Audit Closing Agreement Program (Audit CAP) – General Description


A plan sponsor that does not come forward to the IRS, but whose retirement plan has significant problems that are discovered by the IRS on audit or during the determination letter application process, is entitled under the audit correction program to preserve the tax benefits associated with properly maintained retirement plans.

Generally, under Audit CAP, the plan sponsor or the plan is under examination and the plan sponsor:

  • enters into a Closing Agreement with the IRS, 
  • makes correction prior to entering into the Closing Agreement, and
  • pays a sanction negotiated with the IRS.

Sanction amount

The sanction paid under Audit CAP should be greater than the user fee paid under the Voluntary Correction Program (VCP). However, it will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures.

The sanction is determined based on facts and circumstances, including the following relevant factors:

  • The presence of internal controls designed to ensure that the plan had no failures or that such failures were identified and corrected in a timely manner;
  • Number of affected employees;
  • Impact on non-highly compensated employees;
  • whether it’s a demographic failure or an employer eligibility failure;
  • Length of time failure occurred;
  • The reason for the failure;
  • The Maximum Payment Amount as defined in sections 5.01, 5.02 of Revenue Procedure 2019-19 PDF;
  • See Revenue Procedure 2019-19 PDF, section 14 for additional details and factors

Learn more about how to correct plan errors.