New EPCRS

[Guest Sieve]

Did anyone watch the ALI-ABA seminar Monday (8/25) discussing the new EPCRS? If so, what surprises did you take away aside from these:

• Joyce Kahn (Manager of the EPCRS Program) said that she has only come across one egregious failure for which the IRS did not approve correction. That means either that there are not any really bad acts out there, or that the really bad actors don't come in under EPCRS, or that the EPCRS staff is pretty lenient. The surprise, to me, was that Joyce said it.
  
• Joyce took the position that if a safe harbor plan fails (for example, if the safe harbor contribution is not made within 12 months after the end of the plan year), then the natural consequence contained in the regs--i.e., that the plan no longer is a safe harbor and must pass ADP--does not apply, and to correct you must make the late SH contribution (with interest). I think what she meant is that you can't rely on passing ADP if you fail to make the safe harbor contribution timely, because you would simply get out from under the SH contribution obligation without following proper procedures (such as in the "maybe"--supplemental notice--non-elective SH contribution situation). I would suspect, however, that if failure to timely make the SH contribution resulted in failure of the ADP, and correction of that ADP failure under VCP would give the NHCEs more than making the SH contribution would give them, then she would require that the failed ADP test be corrected rather than that the SH contribution be made.
  

Anyone else have any comments, surprises, insights from watching the seminar--either about the seminar itself or about the new EPCRS--that they want to share? (I haven't gone through all of the new EPCRS yet, but it apparently is much more friendly and has relaxed some requirements and added some new corrections.)

[J Simmons]

Interesting that Kahn was making the case for how embracing the EPCRS is for those that come hat-in-hand to the IRS. This contrasts with recent hardening of the IRS position on CAP resolutions when problems are discovered by the IRS on audit. Sungard's Tech Update: Not so kind and gentle IRS

[Guest Sieve]

My recent experience is not unlike that pointed out in the Corbel technical notice. For example, the IRS sanctions for failure to have a signed amendment in place (such as, for me a number of times, the absurdly simple & short UCA or OBRA changes from the early '90s), is, I believe, outrageous in light of the importance of some of the missing amendments--and I've had an IRS agent agree with me and work with me (and for me) to get around the penalty provision. (By the way, I believe the new EPCRS expands the ability to self-correct even where the error is discovered on audit, and one of the issues mentioned in the Corbel article would have fallen under that provision had the new EPCRS been available at the time. Timing is everything . . .)

Kahn did indicate that there is some concern about audit CAP penalties being inconsistent and, although the discussions and recommendations surrounding that issue did not result in any such changes in the new EPCRS, they are clarifying the concern and hope to have some resolution the next time around. (Audit CAP generally comes, I believe, from another division of TE/GE.) Of course, the IRS is MUCH more friendly under VCP than it is when it discovers the error itself, and one reason presumably is to encourage plans to come in under VCP or self correct rather than try to skate by without correcting and without attention to compliance issues. The article you reference is absolutely correct that a periodic review of your plan for language and operational failures is well worthwhile.

Actually, my experiences under VCP have all been positive. My experiences under audit, when an error is discovered by the agent, have all been negative. Tells me something . . . (Of course, the availability of EPCRS certainly does make things better than the old days when an operational or language failure could not be corrected and, if it was, the IRS still gave you an incredibly hard time about it because corrections just were not allowed.)

[John Feldt ERPA CPC QPA]

Tales of IRS-exam woe continued:

In a recent IRS audit, the agent could not find any problems, except some late deferral deposits. The agent indicated that the plan must go to audit CAP. Hmmm, isn't that under the purview of the DOL? Yes, I had really once thought that late deferrals were a DOL issue, silly me.

The agent explained that the plan documents state that "employee contributions must be deposited timely." Thus, the late deferral deposits constituted an operational error.

Now, because the deposits were not terribly late, thus making the overall interest due to the plan rather small (a few hundred dollars), the agent agreed that SCP was acceptable, but the audit CAP agent had to review the case and agree with that before they could release the case.

yee ha

Edited to add a question:

Did Kahn tell you what they did with that one egregious case? Did they turn it over to the IRS audit team for an exam?

[Guest Sieve]

J4 - No--she gave no history. And everyone watching apparently was afraid to ask . . .