EP Examination Process Guide - Section 6 - Appeals - Appeals Procedures - General Explanation & Plan Status


This section provides a general explanation of the appeals process and the status of a plan during a pending appeal.

These explanations only apply to actions proposed in a revocation letter, nonqualification letter, or examination/discrepancy adjustment report.

A. How a Qualified Plan Becomes Subject to Review

Generally, qualified plans may become subject to review or audit as follows:

  1. Favorable Determination Letter Issued in Employer’s Name or Employer is Relying on a Favorable Opinion Letter Issued to the Sponsor of a Master and Prototype (M&P) or Volume Submitter Plan. After a favorable determination letter has been issued by the IRS, or the employer has adopted a plan that has been issued an M&P letter, the plan must continue to remain in compliance with section 401(a) of the Internal Revenue Code (IRC) in both form and operation. The IRS may review the plan at any time for operational compliance with section 401(a) of the IRC. IRS Forms 5500, Annual Return/Report of Employee Benefit Plan are often reviewed by the IRS to determine if a plan is in form and operational compliance with the IRC. If the IRS determines that a plan is not in compliance, it may revoke the previous favorable determination letter or the employer’s reliance on the M&P letter.
  2. Favorable Determination Letter Not Issued in Employer’s Name. If a favorable determination letter has not been issued in the employer’s name, the plan will be reviewed for compliance with IRC section 401(a) either during an audit of the plan or during the initial favorable determination letter submission process. During the determination letter process, the IRS may determine that a plan as submitted does not meet the requirements of a qualified plan and may elect to review the plan’s operational provisions. In such a case, the IRS would not issue a favorable determination letter until the review is complete.

B.  Initial Stages of the Review Process

Generally, the IRS accepts most federal tax returns as filed. However, when a return is selected for review (audited) most result in an agreed conclusion because the taxpayer and the revenue agent are encouraged to take advantage of the Employee Plans Compliance Resolution System (EPCRS) with the goal of reaching an agreement that is fair and reasonable. Taxpayers are encouraged to raise possible solutions or alternatives with the assigned revenue agent during the review process.

  1. Initial Review by Assigned Agent. After a revenue agent is assigned the task of reviewing a plan, he/she will contact the plan sponsor/taxpayer. The revenue agent will gather initial information and begin to work with the taxpayer to resolve any issues identified during the examination. The taxpayer or his or her representative is encouraged to discuss with the revenue agent the possibility of using the EPCRS program to reach an agreement.
  2. Meeting with Revenue Agent’s Manager. If the taxpayer and the revenue agent are unable to reach an agreed conclusion, the taxpayer may request a meeting with the revenue agent’s manager. The manager has greater authority and discretion to use EPCRS to reach an agreed upon conclusion with the taxpayer. Although the taxpayer is not required to request a meeting with a manager, it is a valuable option for the taxpayer and should be considered by the taxpayer and his or her representative before moving forward with the remainder of the appeals process. Please note, however, the taxpayer is not required to meet with the revenue agent’s manager and may proceed to the appeals process as described in section D of this chapter at anytime.

C.  No Agreed Upon Conclusion During Review Process  - Issuance of Revocation or Nonqualification Letter

Issuance of Revocation Letter (Letter 1756). Plans that have already received a favorable determination letter issued in the employer’s name may be subject to an IRS Form 5500 review. If the revenue agent determines after audit that the plan is not in operational or form compliance, (for legislative provisions enacted after the last determination letter), with IRC section 401(a), the revenue agent, after consulting with his or her manager, may issue a proposed revocation letter (Letter 1756).  This letter is only issued if the taxpayer and revenue agent and/or the revenue agent’s manager were not able to reach an agreed upon conclusion using the approaches described in section B above.

D.  Appeals Process