EP Examination Process Guide - Section 6 - Resolution of Issues and Closing the Examination - Technical Assistance & Advice - Nonqualification Issues


An EP agent may find violations that do not affect the qualification of a plan. Most nonqualification failures or violations can be corrected through specific correction methods. An EP agent can solicit either excise taxes or income taxes.

Excise Taxes:

Generally, examples of violations which will result in excise taxes being assessed are:

  • The employer failing to make the necessary contribution.
  • The employer making contributions greater than the maximum allowed/ deductible amount.
  • The trust failing to make the minimum distributions required by the IRC.
  • The trust having entered into a prohibited transaction.
  • If an Employee Stock Ownership Plan (ESOP) disposes of certain employer securities within three years.
  • Failure to return excess contributions timely in a 401(k) plan.
  • The employer failing to report a reversion upon plan termination.


Income Taxes:

  • EP examinations can give rise to additional income taxes on the part of plan sponsors or plan participants. This type of tax adjustment is commonly referred to as a Discrepancy Adjustment.