Exceeding 100 employees

A new client to our firm is in receipt of an IRS compliance check regarding their SIMPLE IRA for the year ended 12/31/2017. The compliance check is saying that the client has sponsored a SIMPLE IRA and, for the last 2 years, reported more than 100 W-2's for employees with wages of $5,000 or more for at least two consecutive years. The client has now informed us that this a true statement for years 2015 through 2019. No union employees in the company.

The compliance check simply asks 1) did you sponsor a SIMPLE IRA (yes), 2) did you exceed the 100 employee limitation (yes) and 3) did you exceed the two year grace period (yes).

What ramifications might the company face from the IRS for sponsoring and maintaining a SIMPLE IRA in violation of the requirements. I do not deal with SIMPLE's often, so I was wondering if anyone had experience with this.

Thanks for any replies.

As I recall, there is a VCP fix for this - an Employer Eligibility Failure. Essentially, the employer must cease contributions, but the contributions already made are treated as a proper SIMPLE contribution. I haven't checked to see if this still holds true under RP 2019-19.

Belgarath is correct, bzorc. It is a simple fix (did you catch that) , and I have used it and it was as advertised. I'm not sure (others should be able to confirm or deny),  but I don't think a "compliance check" means you're under exam, so I guess if you submit the VCP app before you respond and the IRS indicates you are under exam, you may be able to use VCP rather than Audit CAP. But tread carefully. And of course the outcome depends on the individual facts and circumstances of your situation and I am just addressing the issues you have posed in the abstract, without any examination of the facts, just to point you in the possible right direction.