How difficult (for an IRS auditor) is disqualification?

[Flyboyjohn]

We have an IRS auditor who's blustering about disqualifying the plan under examination and suggesting audit cap.

We refuse to acknowledge any disqualifying defect and want to call his bluff.

Is my understading correct that a disqualification is extremely rare and involves mountains of additional paperwork and levels of review within the Service?

Can we go into audit cap without admitting that there's a defect in order to get a fresh set of eyes on the situation?

Thanks

[My 2 cents]

Is the auditor really threatening disqualification without saying why? What do you mean by "We refuse to acknowledge any disqualifying defect"? Do you mean that the auditor has pointed out what he considers to be one or more plan failures sufficient to disqualify the plan but that you refuse to accept that they are failures?

Presume, please, that whatever agony the IRS would have to deal with to disqualify the plan is nothing compared to what you would have to deal with if they did.

Disqualifications may be rare, but it is not because the IRS is unwilling to push that hard. If they are rare, it is probably because most plan sponsors will realize that going through audit cap would be less expensive and disruptive than if the plan were to be disqualified so they agree to go through audit cap.

Have you engaged the services of an ERISA attorney to help you? It might be a good idea.

[ESOP Guy]

I haven't worked for the IRS since the '80s and it was on the income tax side. But we were told all the time you had to always agree to allow a meeting with the taxpayer, your supervisor and you if asked.

I would start with a friendly request to have a meeting with the auditor and their supervisor to make sure everyone is on the same page in regards to the issues at hand.

This will get you a fresh set of eyes and most supervisors have many years of experience in the field and were willing to reign in an auditor that was way off base.