Nonamender VCP Submission Required for Timely but Incomplete Good Faith Amendment?

[WestCoast]

Employer sponsor of an individually-designed 401(k) plan TIMELY adopted a good faith amendment for compliance with the HEART Act, but . . . the good faith amendment was incompleted and omitted on of the mandatory HEART Act requirements. The plan is now up for a Cycle B restatement and determination letter submission.

Prior to the determination letter submission, should the sponsor submit a nonamender VCP application under the streamlined and discounted EPCRS nonamender program?

Or, should the sponsor explain the situation in the cover letter accompanying the determination letter submission ("the plan was timely amended in good faith, but the amendment was incomplete") and indicate that the good faith amendment should be treated as completed and timely. (The restatement, of course, will include the omitted language.)

As regards the cover letter option, the idea is that it's not much different than the situation where the agent reviewing a submission -- let's say back in the original EGTRRA Cycle B -- contacts the sponsor and says "Your good faith EGTRRA amendment looks good, but send me an amendment that adds pieces X and Y." No (expensive fee-wise) nonamender issue raised by the agent, just a nudge to get it right.

Thoughts?

[ETA Consulting LLC]

Or, should the sponsor explain the situation in the cover letter accompanying the determination letter submission ("the plan was timely amended in good faith, but the amendment was incomplete") and indicate that the good faith amendment should be treated as completed and timely. (The restatement, of course, will include the omitted language.)

I like this option since that appears to be what good-faith is. It would be different to say that we never completed the amendment. Instead, you're saying, we completed the amendment in good faith to keep our plan current until such time as the technically correct language could be vetted and approved; or something like that.

Even if the IRS doesn't buy it, you'll at least have set up the situation to be sanctioned for an amount simular to what would've been paid under the VCP. You'd basically explain to the agent that "Had we known you were going to take this approach, then we would've filed under VCP".

Contrary to popular belief, "SOME" IRS auditors are human.

Good Luck!