revenue Procedure 2013-12 (exclusion of participants, missed contributions, failed ADP/ACP tests, etc.).

Proposing your own correction method

If the EPCRS Revenue Procedure does not describe an approved correction method for your failure or you prefer to use a different correction method that is reasonable and appropriate, you may propose your preferred correction method for our consideration. Some sponsors in this situation choose to file a submission anonymously through their representative. We will not ask the identity of an anonymous submitter until a correction method has been agreed upon by us and the plan sponsor.

Keep records

Your compliance statement is our agreement not to disqualify your retirement plan because of the failures you have reported and corrected. Your compliance statement does not protect your plan from the effects of other failures that may be discovered by the IRS during an audit or the review of a determination letter application. Your compliance statement also does not affect the rights of participants or beneficiaries under the plan.

Keep the compliance statement and documentation proving that the corrections were completed before the deadline with your other plan-related records. You may need to produce a copy if your plan is audited. Your financial institution and potential investors in your business may also want to see it. 

What cannot be fixed under VCP?

VCP, SCP and Audit CAP can be used to correct failures that could result in a plan losing its tax-favored status. Other problems with retirement plans may be eligible for correction under different programs:

Additional resources


Page Last Reviewed or Updated: 26-Mar-2015