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document non-amender under audit; audit cap


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A small profit sharing plan under audit was brought to us as their plan document was not amended timely.  It was amended for EGTRRA around 2009 and that was about it.  The auditor recommended updating their document, which was done and they now have current document.  However, while the auditor accepts that, since the document was not timely amended, they auditor is moving forward with audit cap to avoid DQ.

The plan appears to have been operated properly in all other areas.

Just checking on what an estimate amount of penalty the IRS would likely impose in this situation.  Any ideas?

Also, while hiring an ERISA attorney is never a bad option with audit cap, will it really make much difference in this case?  Is the ERISA attorney mainly there to negotiate a lower penalty?

Thank you for any replies

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Santo Gold, in my experience the type of business, size of employer, and compensation levels will make a difference. If this is a successful small medical practice, you could be looking at a more significant number than, e.g., a hair salon, although I'm just guessing as to the latter, which probably tells you something in and of itself. My experience has been (maybe others will see it differently) that at least in a larger case you do have to negotiate and make a principled written argument, sometimes in a couple of back and forths, to get the number down, e.g. prove in writing how well the plan was run and that the law (not out of date plan document was followed), plead the equities, etc. The exam agent needs to have stuff in the file to justify the ultimate number to his/her boss. You might think that it would just save a lot of time to cut to the quick and throw out a reasonable number, on the low end, for the agent to grab so he/she can get the audit over, but while you can start with that, I don't think it's how you'll end up.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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