7.11.8 EP Determinations Closing Agreement Program

Manual Transmittal

December 01, 2021

Purpose

(1) This transmits revised IRM 7.11.8, Employee Plans Determination Letter Program, EP Determinations Closing Agreement Program.

Material Changes

(1) Updated IRM throughout for editorial changes and revenue procedures.
 

Effect on Other Documents

This supersedes IRM 7.11.8, dated September 30, 2019.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(12-01-2021)

Eric D. Slack
Director, Employee Plans
Tax Exempt and Government Entities

Program, Scope and Objectives

  1. Purpose: This IRM discusses procedures for Employee Plans (EP) specialists who prepare closing agreements when they discover qualification failures during a determination letter (DL) application review.

  2. Audience: Employee Plans (EP) Determinations and Quality Assurance (QA) staff.

  3. Policy Owner: Director, Employee Plans.

  4. Program Owner: Employee Plans.

  5. Program Goals: The goal of EP Determinations is to ensure that plans comply with the tax laws by reviewing applications for determination letters, opinion letters, and advisory letters, and to protect the public interest by applying the tax law with integrity and fairness to all. To protect plan participants and retirement savings, one goal of the closing agreement program is to avoid plan disqualification.

Background

  1. A plan is qualified if it meets the requirements of IRC 401(a) in form and operation. A qualified plan is entitled to favorable tax treatment.

  2. To help taxpayers understand the applicable tax laws and ensure that their plans comply, EP issues certain letter rulings, determination letters, opinion letters, advisory letters and approval letters.

  3. EP may enter into a closing agreement with a plan sponsor to resolve compliance failures that become apparent during a determination letter (DL) application review

  4. See these IRMs for other closing agreement procedures:

    1. Procedures relating to closing agreements originating in the office of EP Technical. See IRM 7.2.1, TE/GE Closing Agreements, Closing Agreements Originating in EP Technical.

    2. IRM 7.2.2, TE/GE Closing Agreements, Employee Plans Compliance Resolution System (EPCRS) - Procedures for closing agreements entered into under the Employee Plans Compliance Resolution System (EPCRS).

    3. IRM 7.2.4, TE/GE Closing Agreements, Employee Plans Voluntary Closing Agreement Requests - Procedures EP Voluntary Compliance follows to process requests for closing agreements under EP Voluntary Closing Agreement Procedures.

Authority

  1. The IRS Commissioner may enter into and approve a written closing agreement with any person relating to the liability of such person with respect to any internal revenue tax for any taxable period ending before or after the date of such an agreement (IRC 7121 and regulations).

  2. Treasury Regulation section, 26 CFR 301.7121-1(a) allows the IRS to enter into a closing agreement in any case in which there appears to be an advantage permanently and conclusively closing the case, or if the taxpayer shows good and sufficient reasons for a closing agreement, and the Commissioner determines that the United States will not sustain any disadvantage by entering an agreement (26 CFR 301.7121-1(a)).

  3. The Commissioner delegates to the Commissioner, Tax Exempt and Government Entities Division (TE/GE) in cases under his or her jurisdiction to enter into and approve a written agreement with any person relating to the internal revenue tax liability of such person, or the person or estates for whom he or she acts (Delegation Order 8-3, IRM 1.2.2.9.3).

  4. This authority to enter into a closing agreement is further delegated to the Director, Employee Plans and the Director, EP Rulings and Agreements (EP R&A). The authority delegated does not, however, include the authority to set aside any closing agreement, which is retained by the Commissioner (see IRM 7.2.1.9, Modification of Closing Agreements, below).

  5. A complete list of delegation orders governing Employee Plans Rulings and Agreements can be found on IRS.gov at https://www.irs.gov/privacy-disclosure/delegation-orders-and-policy-statements-by-process.

Acronyms

  1. This table lists commonly used terms and provides their definitions.

    Term Definition
    EP Employee Plans
    EPCRS Employee Plans Compliance Resolution System
    EP R&A Employee Plans Rulings and Agreements.
    EP QA Employee Plans Quality Assurance
    DL Determination Letter
    PII Personally Identifiable Information
    POA Power of Attorney
    TEDS Tax Exempt Determinations System
    TE/GE Tax Exempt and Government Entities
    PDFW Plan Document Failure Worksheet
    VCP Voluntary Correction Program

Specialist’s Responsibilities for Processing a Closing Agreement

  1. A closing agreement constitutes an agreement between the IRS and the plan sponsor that:

    1. Is binding for the tax matters identified in the agreement for the periods specified.

    2. Allows plans to continue to maintain their tax favored status.

  2. Your responsibilities for processing a case using a closing agreement:

    1. Prepare a plan document failure worksheet to be included in the case file.

    2. Submit documents to your front line manager for approval.

    3. Prepare case for the closing agreement process.

    4. Determine the correction and sanction amount.

    5. Prepare the draft closing agreement.

    6. Prepare the case for closing.

Preparing the Case for the Closing Agreement Process

  1. To determine if a case meets the requirements for a closing agreement:

    1. Completely resolve any other issues not related to the closing agreement before you begin the closing agreement.

    2. Ensure the issue involves a Qualification Failure, as described in Rev. Proc. 2021-30, Section 5.

    3. Fully research and develop all issues for the proposed closing agreement and document the case file.

    4. Get approval from your manager to start the closing agreement process.

    5. Complete the Plan Document Failure Worksheet (PDFW). See Exhibit 7.11.8-1, Plan Document Failure Worksheet for an example of the worksheet. A blank version can be found on the shared server in the "Closing Agree" folder.

      Note:

      If the plan already received a Compliance Statement from the Voluntary Compliance Program (VCP) and you find an additional defect, consult your manager.

      Reminder:

      Don’t list any personally identifiable information (PII) such as the plan sponsor or plan name in the email subject line.

  2. If the issue is an Operational Failure, as described in Rev. Proc. 2021-30, Section 5, that involves a year for which the statute of limitations is open, refer the issue to EP Examinations using the procedures in IRM 7.11.10, EP Examination and Fraud Referral Procedures.

  3. If the failure is an operational failure which resulted in the Employer adopting a retroactive amendment to reflect plan operation, the FLM and Area Manager will need to approve the PDFW.

  4. After you've received your manager's approval, inform the plan sponsor of your findings and the potential need for a closing agreement.

    1. Call the plan sponsor or Power of Attorney (POA) to describe the closing agreement program process or send them a Closing Agreement Offer Letter. An example of the letter can be found in Exhibit 7.11.8-2, Closing Agreement Offer Letter. A blank version is on the shared server in the "Closing Agree" folder.

    2. Explain to the plan sponsor or POA that before we can continue with the closing agreement process, the plan sponsor must agree, verbally or in writing, to enter into the EP Determinations Closing Agreement Program. If the plan sponsor verbally agrees to enter into a closing agreement, make note of the plan sponsor's agreement in the case file.

Determining Correction and Sanction Amount

  1. To correct the failure:

    1. For nonamender cases, secure a corrective amendment (if the plan sponsor hasn’t already amended the plan).

    2. For all other cases, consult with your manager for the appropriate correction. Refer to Rev. Proc. 2021-30, Appendices A and B, for some common correction methods.

  2. The IRS imposes a sanction for qualification failures. The nonamender sanction amounts are determined using a percentage of the VC User fees as noted in Rev. Proc. 2021-30, Section 14.04 and Rev. Proc. 2021-4, Appendix A. 09, updated annually.

  3. Nonamender sanction amounts aren’t generally negotiable. However, we'll consider reducing the sanction if the:

    1. Plan sponsor can prove undue financial hardship.

    2. Plan amendment was timely adopted but doesn’t satisfy the qualification requirements of the Code.

      Note:

      Gather the facts and present them to the manager to evaluate a sanction reduction.

      Note:

      In most cases, the sanction won’t be reduced to less than the VCP user fee applicable to the plan.

  4. For failures other than nonamender failures, the sanction is a negotiated amount and determined based on facts and circumstances. See Rev. Proc. 2021-30, Section 14.01. Generally, the amount will not be less than the VCP user fee that applies to the plan.

  5. Discuss the information and determine a sanction range with your manager which you must negotiate with the plan sponsor.

Preparing the Closing Agreement

  1. Once you've reached an agreement on the sanction amount, prepare the closing agreement. State the issue clearly so it leads to only one interpretation.

    Note:

    Sample closing agreements are on the shared server in the "Closing Agree" folder as a starting point. Make a reasonable, good-faith effort to fully prepare these documents and customize them to your case.

  2. When you complete the closing agreement, secure email the following documents to your group manager:

    1. Plan Document Failure Worksheet (PDFW)

    2. The closing agreement.

    3. The operational compliance statement for any nonamender failure. (Find an example in Exhibit 7.11.8-3, Example - Operational Compliance Statement and a blank version on the shared server in the "Closing Agree" folder.)

      Reminder:

      Don't include PII in the email subject line.

  3. The manager reviews these documents and forwards them to the Area Manager who will either approve them or returns them with suggested changes.

  4. After the manager approves the closing agreement, send the closing agreement to the plan sponsor or POA with a Final Closing Agreement Cover Letter and Letter 937-A to POA. Get the manager’s approval if you change any part of the closing agreement or operational compliance statement.

  5. Mail the following documents to the taxpayer:

    1. Closing Agreement Cover Letter.

    2. The Instructions for Execution of Closing Agreement from shared server.

    3. Two copies of the final closing agreement (one for taxpayer records).

    4. Two copies of operational compliance statement (one for taxpayer records), if applicable.

    5. Form 3244-A (use the version on the shared server in the “Closing Agree” folder because it has directions and explains the required items that the taxpayer will need to complete when they submit their payment through Pay.gov).

    Note:

    Use the cover letter on the shared server and include your contact information. The specialist must explain to the taxpayer/POA that they must return the signed closing agreements, sanction (via payment through Pay.gov), and operational compliance statement(s) to the Specialist.

    Note:

    Find an example of the letter in Exhibit 7.11.8-4, Final Closing Agreement Cover Letter and a blank version on the shared server in the "Closing Agree" folder.

  6. If the plan sponsor/POA doesn't respond to the Final Closing Agreement Cover Letter within two weeks, send a 10-day Letter with your manager's approval.

    Note:

    An example of the 10-Day Letter is in Exhibit 7.11.8-5, Closing Agreement 10-Day Letter. A blank version is on the shared server in the "Closing Agree" folder.

  7. Explain to the plan sponsor or POA that they must return the following documents to your address:

    1. The signed and dated closing agreements.

    2. Confirmation of payment through Pay.gov.

    3. Signed and dated copies of operational compliance statements.

    Exception:

    The plan sponsor may fax the signed closing agreements if they (or POA, if the Form 2848 authorizes the POA to sign the agreement) request to do so by phone. Document the chronology record with the contact date and note that the plan sponsor or POA wishes to send the closing agreement by fax.

  8. After discussing the case with the plan sponsor and sending the Final Closing Agreement Cover Letter packet, email the Pay.gov representative the taxpayer’s name, the taxpayer’s EIN and plan number, the sanction amount.

  9. Once payment, is submitted through Pay.gov, the Pay.gov contact will pull the Form 3244-A and supporting documents and email them to the specialist.

  10. If you received the signed closing agreements from the taxpayer and not the documents needed from pay.gov to send the packet to Kansas City, send an email to the pay.gov contact.

  11. Prepare Letter 1595-F (will soon be replaced by 1595-D) for the plan sponsor and a Letter 937-A to all POAs authorized to receive correspondence. Secure email the: Letter 1595-F (will soon be replaced by Letter 1595-D), employer signed closing agreement and compliance statement to your manager. Don't include PII in the subject line.

Final Processing Steps for a Closing Agreement

  1. Area Manager, EP Determinations: When the Area Manager receives a complete and accurate closing agreement package, sign the closing agreement, and the 1595-F (will soon be replaced with 1595-D) letter.

    1. Email a copy of the signed closing agreement to the specialist and staff assistant.

  2. Specialist Duties: Upon receipt of a copy of approved closing agreement from Area Manager, the Specialist will:

    1. Mail a copy of closing agreement to the plan sponsor for their records with Letter 1595-F (will soon be replaced with 1595-D).

    2. Mail a copy of closing agreement to the POA with Letter 1595-F (will soon be replaced with 1595-D) and 937-A, if applicable.

    3. Mail/fax/email the following documents to the Deposit Unit at the Kansas City Campus:

      • Form 3210 original and a copy to be acknowledged and returned.

      • Cover Memo.

        Note:

        Find an example of the Cover Memo in Exhibit 7.11.8-6, Cover Memo and a blank version on the shared server in the "Closing Agree" folder.

      • Signed copy of the closing agreement

      • The deposit ticket from Pay.gov

      • Form 3244-A

      • Form 5734

      • Supporting documents provided by Pay.gov specialist (ACH or Credit Card Transaction Detail)

    4. Keep a copy of the packet in nondisclosable folder within TEDS per IRM 7.11.8.2.4(2)(e) and add the signed acknowledged Form 3210 to verify the Campus received it.

    5. Make sure the copy of the Closing Agreement packet, Letters 1595-F (will soon be replaced with 1595-D), 937-A are in TEDS is in the nondisclosable folder before you close the case.

    6. Close the case under the normal closing procedures.

Miscellaneous Issues

  1. Contact your manager if any of these situations occur because they could affect your issuing a closing agreement:

    1. Withdrawal of a DL application.

    2. Request for relief under the Voluntary Correction Program (VCP). See IRM 7.11.1.18.1, Protecting VCP Eligibility.

    3. Discovery of additional plan failures.

  2. If the plan sponsor elects to withdraw its application instead of entering into a closing agreement, or the case is being closed incomplete after they were notified of the potential non-amender failures, notify Quality Assurance via secure email and follow the withdrawal procedures in IRM 7.11.1.16, Withdrawal of Applications.

Plan Document Failure Worksheet

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Closing Agreement Offer Letter

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Example - Operational Compliance Statement

“The [Profit Sharing/Defined Benefit/Money Purchase/Cash Balance] Plan of [Employer Z] was operated in compliance with the requirements of the final and temporary regulations under section 401(a)(9) of the Code relating to minimum required distributions for the period January 1, ---------, 2003 (or first day of 2003 plan year if operating on fiscal year) -(enter date of adoption of 401(a)(9) amendment).]
___________________________________________
Employer Date

Final Closing Agreement Cover Letter

Internal Revenue Service Department of the Treasury
   
Date: Person to Contact / ID number:
Response Due: Contact Telephone Number:
  Plan Name and Number:
(Insert Address) Refer Reply to:
   
Dear Sir or Madam:
Enclosed, is two copies of the closing agreement and, if applicable, an operational compliance statement, containing the terms and requirements previously discussed. Each party to the agreement should sign and date each copy of the closing agreements. The signature must be that of the named employer unless a Form 2848 has been submitted specifically conferring signatory authority for closing agreements. All corrective actions must be made prior to the execution of the closing agreement.
Please submit the following items to the above mailing address:
  1. Sanction payment made through Pay.gov, please see the enclosed Form 3244-A; and,

  2. The signed and dated closing agreement, and,

  3. The signed operational compliance statement, if applicable.

Failure to submit all items to the above address will result in significant delays in processing your closing agreement.
If you have any questions, please contact the Employee Plans Specialist at the above listed telephone number.
  Sincerely yours,
   
  Employee Plans Specialist
Enclosure:
Closing Agreements
3244-A
cc:

Closing Agreement 10-day Letter

Internal Revenue Service Department of the Treasury
   
Date: Person to Contact / ID number:
  Contact Telephone Number:
(Insert Address) Plan Name and Number:
  Refer Reply to:
   
   
Dear Sir or Madam:
During our review of a determination letter application filed for the above plan, we noted that your plan was not timely amended to comply with the provisions listed on the attachment.
Since appropriate amendments were not adopted within the applicable remedial amendment period, your plan is no longer in compliance with the qualification requirements of section 401(a) of the Code. In order to avert disqualification of your plan, we offered to enter into a closing agreement under section 7121 of the Code to resolve the failure to timely amend your plan for the items listed on the attachment. On MM-DD-YYYY, we sent you triplicate copies of a closing agreement document and, if applicable, an operational compliance statement. You have not returned the executed triplicate copies of the closing agreement document, the required sanction and, if applicable, the executed operational compliance statement.
Please send the requested material within 10 days from the date of this letter so we may complete the closing agreement process. If we do not hear from you within that time, we may process your application based on the information you have already supplied us. This could result in a determination that your plan is not qualified for favorable tax treatment.
If you have any questions, please contact the person whose name and telephone number are shown above.
  Sincerely yours,
   
  Employee Plans Specialist
Enclosure: Attachment
cc:

Cover Memo

  DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
   
DATE:  
MEMORANDUM FOR: Kansas City Submission Processing Center
333 W. Pershing Rd.
Attn: XXXX XXXXX, Manual Deposit
Stop 7777
Kansas City, MO 64108
   
FROM:

TE/GE Division, Employee Plans
Your Name
XXXX Street Room XXXX
City, XX XXXXX-XXXX
   
SUBJECT: EP Closing Agreement under Audit Closing Agreement Program

Attached is a closing agreement as noted:

Payer’s Name:
Payer’s EIN:
Payer’s Address:

XXXXXXXXXXXXXXXXXXX Plan #xxx.

The closing agreement should be routed to the accounting branch for assessment and credit. The assessment should be made as a Non-Master File assessment, true tax class 6, abstract number 139. (Please refer to IRM 3.17.46.5.5 for processing instructions.)

There are to be no refunds of monies under this closing agreement.

If you have any questions, please contact me at (xxx) xxx-xxxx.

Thank You.

Attachment:

Instructions for Execution of Closing Agreement

  1. Instructions for Execution of Closing Agreement

    1. A copy of the Closing Agreement must be signed. We have provided two copies, one for your records and one to return signed.

    2. The name of the taxpayer must be stated accurately.

    3. The Closing Agreement may relate to one or more years, but it may only pertain to one plan. Therefore, if the Employer desires a Closing Agreement for more than one plan, separate Closing Agreements will be required and prepared.

    4. If an attorney or agent signs a Closing Agreement for the taxpayer, the power of attorney (or a copy) authorizing that person to sign must be attached to the Closing Agreement. If a Closing Agreement is made for a year when a joint income tax return was filed by a husband and wife, it should be signed by or for both spouses. One spouse may sign as an agent for the other if the document (or a copy) specifically authorizing that spouse to sign is attached to the closing agreement.

    5. If a fiduciary signs a Closing Agreement for a descendent or an estate, an attested copy of the letters testamentary or the court order authorizing the fiduciary to sign as well as a certificate of recent date that the authority remains in full force and effect must be attached to the Closing Agreement. If a trustees signs, a certified copy of the trust instrument or a certified copy of extracts from that instrument must be attached showing:

      1. The date of the instrument.

      2. That it is or is not of record in any court.

      3. The names of the beneficiaries.

      4. The appointment of the trustees, the authority granted, and any other information necessary to show that the authority extends to federal matters; and

      5. That the trust has not been terminated and that the trustee appointed is still acting. If a fiduciary is a party, Form 56, Notice Concerning Fiduciary Relationship, is required.

    6. If the taxpayer is a corporation, the Closing Agreement must be dated and signed with the name of the corporation, the signature and title of an authorized officer or officers, or the signature of an authorized attorney or agent. It is not necessary that a copy of an enabling corporate resolution be attached. Refer to 26 CFR 601.504(b)(2)(ii)for information relating to dissolved corporations.

  2. The Steps to make Sanction Payment at Pay.gov

    1. In the search box search 3244A.

    2. Search should yield "IRS TEGE EP Closing Agreement Payment Posting Voucher" .

    3. Click "Continue to Form" .

    4. Fill out form per instructions and click "Continue" .

      (Taxpayer Information, EIN and Amount should be the same as reflected in the closing agreement. Use the 3 digit plan number in the closing agreement. If there is no plan number, use "999". Tax Period year and month and Transaction Date will correspond to the date submitting the payment.)

    5. Fill out payment screen as per instruction.

    6. On the Review and Submit page, check “I would like to receive an email confirmation of this transaction.” It will ask for one or two email addresses to send confirmation of the payment. Please put the agent working your case as one of the emails to receive confirmation. (note this part is optional but it helps the process if something goes wrong). Your agent working the case email is (agent legal 1st name).(fist letter of middle name).(last name)@irs.gov (for instance (firstname.m.lastname@irs.gov)

    7. Upon completion of the submission process, you will receive a payment tracking number. Please Record the tracking number and provide this number to the agent with your executed closing agreement.

Form 5734

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