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Self-Correcting Retirement Plan (ESOP) while under audit?


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Group:
In general, can a taxpayer/ESOP (retirement plan)
who is under audit, still voluntarily self correct matters
they deem need correcting?
 
We believe a former ESOP advisor failed to give
basic advice on paying off an ESOP note in a timely manner.
 
The TPA allocated stock based on an assumption
that the ESOP note was proportionally paid.  ie. 20% of note
paid in yr 1 and TPA allocated 20% of stock.
 
Also, a former employee of the ESOP TPA may have failed
to account for one terminated employee.
 
However, client ESOP is under audit and I'd like to have client
file voluntary self-correction with Dept. of Labor and/or IRS EPCRS.
 
Anyone ever been successful in voluntary self correcting
while under audit?  I note a taxpayer usually wants to
make the correction prior to an audit.
 
Thoughts and comments/resources/cases appreciated.
 
Stay Safe.
Warmest...
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Under section 4.02 of EPCRS, you can self-correct insignificant errors while under examination. See below. Not sure reallocating an entire year would qualify as "insignificant." If these won't work, I think you'll have to use Audit CAP. 

.02 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available. SCP is available only as follows:

(1) Insignificant Operational Failures. While the plan or Plan Sponsor is Under Examination, insignificant Operational Failures may be corrected under SCP.

(2) Significant Operational Failures. If correction of significant Operational Failures has been substantially completed (as described in section 9.03) before the plan or Plan Sponsor is Under Examination, the Plan Sponsor may complete correction of those failures under SCP.

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Tax Cowboy, I have done this before. Arguably, if it's likely they are going to find it  anyway, it may make sense to fix during audit and then bring to attention of EP agent, showing that you have fixed and how. Depending on agent, it may get you some credit. But you are in Audit CAP, for sure, and it is a negotiation, so having saved the agent some work and being up front may get you some points.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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