Editor's Note: This revenue procedure has been modified by Rev. Proc. 2002-35 (click) with respect to GUST non-amenders who file by September 3, 2002.

Revenue Procedure 2001-17

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Other parts of this Revenue Procedure:
Table of Contents 1 2 3 4 5 6 7 a b c

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PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM

SECTION 1. PURPOSE AND OVERVIEW

.01 Purpose. This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of section 401(a), section 403(a), or section 403(b) of the Internal Revenue Code (the Code), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System (EPCRS), permits plan sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).

.02 General principles underlying EPCRS. EPCRS is based on the following general principles:

Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code. Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code. Plan sponsors and other administrators should make voluntary and timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment. Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers' uncertainty regarding their potential tax liability and participants' potential tax liability. Fees and sanctions should be graduated in a series of steps so that there is always an incentive to correct promptly. Sanctions for plan failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation. Administration of EPCRS should be consistent and uniform. Taxpayers should be able to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their plans.

.03 Overview. EPCRS includes the following basic elements:

Self-correction (SCP). A plan sponsor that has established compliance practices and procedures may, at any time, correct insignificant Operational Failures without paying any fee or sanction. In addition, in the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or in the case of a 403(b) Plan, the plan sponsor generally may correct even significant Operational Failures without payment of any fee or sanction. Voluntary correction with Service approval (VCP). A plan sponsor, at any time before audit, may pay a limited fee and receive the Service's approval for correction. Under VCP, there are special procedures for certain submissions involving only Operational Failures (Voluntary Correction of Operational Failures (VCO)), and for certain submissions in which limited Operational Failures are being corrected using standardized corrections (Voluntary Correction of Operational Failures Standardized (VCS)). VCP also includes a special procedure that applies to 403(b) Plans (Voluntary Correction of Tax-sheltered Annuity Failures (VCT)), a special procedure for anonymous submissions (Anonymous Submission Procedure), a special procedure for group submissions (Voluntary Correction of Group Failures (VCGroup)), and a special procedure that applies to SEPs (Voluntary Correction of SEP Failures (VCSEPs)). Correction on audit (Audit CAP). If a failure (other than a failure corrected through SCP or VCP) is identified on audit, the plan sponsor may correct the failure and pay a sanction. The sanction imposed will bear a reasonable relationship to the nature, extent and severity of the failure, taking into account the extent to which correction occurred before audit.

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS

.01 Effect on programs. This revenue procedure modifies and supersedes Rev. Proc. 2000-16, 2000-6 I.R.B. 518, which was the prior consolidated statement of the correction programs under EPCRS. Many of the modifications have been made in response to public comments, and further changes are expected to be made in the future in response to comments previously received. The modifications to Rev. Proc. 2000-16 that are reflected in this revenue procedure include:

• combining the prior programs that allow voluntary correction with Service approval -- previously VCR, Walk-In CAP, and TVC -- into a single voluntary correction program, called VCP. VCP includes special procedures for certain Operational Failures (VCO and VCS, the successors to VCR and SVP respectively) and for 403(b) Failures (VCT, the successor to TVC), and also includes other new, special procedures described below.

• renaming the previous APRSC program the Self-Correction Program (SCP).

• broadening the submission procedures under VCP to allow certain organizations, such as master and prototype sponsors or third-party administrators, to receive a compliance statement for correcting failures that affect more than one Plan Sponsor (VCGroup).

• revising the submission procedures under VCP to allow Plan Sponsors to submit a request on an anonymous (John Doe) basis.

• expanding EPCRS to add new procedures specially designed for small employers that sponsor SEPs, permitting small employers to self-correct insignificant SEP failures and making special accommodation for SEP sponsors under EPCRS to take into account special circumstances affecting them.

• extending the duration of the self-correction period under SCP (the former APRSC) for significant operational compliance failures where the Plan Sponsor accepts a transfer of plan assets or effects a plan merger in connection with a corporate merger, acquisition, or other transaction.

• facilitating correction under SCP, VCP, and Audit CAP of previous Qualification Failures by Plan Sponsors that accept transfers of plan assets or effects plan mergers in connection with corporate transactions.

• permitting correction through retroactive amendment where employees are permitted to begin participation before they are eligible (see Example 22 in Appendix B).

• permitting correction through retroactive amendment under SCP and VCO for failures related to permitting hardship withdrawals, providing benefits based on compensation in excess of the section 401(a)(17) limit, and premature participation by otherwise eligible employees.

• permitting correction for employers that were not eligible to sponsor 401(k) plans at the time they adopted the plans.

• clarifying that the ability to self-correct insignificant failures continues to be available under SCP during a plan examination, whether the failure is identified by the Plan Sponsor or by the Service.

• clarifying the reporting requirements applicable to excess distributions from qualified plans and SEPs.

• clarifying how fees are calculated with respect to multiemployer and multiple employer plans.

• clarifying that a failure not disclosed by the Plan Sponsor, but discovered by the Service during the processing of a determination letter submission is subject to the sanction structure of Audit CAP.

• updating the definition of Favorable Letter to take into account GUST (as defined in section 5.01(5)(d)).

.02 Future enhancements. (1) It is expected that the EPCRS revenue procedure will continue to be updated on a periodic basis, including, as noted above, further improvements to EPCRS based on comments previously received. In addition, the Service and Treasury continue to invite further comments on how to improve EPCRS. Comments should be sent to:

Internal Revenue Service
Attention: T:EP:RA:VC
1111 Constitution Avenue NW
Washington, D.C. 20224

(2) The Service and Treasury are considering expanding the procedures under EPCRS and are interested in receiving comments regarding, among other things, appropriate correction procedures for failures arising under Simple IRAs (under section 408(p)). Submissions related to Simple IRAs are currently being accepted by the Service on a provisional basis outside of EPCRS.

(3) It is expected that procedural changes may be made in EPCRS during 2001 in connection with the general reorganization of the Service. For example, the address to which comments, submissions, and other correspondence is sent in connection with EPCRS may be changed. Such procedural changes will be announced if and when they are made.

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Other parts of this Revenue Procedure:
Table of Contents 1 2 3 4 5 6 7 a b c