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VCP Fee for Loan Default


Gilmore

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A plan with 150 participants failed to start the loan payments on 10 loans.  The error was not found until after the cure period had ended.  The sponsor would like to file a VCP request to correct the loans and not issue a 1099-R. 

On the IRS website, the Voluntary Correction Program Fees page says to reference Rev Proc 2017-4 Appendix A.08.  That page also lists out fees in effect for corrections made after Jan 1, 2017.  In the Loan Failures section it lists the reduced fees, which are based on the number of participants with loan failures.  It also references Form 14568-E.

Rev Proc 2017-4, in Appendix A.08 contains similar information to the website, however it does not appear to mention Form 14568-E.  It only mentions section 6.07 of Rev Proc 2016-51 as the source for the correction procedures.

In this case, with 13 or fewer loan failures, and less than 25% of participants affected by the errors, is the $300 VCP Fee still applicable, even though the request to correct and not issue a 1099R is not one in which Form 14568-E can be used?

Thank you very much.

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Based on your facts, you would only be disallowed from using your correction if one of the 10 loans were made to a Key Employee.  Likely, you have a non-issue once you verify this.  If not, you have an interesting question.  Should it be necessary to actually use the Form, you could choose to default the Key and issue the Form 1099R [since he should've known better :-)] and then use the relief for the other 9).

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Thanks ETA, I should have been clearer in my facts.  There are no Keys involved in the correction.  My question is specific to the fees.  Am I permitted to correct without using Form 14568-E, and still have the reduced $300 fee.  Or is the fee based on the total number of participants in the Plan, which is more like a $5000 fee.

Thanks.

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That's a good question, for which I do not know the answer.  But, in your case, it's a non issue because your correction would fit squarely on the Form 14568-E. 

Even if it didn't, the flexibility you could use would be to default the Key and then use the Form 14568-E for the other non-key.

This approach is just operating under the assumption that you must use the Form 14568-E.  Since you can get where you want to be by using the Form (since there aren't any Key Employees affected), then that should resolve your issue.  As to whether you are eligible for the reduced fee for loan issues while not using the Form; I'm not sure. The last thing you would want is to submit under that assumption and then have the IRS back-bill you for the rest.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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And just to be clear, the reduced fee "should" apply.  We just received approval on one which covered a key employee so we couldn't use the standard correction checkboxes.  But we just copied and pasted the language of the standard correction checkboxes as an invitation to have the IRS approve the submission in the same manner.  They did.  And while we warned the client that the reduced fee might not apply, we submitted only the reduced fee and the IRS accepted it.

That, and $4.95 will get you a tall coffee somewhere.

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