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EPCRS Overview

If you make mistakes with respect to your plan, you may use the IRS Employee Plans Compliance Resolution System (EPCRS) to remedy your mistakes and avoid the consequences of plan disqualification (or the consequences of disqualification of the 403(b) annuity contracts or custodial accounts of employees in the case of a 403(b) plan). A correction for a mistake should be reasonable and appropriate. The correction method should resemble one already provided for in the Internal Revenue Code and you should consider all applicable facts and circumstances. Revenue Procedure 2013-12, 2013-04 I.R.B. 313 is the official guidance governing the EPCRS program.

There are three ways to correct mistakes under EPCRS:

  1. Self-Correction Program (SCP) - permits a plan sponsor to correct certain plan failures without contacting the IRS or paying any fee.
  2. Voluntary Correction Program (VCP) - permits a plan sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures.
  3. Audit Closing Agreement Program (Audit CAP) - permits a plan sponsor to pay a sanction and correct a plan failure while the plan is under audit.

A general description of each program under EPCRS is provided below.

Self-Correction Program:

  • To be eligible for SCP, the plan sponsor or administrator must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the law. A plan document alone does not constitute evidence of established procedures.
  • SCP is available for correcting operational problems only – that is, the failure to follow the terms of your plan. SCP is not available for problems with the plan document, such as the failure to keep your plan document current to reflect changes in the law.
  • For 403(b) operational failures that occurred in 2008 and earlier years, you must follow the definition of an operational failure in Revenue Procedure 2008-50 Section 5.02. SCP is not available for other types of problems, such as the failure to adopt a written plan or to keep your written program current to reflect law changes. Nor is SCP available if you determined that your organization is ineligible to maintain a 403(b) plan.
  • 403(b) plan sponsors should follow the general correction principles in Revenue Procedure 2013-12 for 2009 and subsequent years and 2008-50 for 2008 (and earlier) plan years.
  • The plan sponsor should follow the general correction principles in Revenue Procedure 2013-12, section 6.
  • A plan sponsor that corrects a mistake listed in Appendix A or Appendix B of Revenue Procedure 2013-12 according to the correction methods listed may be certain that their correction is reasonable and appropriate for the failure.
  • If needed, the plan sponsor should make changes to its administrative procedures to ensure that the mistakes do not recur.
  • A qualified plan sponsor (not including a SEP or SIMPLE IRA plan sponsor) may correct significant operational failures within two years of the end of the plan year in which the operational failures occurred.
  • The SCP may be used if, considering all of the facts and circumstances, the mistakes, in the aggregate, are insignificant operational failures.
  • When using SCP, the plan sponsor should maintain adequate records to demonstrate correction in the event of an audit of the plan.
  • There is no fee for self-correction.

Voluntary Correction Program:

  • The plan sponsor makes a submission to the IRS that:
    • includes completed Forms 8950 and 8951.
    • identifies the mistakes.
    • proposes correction using the general correction principles in Revenue Procedure 2013-12, section 6.
    • proposes changes to its administrative procedures to ensure that the mistakes do not recur.
    • pays a compliance fee.
    • may include electronic pre-formatted model documents (Appendix C - Part 1 Model VCP Submission Model Compliance Statement and Appendix C - Part II Schedules) and Acknowledgement Letter (Appendix D) (to assist applicants making a VCP submission)
  • The IRS issues a Compliance Statement detailing mistakes identified by the plan sponsor and the correction methods approved by the IRS.
  • The plan sponsor corrects the identified mistakes within 150 days of the issuance of the Compliance Statement.
  • While the IRS is processing the submission, Employee Plans will not audit the plan, except under unusual circumstances.

Audit Closing Agreement Program:

  • The plan sponsor or plan is under audit.
  • The plan sponsor:
    1. enters into a Closing Agreement with the IRS.
    2. makes correction prior to entering into the Closing Agreement.
    3. pays a sanction negotiated with the IRS.
  • The sanction paid under Audit CAP should be greater than the fee paid under VCP.
  • The sanction under Audit CAP is a negotiated percentage of the Maximum Payment Amount (MPA) based on the sum for all open taxable years of:
    • For SEPs, SIMPLE IRA plans and SARSEPs, the:
      1. Additional income tax resulting from income inclusion for employees in the plan (Form 1040), including the tax on plan distributions that have been rolled over to other IRAs (and any interest and penalties applicable to the employees’ tax return).
      2. Additional tax resulting from the 6% tax imposed under Internal Revenue Code section 4973 on excess contributions to IRAs.
    • For 403(b) plans, the:
      1. Additional income tax resulting from income inclusion for participants in the plan (Form 1040), including the tax on plan distributions that have been rolled over to other qualified trusts (and any interest and penalties applicable to the participants’ tax returns).
      2. Any other tax that results from a 403(b) failure that would apply except for correction under Revenue Procedure 2008-50 or 2013-12.
    • For 401(k) and other types of plans with a trust, the:
      1. Tax on the trust (Form 1041) (and any interest and penalties on the trust tax return).
      2. Additional income tax resulting from the loss of employer deductions for plan contributions (and any interest and penalties on the plan sponsor’s tax return).
      3. Additional income tax resulting from income inclusion for participants in the plan (Form 1040), including the tax on plan distributions that have been rolled over to other qualified trusts (and any interest and penalties on the participants’ tax return).

401(k) Plan Fix-It Guide
SEP Fix-It Guide
SIMPLE IRA Plan Fix-It Guide
SARSEP Fix-It Guide
403(b) Plan Fix-It Guide
IRA-Based Plans Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / SEP Fix-It Guide/ EPCRS Overview

Page Last Reviewed or Updated: 04-Nov-2014