IRS Audit of Messy Plan

[perkinsran]

We are a TPA and were recently retained to straighten out a plan that has many problems (e.g. Safe harbor match exceeding % limitations, integration formula not followed, no 1099s issued, etc.). The company's CPA was doing TPA work when many of these problems occurred and then in an attempt to get a better handle, they transitioned to a major insurance company, which just compounded some of the problems. There was not intent to defraud anyone on behalf of the company and it is a very generous plan for all employees (100% SH Match on first 6% and 4% of compensation contributed which is allocated on an integrated basis.) Almost all of the 10 NHCEs contribute close to matching levels. The client simply did what their outside advisors told them to do.

Now the good part---The IRS has now selected them for an audit. My question is for all those people who have been through messy audits, do you think the client should just upfront confess to their sins and ask for mercy or just let the IRS uncover it for themselves? They will get some fines and penalties, but I don't know if it is generally the same regardless of the circumstances. Had the IRS not come in when they did, we would have gone through the EPCRS to fix problems.

[Bird]

I would say upfront "we took this over recently and everyone recognizes that there are some problems with prior administration." I wouldn't tell them about the specific problems but I think it helps if you acknowledge that you are expecting them to find "issues."

[JanetM]

Been there as TPA in CPA firm. I would be upfront and show the IRS the issues, explain mitigating circumstances and detail the proposed fixes.

Many years ago I went through the same thing, employer did exactly what the finanacial advisor told him to do. Unfortunately the financial advisor was clueless. IRS did assess fines but waived penalty. The financial advisor was then sued by the employer - employer won.