Retirement Plans FAQs regarding the Voluntary Correction Program (VCP)
For more information on the Voluntary Correction Program, see Correcting Plan Errors.
These frequently asked questions and answers provide general information and shouldn't be cited as legal authority. Because these answers do not apply to every situation, yours may require additional research.
Is there an application form that plan sponsors must use to apply under the VCP?
Yes, Form 8950, Application for Voluntary Correction Program, must accompany all submissions along with Form 8951, Compliance Fee for Application for Voluntary Correction Program. In addition, the IRS provides Sample Submission Formats in Appendix C of Revenue Procedure 2013-12, which facilitate the submission process. Form 8950 also includes a Checklist designed to assist the Plan Sponsor and their representatives in preparing a submission that contains the information and documents required under each of those programs.
What is the mailing address for applications submitted under the VCP?
All VCP submissions and accompanying determination letter applications (if applicable) should be mailed to the appropriate address, based on the method of delivery:
First class mail:
Express mail or private delivery service:
Can a plan sponsor receive acknowledgement from the IRS after it files a VCP submission?
The IRS will acknowledge receipt of a submission if the plan sponsor or the plan sponsor’s representative completes the Acknowledgement Form as found in Appendix D of Revenue Procedure 2013-12, and includes it in the submission. A photocopy of the Acknowledgement Form in Appendix D may be used.
Some employers have very little involvement in their employees' 403(b) plans. Who should file a VCP application in these cases?
The employer is the only one who can submit an application to correct failures under the VCP. Although insurers and custodians may have some liability to the employer, they have no liability under the VCP. The employer is responsible for identifying the failures, correcting the failures, and insuring that necessary changes are made to administrative procedures for operating the 403(b) plan. When necessary for correction, the employer must secure the cooperation of the providers prior to submitting an application under the VCP.
For a VCP submission, what information must the plan sponsor supply with respect to correction of the failures?
The letter from the plan sponsor or the plan sponsor's representative must contain a detailed description of the method for correcting the failures that the plan sponsor has implemented or proposes to implement.
Is a plan eligible for VCP if the plan or plan sponsor is or has been a party to an Abusive Tax Avoidance Transaction?
If the IRS determines that a plan or plan sponsor was, or may have been, a party to an abusive tax avoidance transaction, then the matter will be referred to the Internal Revenue Service’s Employee Plans’ Tax Shelter Coordinator. Upon receiving a response from the Tax Shelter Coordinator, the IRS may determine that the plan or the plan sponsor has been a party to an abusive tax avoidance transaction, and that the failures addressed in the VCP submission are related to that transaction. In those situations, the IRS will conclude the review of the submission without issuing a compliance statement and will refer the case for examination. However, if the Tax Shelter Coordinator determines that the plan failures are unrelated to the abusive tax avoidance transaction or that no abusive tax transaction occurred, the IRS will continue to address the failures identified in the VCP submission, and may issue a compliance statement with respect to those failures.
If a plan with a Plan Document Failure is submitted under the VCP, is the plan sponsor required to concurrently submit an application for a determination letter?
A determination letter submission is required if you are correcting for a “non-amender failure,” other than through the adoption of: (1) an amendment designated by the IRS as a model amendment (2) a prototype or volume submitter plan for which the plan sponsor has reliance on the plan’s opinion or advisory letter or (3) a corrective amendment for failure to adopt timely good faith, interim, or optional law change amendments prior to the plan’s first on-cycle year following the date by which any such amendment should have been adopted under Section 5.05 of Rev. Proc. 2007-44 and the plan is off-cycle. If the plan is on-cycle, a determination letter application is required if the failure is a failure to adopt timely good faith, interim, or optional law change amendments. However, the plan sponsor has the option to not include the application with their VCP submission and can choose to file the determination letter application with the Cincinnati Submission Processing Center by the end of the applicable cycle. A non-amender failure refers to the failure to amend the plan to reflect a change in a qualification requirement within the plan’s applicable remedial amendment period.
In other situations (i.e., failures that are not non-amender failures), a determination letter submission will not be issued unless a Qualification Failure is being corrected by the adoption of a retroactive amendment during a year that coincides with the plan’s cycle year or the year of the plan’s termination, and the plan sponsor submits a determination letter request with its VCP filing.
Is there an avenue for plan sponsors to negotiate correction under the VCP on an anonymous basis?
Yes.Revenue Procedure 2013-12, Section 10.10 sets forth the provisions of the Anonymous Submission procedure. The Anonymous Submission procedure permits plan sponsors to submit Qualified Plans, 403(b) Plans, SEPs, and SIMPLE IRA Plans under VCP without initially identifying the applicable plan(s) or applicant. The submission requirements relating to VCP apply to anonymous submissions on the same terms they apply to submissions in which the plan and plan sponsor are identified. However, information identifying the plan or the plan sponsor may be excluded from the submission until the IRS and the plan representative reach agreement with respect to all aspects of the submission.
Until the plan(s) and plan sponsor are identified to the IRS, an anonymous submission does not preclude an examination of the plan sponsor or its plan(s). Thus, a plan submitted under the Anonymous Submission procedure that comes Under Examination prior to the date the plan(s) and plan sponsor(s) identifying materials are received by the IRS will no longer be eligible under VCP.
Should a plan sponsor that discovers a Plan Document Failure in a plan that has been submitted for a determination letter raise the issue to the Employee Plans Agent or Specialist working the determination letter application?
If the plan sponsor knows about the failure prior to submitting a determination letter application, the plan sponsor should submit under the VCP and include the determination letter application with the VCP submission. If the failure is identified and voluntarily raised by the taxpayer to the Employee Plans Agent or Specialist assigned to the determination letter application, the taxpayer will be given an opportunity to perfect a VCP submission and have the issue resolved under the VCP.
However, if the failure is discovered by the agent assigned the determination letter application or is discovered as the result of a question or inquiry from the IRS agent as part of the determination letter application process, the fee will be determined under the special fee schedule for Audit CAP. (See “Fees for Nonamenders Failures found by IRS during Determination Letter Process.”)
What happens if the IRS and plan sponsor fail to reach resolution regarding the appropriate correction of a failure?
Under the VCP, if resolution cannot be reached (for example, where information is not timely provided to the IRS or because agreement cannot be reached on correction or a change in administrative procedures), the compliance fee will not be returned, and the case may be referred to the appropriate EP office for examination consideration.
May a plan sponsor receive an extension of the 150-day correction period under the VCP?
In appropriate circumstances, a plan sponsor will be granted an extension of the 150-day correction period under VCP. The plan sponsor should submit a written request explaining the reason for the request to the agent working the case. The request must be made prior to the expiration of the 150-day correction period.
Can trust assets be used for the payment of the fee or sanction under the VCP?
As a rule, fees or sanctions should be paid by parties other than the trust. Exceptions are allowed only in extremely narrow circumstances.
Has the IRS established a program to verify that plan sponsors are correcting failures in accordance with Compliance Statements that have been issued under the VCP?
Yes, the IRS has established a verification program. The program is not an examination of the plan sponsor's books and records. The IRS checks available information from the plan sponsor to insure that all corrections were made in accordance with the terms of the compliance statement. If necessary corrections or administrative changes were not timely made, the plan may be referred to EP Examinations.
Are matters relating to excise taxes resolved under the EPCRS?
The correction programs are not available for events for which the Code provides tax consequences other than plan disqualification (such as the imposition of an excise tax or additional income tax). For example, funding deficiencies (failures to make the required contributions to a plan subject to Section 412), prohibited transactions, and failures to file the Form 5500 cannot be corrected under the correction programs.
However, it should be noted that excise taxes and additional taxes, to the extent applicable, are not waived merely because the underlying failure has been corrected or because the taxes result from the correction. There are some exceptions to this general rule.
Under Audit CAP, excise taxes that are reportable on the Form 5330 (e.g., prohibited transactions) may be resolved by the agent securing a Form 5330 providing for 100% of the tax and interest outstanding. The agent may, in his or her discretion, recommend to the Service Center waiver of the failure to file and/or failure to pay penalty, under IRC Section 6651.
If a plan sponsor discovers a vesting problem in which the plan terms were not followed, should the plan sponsor use the Self-Correction Program (SCP) or the VCP to correct the problem?
The decision of whether to use the SCP or VCP to correct an Operational Failure depends on a number of factors, including: (1) the type of failure involved, (2) the practices and procedures under the plan, (3) whether, if the failure is an Operational Failure, it would be considered to be a Significant Operational Failure, (4) whether a Favorable Letter has been issued with respect to the plan, (5) whether the failure is an Egregious Failure, (6) when the failure is discovered, and (7) the amount of comfort the plan sponsor has with respect to the method used to correct the failure.
Although the SCP does not require the payment of a fee or notification to the IRS, it is limited to correcting Operational Failures that are not egregious. In addition, if the failure is a Significant Operational Failure, the plan sponsor must complete correction of the failure within two years of the year in which the failure occurred. Although a plan sponsor does not necessarily get assurance that the correction method employed under the SCP is acceptable to the IRS, the IRS has provided several examples of failures and acceptable correction methods under Appendix A and Appendix B in Revenue Procedure 2013-12. If a plan sponsor corrects a failure listed in Appendix A or Appendix B in accordance with the correction method set forth in the appendix, the plan sponsor may be assured that the IRS will find that correction method to be acceptable.
In this example, an Operational Failure, a vesting failure, has occurred. Appendix B, section 2.03 provides examples of acceptable correction methods for a vesting failure. Therefore, if there are acceptable practices and procedures under the plan (See SCP Q&A2, "What practices and procedures are required to be in place in order for a plan to be eligible for correction under the Self-Correction Program?"), and the failure is an Insignificant Operational Failure, the plan sponsor may use the SCP to correct the failure at any time, even if the plan is Under Examination. Further, if the plan sponsor uses one of the correction methods under Appendix B of the revenue procedure, it will have assurance that the plan would be entitled to relief under the SCP with respect to its correction method. If, however, the failure is a Significant Operational Failure, the plan would be entitled to relief under the SCP only if the failure is identified and corrected within the two-year correction period under the SCP. Also, if the failure is a Significant Operational Failure, the plan would be eligible for relief under the SCP only if a Favorable Letter has been issued with respect to the plan. If the failure would be considered an Egregious Failure, it would be eligible for correction under the Voluntary Correction Program but not under the SCP.