IRS Whistleblower Informs ARA of Change that Could Doom Voluntary Corrections

[RatherBeGolfing]

Excerpted from

 

https://www.asppa-net.org/news/irs-whistleblower-informs-ara-change-could-doom-voluntary-corrections

 

"Word of the dramatic shift in focus was brought to the attention of the American Retirement Association by an anonymous IRS whistleblower. The existence of the forthcoming shift in procedure was confirmed independently.

 

* * *

 

"Information indicates that in the next couple of weeks procedures in the VCP program will be updated in a manner that will subject substantially more cases to the Examination function within IRS.

 

"Essentially, if information requested by the IRS is not sent in by practitioners within a 21-day window, the case will be automatically referred to Examination. What’s more, if the taxpayer withdraws a VCP case, it will be referred to Examination. 

 

"Moreover, if the taxpayer misses the 21-day window and the case is referred to Examination, the taxpayer will not be allowed to re-submit the case for consideration under the VCP. If the taxpayer disagrees with how the compliance failure should be corrected, the case will be referred to Examination."

 

Full text at:

https://www.asppa-net.org/news/irs-whistleblower-informs-ara-change-could-doom-voluntary-corrections

 

[justanotheradmin]

Anonymous submissions for everyone!!!!!

On a serious note - if this is accurate - this sucks. 

 

[Peter Gulia]

Why not do anonymous submissions?

 

[PPACA Cat]

Of EPCRS submissions?  What would be the point of that?

[shERPA]

It was only a matter of time before they breached the firewall between VCP and examination.  Why go looking for violations via inefficient random audits when they have them sitting right there?    Except that the pipeline will dry up of course. 

[austin3515]

To me, just expand SCP a little more.  The only high volume transaction missing is RMD's.  You give me RMDs and I'll get over the rest of it.  The rest of it is really really rare.  And people will still correct the same way - they just won't submit the application anymore.  

I mean don;t get me wrong, it is shameful that they are killing VCP.  I hate to say it but it sounds like a very Trumpian method of "saving taxpayers money" (i.e., consequences be damned).  I guess it's hard to deny the truth of it, but these plans are such a huge part of wealth in this country that some accommodations are warranted.

 

[ESOP Guy]

2 hours ago, austin3515 said:

 

I mean don;t get me wrong, it is shameful that they are killing VCP.  I hate to say it but it sounds like a very Trumpian method of "saving taxpayers money" (i.e., consequences be damned).  I guess it's hard to deny the truth of it, but these plans are such a huge part of wealth in this country that some accommodations are warranted.

 

Isn't the "original sin" on Congress? 

Instead of reasonable penalties they do things like:

Miss an RMD the correction and maybe pay a small penalty, if you want interest on the missed payment to the government.  Nope it is a 50% excise tax no one at the IRS wants to impose because it is draconian.   No one wants to tell a retiree on a fixed income becasue someone didn't compute the RMD right they have to pay $1,000 of the $2,000 that should have come out of their 401(k) account to the IRS.   So they came up with VCP to fix it for a reasonable cost and penalty waiver. 

Or because one of what seems like an endless list of things that can go wrong on the client's or the TPA's side of things the plan doesn't simply make a correction to get people back to where they would be and maybe pay a small fine because of an error.... Nope it is the plan is technically disqualified.   I have ESOPs that have 100s of millions in assets in them and if you read the rules literally when the disqualifying defect happens all those assets are now taxable and oh those 500 distributions you paid last year and the year before that figure out which ones went to an IRA that money shouldn't be in the IRA even though those people had nothing to do with the error.  So once again the IRS has simply come up with a more reasonable way to deal with this. 

Yes, add to it my understanding is the IRS has less employees working for it than it has in decades because of budget cuts by congress and the POTUS and sure you have a mess.

But Congress could have come up with a realistic set of penalties and corrections most of which could be handled as self corrections with maybe a form paying a penalty.  The IRS could choose a sample of them to make sure people are doing it right.  

[shERPA]

40 minutes ago, ESOP Guy said:

Isn't the "original sin" on Congress? 

But Congress could have come up with a realistic set of penalties and corrections most of which could be handled as self corrections with maybe a form paying a penalty.  The IRS could choose a sample of them to make sure people are doing it right.  

Quite right.  Current system is akin to losing your driver's license and having your car seized for any traffic infraction, regardless of how minor. 

[John Feldt ERPA CPC QPA]

Sounds like they intend to use the discretion allowed in EPCRS.

Section 10.06(4): If the information is not received within 21 days, the matter will be closed, the user fee will not be returned, and the case may be referred to Employee Plans Examinations.

Section 10.06(7): If the IRS and the Plan Sponsor cannot reach agreement with respect to the submission, the matter will be closed, the user fee will not be returned, and the case may be referred to Employee Plans Examinations.

Section 10.06(8): In appropriate circumstances, the plan may be referred to Employee Plans Examinations.

Section 10.06(11): If the IRS determines that the Plan Sponsor did not implement the corrections and procedures within the stated time period, the plan may be referred to Employee Plans Examinations.

Well, I certainly hope this can be resolved in a more plan sponsor-friendly manner.

[Peter Gulia]

The Joint TE/GE Council Employee Plans and Exempt Organizations annual meeting is this Thursday and Friday, February 27-28.  One imagines there might be several conversations about the news described above.  Bloomberg BNA usually sends a reporter.

 

[CuseFan]

If IRS intent here is to move along the VCP process by strictly and automatically (rather than at discretion) enforcing the 21-day info request turnaround because a majority of applicants to date have taken longer and/or routinely requested extensions, and by so doing we'll get responses on simple applications sooner than 12-18 months from current backlogs, then bring it on. If the intent is to reduce the volume of VCPs and increase the volume of audits, then boo hiss. 

[Peter Gulia]

Here's a widely respected practitioner's write-up about unofficial observations from IRS TE/GE people last week.

https://ferenczylaw.com/flashpoint-irs-representatives-say-no-imminent-vcp-changes/?utm_source=newsletter&utm_medium=email&utm_content=READ%20THE%20ENTIRE%20ARTICLE&utm_campaign=Ferenczy%20FlashPoint%3A%20%20IRS%20Representatives%20Say%20No%20Imminent%20VCP%20Changes

 

[Belgarath]

Thanks Peter. I wonder if Ilene (or anyone else) could comment on the following excerpt. Every practitioner I know busts their tails to respond promptly to IRS inquiries. Is this IRS "enforcement" going to be a hard-line? What if the practitioner/client/accountant/attorney is on vacation - etc., etc., etc... I'd love to hear what the IRS REALLY means by "stricter compliance" in all of this?  What is "abuse" of the current VCP procedures in the judgment of the IRS? The simple statement below doesn't really provide much guidance or comfort/assurance that "reasonable" delays/extensions will be accommodated. 

"IRS TE/GE attendees at the TE/GE Council acknowledged that there is some intention to require stricter compliance by practitioners who have been abusing the current VCP procedures.  For example, the IRS is intending to enforce the 21-day period it provides for practitioners to respond to requests for additional information."

[C. B. Zeller]

Today's BL newsletter included a link to a NAPA article on the subject.

https://www.napa-net.org/news-info/daily-news/irs-confirms-review-changes-vcp-enforcement-audit-process

Quote

The article cited two situations where a VCP submission might be referred to examinations. First is failure to timely respond to requests from the IRS within 21 days. IRS representatives at the meeting confirmed that this is not meant to be a cliff. However, they noted that there were some 30 filings where the process was viewed as unnecessarily delayed due to the VCP applicant’s unresponsiveness. While existing IRS procedures provide for the referral of these situations to examinations, this historically has not happened. The IRS now wants agents to follow these procedures. 

It sounds like they won't refer you to audit on day 22, but they want to make sure you know it's on the table if you leave them hanging.