Audit CAP fees for unsigned merged plan submitted for determination letter

[britoski]

Employer merged a plan acquired through a stock acquisition. Employer should have known better, but merged the acquired plan into its own (much larger) plan before it realized it didn't have a signed plan document. To add insult to injury, the entire plan was submitted for a determination letter before the issue was discovered. So the question is...what can we expect for Audit CAP penalities? Anyone have any experiences with this that they want to share?

[John Feldt ERPA CPC QPA]

The reviewing agent will certainly ask for a signed plan document, so I'd suggest that they look with their vendors to see if anyone kept a signed copy. If the document you submitted was truly never signed, does the client have a signed document that is up-to-date and is signed? If so, you need to send in the correct document to replace the unsigned version.

If they don't have an up-to-date document, your fees are listed on page 74 of Rev Proc 2013-12 in section 14.04, but perhaps you could contact the agent and ask that the plan file under VCP regarding the unsigned plan issue.

[britoski]

Thanks John. I wish we still had that option! Unfortuantely, I don't think that VCP is available to us since we didn't raise the issue to the IRS- they raised it to us. I agree that it's worth asking though. The IRS has already requested the documents and the client has been unable to find them despite months of searching. I'm assuming that Audit CAP is our only option at this point, and I'm just wondering what to expect for a sanction. I know that, at least in the context of other errors, the IRS has said that it determines Audit CAP sanctions based on a percentage of the amount the IRS would receive if the Plan were to be disqualified. But I've also seen a couple of threads where individuals have experienced a sanction of anywhere between $5000-$12,000 that seemed to be determined more as a "flat fee" (vs. percentage of assets), at least where the only issue is an unsigned amendment/document. I guess I'm hoping that the IRS takes more of a "flat fee" approach where the sole issue in Audit CAP is a document error like this one.

[John Feldt ERPA CPC QPA]

We have had some luck with pointing out things like this in the cover letter filed with the IRS Determination Letter request, explaining that if the Service believes that the issue warrants a VCP application that we'd like to do that. In a couple of cases in particular we noticed an older DB document had what appeared to be a translation problem with the formula itself which was fixed later when the plan was restated. In those cases the agents did not ask the sponsor to go VCP. In another case, with an unsigned interim amendment from an older takeover document, the IRS did respond by asking that the sponsor submit VCP.

If you're plan problem is a missed restatement for a pre-approved document (since it was not signed) they will likely apply the fee schedule found in Rev Proc 2013-12 section 14.04.

[Peter Gulia]

britoski, is your client the buyer or the seller?

What do the deal documents tell you about which one will bear the economic burden of this tax settlement?

[britoski]

Peter- good suggestion. I will check this out.