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Employee Plans Voluntary Closing Agreements

Retirement plan sponsors can submit voluntary closing agreement requests to the IRS Employee Plans Voluntary Compliance function.

In the past, EP’s Examinations, Determinations and Voluntary Compliance agents, tax law specialists, and managers have received requests from plan sponsors or their representatives seeking closing agreements to resolve retirement plan issues that couldn’t be addressed under the Employee Plans Compliance Resolution System (currently in Revenue Procedure 2013-12).

We have established a uniform system for handling these requests in EP Voluntary Compliance.

When is an EP voluntary closing agreement request appropriate?

Plan sponsors may request a closing agreement to resolve certain income or excise tax issues involving tax-deferred retirement plans established under Internal Revenue Code Sections 401(a), 
403(a), 403(b), 408(k) or 408(p) that can’t be corrected through EPCRS. The IRS will decide when entering into a closing agreement with a plan sponsor is appropriate.

When is an EP voluntary closing agreement request not appropriate?

Employee Plans will not consider a request for a voluntary closing agreement in the following situations:

1.  Under examination or investigation - The plan, plan sponsor or entity responsible for signing the closing agreement:

  • is under any IRS examination or investigation at the time the request is submitted, or
  • has any matters in Appeals or before the Tax Court.

    If, after the entity submits their request, the IRS later examines them, the entity must inform EP Voluntary Compliance. Depending on the situation, this may prevent them from processing the request for a closing agreement.

2.  Issues that can be resolved under the Voluntary Correction Program (VCP) - If the issue is eligible for resolution under VCP, then it should be resolved using Revenue Procedure 2013-12. This voluntary closing agreement process is not intended to be an alternative to VCP. If a submission has issues that are eligible under VCP and issues that are not eligible under VCP, we may conclude that a closing agreement is necessary. However, the IRS will consider the provisions of Revenue Procedure 2013-12 to determine the appropriate resolution for the issues that were eligible under VCP.

3.  457(b) plans - Plan failures related to IRC Section 457(b) should be resolved in accordance with Revenue Procedure 2013-12, Section 4.09 by completing Form 8950, Application for Voluntary Correction Program (VCP). Mail Form 8950 with a cover letter that describes the problem and proposed solution to the IRS address listed in the instructions.

4.  457(f) plans - IRC Section 457(f) plans aren’t eligible for voluntary closing agreements.

5.  Abusive tax avoidance transactions - 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, the IRS may determine that it is inappropriate to enter into a closing agreement.

6.  Willful tax avoidance - A voluntary closing agreement is generally not appropriate when there has been a willful or intentional plan to avoid or evade paying or reporting taxes.

Guidelines for submitting EP voluntary closing agreement requests

1.  In most cases, the IRS won’t bargain or negotiate over any income or excise tax amounts, including interest, but may discuss penalty abatement.

2.  For plans subject to Title 1 of ERISA, a plan sponsor should correct a prohibited transaction using the Department of Labor’s Voluntary Fiduciary Correction Program before making a request for a closing agreement.

3.  All actions identified in the closing agreement must be completed by the date the taxpayer signs the closing agreement.

4.  A closing agreement request does not preclude any IRS examination of the plan or plan sponsor. If the plan or plan sponsor is examined after submitting a voluntary closing agreement request, EP Voluntary Compliance will consult with the examination function to see if the issue under consideration should be precluded from the examination while EP Voluntary Compliance considers the closing agreement request. For anonymous closing agreement requests, if the plan or plan sponsor is under examination after they have submitted their request, but before they have disclosed their identity to the IRS, then EP Voluntary Compliance cannot consider their request. Instead, the issues in the closing agreement request will have to be resolved as part of the IRS examination.

5.  A voluntary closing agreement is not appropriate to address a future event that may impact the tax-favored status of a retirement plan or to seek guidance on issues or actions that may impact retirement plans.

6.  If the IRS determines that there was a willful or intentional plan to avoid or evade paying or reporting taxes, EP reserves the right to convert the voluntary closing agreement submission into an examination referral.

What should a plan sponsor show in an EP closing agreement request?

To increase the likelihood that the IRS will enter into a voluntary closing agreement, a taxpayer should be prepared to show:

  • the taxpayer 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 taxpayer,
  • the federal government will suffer no disadvantage from entering into the closing agreement, and
  • any Internal Revenue Code violation or tax deficiency was unintentional.

How to request

1.  Authorized individuals

The individual submitting the request must be:

  • an authorized employee of the plan or plan sponsor, or
  • a legally authorized representative of the affected taxpayer who is eligible to sign Form 2848, Power of Attorney and Declaration of Representative.

2.  Written request for agreement

Submit a detailed letter that includes:

  • an explanation of the problem, including how and why it occurred, number of people affected, and amount of contributions, distributions, etc.
  • an explanation of how you will correct the identified problem or issue
  • an explanation of how you calculated the tax, interest or penalties
  • calculations of any tax or correction method included in your request
  • proposed sanction amounts and an explanation justifying the amount

3.  Anonymous requests

A voluntary closing agreement may be initiated anonymously (sometimes referred to as “John Doe” submissions) through a power of attorney or authorized employee of the taxpayer. However, gaining approval for voluntary closing agreements will depend on the individual facts and circumstances, and the representative or power of attorney will eventually need to reveal the taxpayer’s identity and the facts surrounding the agreement for proper consideration.

If your request is anonymous, include:

  • a unique identifying number that the representative or taxpayer has assigned to the specific closing agreement request and not used for any other closing agreement request from the representative.
  • a signed statement stating the following:

    Under penalties of perjury, I declare that I am an authorized representative of the taxpayer who would be party to any closing agreement. I comply with the power of attorney requirements described in 26 C.F.R. § 601.501-601.509 (2005). I will submit an executed Form 2848 upon the disclosure of the identity of the taxpayer to the IRS. I also declare that the issues and information included with this request are true, correct, and complete to the best of my knowledge and belief.

4.  Don’t send a fee with your submission - an appropriate fee or sanction will be determined later.

5.  Mail your request to:

Internal Revenue Service
TE/GE:EP:VC Group 7554: Gina Jacquez
Request for Voluntary Closing Agreement
9350 Flair Drive, 3rd Floor
El Monte, CA  91731

Call Paul Hogan at 206-220-6085 or Thelma Diaz at 626-927-1415 with questions about submitting a voluntary closing agreement request.

Additional resources

  • IRC Section 7121
  • Treasury Regulation Section 301.7121-1
  • Internal Revenue Manual 1.2.47.4
  • Revenue Procedure 68-16, 1968-1 C.B. 770
Page Last Reviewed or Updated: 08-Jan-2014