VCP alternative(s) to Appendix A or B corrections for ADP/ACP failures

[Belgarath]

New client - previously had testing done by a large, well-known payroll company who shall remain nameless. Said company incorrectly performed ADP test for several years. Test failed for those years, but no refunds were made within the normal allowable correction period. Small plan - 20-30 eligible employees overall.

So, we've given them the option of a QNEC in an amount sufficient to pass testing (very expensive) or the "one to one" correction method which involves a much smaller contribution. They don't like this either, and want to know if there is another VCP correction that can be done.

Aside from the expense and uncertainty involved in any such filing, I have a hard time imagining that the IRS would accept a proposal that allows a lower correction amount than the one to one correction amount for a small plan like this. But I just thought I'd ask if anyone has successfully proposed a different solution, and what that solution might have been?

[BG5150]

Don't forget, you can still correct 2013 & 2014 under SCP.

[Belgarath]

Thanks - but SCP is available also for 2012, right? The SCP correction period for significant failures is the end of the second plan year following the end of the plan year for the correction period under 401(k)(8) as per RP 2013-12, Section 9 .02(1) - so for 2012, that period ends 12/31/2013, giving until 12/31/2015 for SCP.

However, since any proposed correction that falls outside of the pre-approved Appendix A or B corrections is questionable, it seems to me that VCP would be a necessity regardless of the timing - unless I felt totally confident with another "fix" - which I don't. Whatcha think?

[BG5150]

Right. 2012, too.

If you go outside the prescribed method in EPCRS, you don't necessarliy have to go thru VCP. Those are the acceptED corrections, but not the only acceptABLE onces.

[Peter Gulia]

Belgarath, I think you are on the right frame of analysis. Even if it is feasible to try an alternate correction and to do so without a VCP or other submission, the employer's filing of a tax return (and decision not to correct a previously filed tax return) turns on whether it in good faith believes it has sufficient confidence in a tax-return position, which practically depends on what tax advice you feel comfortable delivering.