ADP/ACP Correction by Refund

[Guest gaham]

I was talking to the walk in CAP coordinator in Baltimore recently about an appropriate correction method for an ACP failure thinking that we would ultimately have to make QNECs and he said something that surprised me. He said that as long as the two year correction period under APRSC had not elapsed we could correct by making a refund as if we were in the year following the year of the failure. Has anyone else had similar conversations with any other IRS officials? Did I just catch him on a "good" day or is this the way the IRS is formally interpreting what you can do during the two year period for correcting significant errors under APRSC?

[Guest njwhite]

I'd say you either caught the CAP Coordinator on a good day or he is less familiar with Revenue Procedure 98-22 than he should be. Section 6.02(2)(B) of the Revenue Procedure indicates the general rule that correction must be made by way of QNECs. Depending on the facts of the case, under both CAP and VCR the IRS has been willing to permit refunds, so long as the plan sponsor contributes an equal amount of QNECs. In addition, CAP has been willing to allow correction solely by way of distributions in cases where to do otherwise would cause significant financial hardship to the plan sponsor. However, none of this has anything to do with whether you are within the APRSC two-year correction period for significant failures. Therefore, I believe it would be extremely risky to rely on the CAP Coordinators comments outside of the specific matter on which you are dealing with him.

[Note: This message was edited by njwhite]