IRS fees under the compliance systems

[R. Butler]

Plan excludes an eligible employee for several years. Debatable whether the error is significant. If sponsor decides to be conservative and file with the IRS, what is the filing fee? I have never had to file and I am having difficulty understanding the fee. It seems to me for fewer than 10 participants it is somewhere between $2,000 and $4,000. That seems extremely high.

Assume sponsor is aggressive and just relies on self correction. The IRS later audits and determines error is siginificant and sponsor couldn't self-correct. My research suggests that IRS would probably just resolve under Audit CAP. The correction has already been made. Assuming the IRS accepts the correction already made, what is the potential penalty amount? Cost of correction is about $20,000.

Thanks for any help.

[Guest BenefitsLawyer]

Just happened to have my EPCRS file on my desk, so I can address the fee issue. This sounds like it could be corrected under VCS (Appendix A to Rev. Proc. 2001-17, item .05--Exclusion of an eligible employee from all contributions or accruals under the plan for one or more plan years). If you correct as provided under VCS, the fee is a flat $350. If I've misread your description of the problem, it still sounds like it could be corrected under VCO (12.02 in Rev. Proc. 2001-17), which is still a flat fee. The fee in VCO depends on the number of participants and amount of plan assets--if assets are less than $500K and there are no more than 1,000 participants, the fee is $500; if assets are $500K or more, but still no more than 1,000 participant, the fee is $1,250. For over 1,000 plan participants, but fewer than 10,000, regardless of plan assets, the fee is $5,000. Finally, if the plan has 10,000 or more participants, regardless of plan assets, the fee is $10,000. Needless to say, VCS is the preferable alternative.