Loan Default and Correction

Good Morning -

Can someone please walk me through how to properly correct the following situation:

Small plan - less than 100 participants determined they were incorrectly reporting loan failures.  The loan would default due to the participant separating from service and the sponsor would offset the loan once there was a distribution of the account.  Sometimes it was in the current year and sometimes it was 5 years down the road.  There are several participants who terminated employment several years ago and they are trying to properly tax report on these loans.  My understanding is you can self-correct on those loans that are within the three-year statute of limitations by reporting on a 1099-R in the year of the failure.  Those that are beyond the statute of limitations would need to go under VCP to request 1099-R reporting in the current tax year (those within the statute of limitations could also be reported in the current year as well with IRS approval).  Is this correct?  Now for the real question - I know one can self correct by the end of the second plan year on these loans failures whether an significant or insignificant failure.  My understanding is a determination needs to be made outside this two year window as to whether this is significant or insignificant, correct?  I think I am unsure because the loan corrections under EPCRS are not intuitive to me (but what is).  

"My understanding is you can self-correct on those loans that are within the three-year statute of limitations by reporting on a 1099-R in the year of the failure."

What citation do you have for a three year SOL for loans failures?

My understanding is that loan failures have to go through VCP for anything outside of the box, including treating the loan as taxable in a year other than the year of the failure. Specifically, that the IRS is the only entity that can grant tax relief, so any correction that changes the standard taxation of a loan failure can't be done as a Self Correction. 

From the Revenue Proc. "As part of VCP and Audit CAP, the deemed distribution may be reported on From 1099-R with respect tot he affected participant for the year of correction (instead of the year of failure)." 

the Rev proc goes on to explain that taxable relief is sometimes available/approved if the loan is corrected in accordance with the Rev proc, AND the failure is submitted to VCP, AND specific relief is requested on the submission to the IRS. 

Because the type of tax relief you are seeking is only available under VCP, from the IRS, I think the question as to whether these failures are significant or not is moot.