Is an FDL required if VCP correction done off-cycle

[taxllm]

Do we need to submit an FDL application at the same time with the VCP application in the following scenario:

• Plan sponsor of a DB individually designed plan failed to submit the plan for an FDL during its on-cycle year (Cycle E ending 01/31/2011 based on its EIN)
• Plan was not amended for PPA, HEART and final 401(a)(9), 415 regulations
• Plan Sponsor will submit the plan for correction under VCP this year (off-cycle)

We know that if the VCP application is submitted on-cycle an FDL is required at the same time. Just not sure if an FDL is required if the VCP application is submitted off-cycle.

Thanks for any input.

[Kevin C]

The way I read Rev. Proc.2013-12 Section 6.05(2)(ii), there are only two exceptions to being required to file for a DL when you do a VCP nonamender filing. The first is 6.05(1) which applies to corrections by adopting model amendments and/or pre-approved documents. The other is 6.05(3)(a) which deals with late adoption of interim and optional law change amendments adopted before the end of the 5 year cycle the amendment was required to be adopted during. It doesn't look like your situation meets either exception.

The handout for the last IRS phone forum on EPCRS has contact information for the speakers. If you still are not sure, you might try contacting one of them.

http://www.irs.gov/pub/irs-tege/epcrs_changes_phoneforum_presentation.pdf

[J. Bringhurst]

Because the FDL submission that is required as part of the VCP request is "off cycle" for the situation described above, would the VCP late amender issues be included on Schedule 2 or Schedule 1?

[taxllm]

Schedule 2.

[J. Bringhurst]

That's what I thought but wanted to double check. In this case, would there be a "gap" in terms of what the FDL covers since the plan was not submitted during it's regular on-cycle period? Not sure how much this matters, except that it might be something that must be disclosed in connection with an acquisition or other corporate transaction.

Do you happen to know what course of action the IRS would take if it discovers qualification failures in addition to those that are the subject of the VCP? Would these then be subject to Audit CAP or some other negotiated fee?

[taxllm]

If discovered during an audit, penalties are Audit CAP (negotiate the amount). If discovered by the IRS on an unrelated VCP submission, they might let you add the additional failures to your VCP or go to Audit CAP because you did not disclose the failures before they found them.

[J. Bringhurst]

Thanks...just trying to figure out worst case scenarios!