Plan not amended for final 401(k)

[MBCarey]

We have a plan using a Corbel volume submitter document that was not amended for the Final 401(k) in 2006. The IRS has just requested information to audit the plan for the plan year 2006.

This probably a dumb question, but does anyone have any idea of what the repercussions of this will be. Just want to give the client a heads up.

Thanks

[John Feldt ERPA CPC QPA]

The IRS will likely give you an option to either utilize audit-cap or to have the plan lose is tax-qualified status.

Under audit-cap, they would have you submit the currently signed and dated (current date) amendment for a sanction of at least $2,500 if the plan has 20 or less participants (see section 14.04 of Rev. Proc 2008-50 for the fee chart).

However, please note that the actual fee quoted above is the fee that applies if the missing amendment was discovered when you submitted to the IRS for a D letter. But, since you say this is for an IRS audit, not under a determination letter request, then I think you would be lucky to get by with a mere $2,500 sanction.

If you had submitted for a D letter, then the actual fee might be on sale for only $1,000. But if the sale is over, I think the normal sanction is $2,500 (20 or less ppts).

If you don't like audit cap, you could go the route of having have the plan lose is tax-qualified status - no need to explain the cost of doing that.

[Kevin C]

It won't be pleasant, but like John says, your only other option is plan disqualification. Whatever the consequences, it will be better than the alternative.

We recently helped out an employer with a similar situation. It was a one person plan. He had been doing the administration himself and filing 5500-EZ's, but his plan had not been amended since 1980. He got audited, then hired us to help fix the mess. The penalty was $6,500. It could have been worse. The agent said the case reviewer worked with him to determine a range for the penalty. Then, he was asked for his recommendation for the penalty amount within the range. He recommended the low end of the range and that's what it ended up being.

[MBCarey]

Was wrong. Amendment in files in client office. Whew.....

[WDIK]

Was wrong. Amendment in files in client office. Whew.....

April Fool!