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 VI. CORRECTION ON AUDIT (AUDIT CAP)

SECTION 13. DESCRIPTION OF AUDIT CAP

.01 Audit CAP requirements. If the Service identifies a Qualification or 403(b) Failure (other than a failure that has been corrected in accordance with SCP or VCP) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan, 403(b) Plan, or SEP, the requirements of this section 13 are satisfied with respect to the failure if the Plan Sponsor corrects the failure, pays a sanction in accordance with section 14, satisfies any additional requirements of section 13.03, and enters into a closing agreement with the Service.

.02 Payment of sanction. Payment of the sanction under section 14 generally is required at the time the closing agreement is signed.

.03 Additional requirements. Depending on the nature of the failure, the Service will discuss the appropriateness of the plan's existing administrative procedures with the Plan Sponsor. If existing administrative procedures are inadequate for operating the plan in conformance with the applicable requirements of the Code, the closing agreement may be conditioned upon the implementation of stated procedures. In addition, for Qualified Plans, the Plan Sponsor may be required to obtain a Favorable Letter before the closing agreement is signed unless the Service determines that it is unnecessary based on the facts and circumstances (for example, because the plan already has a Favorable Letter and no significant amendments are adopted). If a Favorable Letter is required, the Plan Sponsor is required to pay the applicable user fee for obtaining the letter.

.04 Failure to reach resolution. If the Service and the Plan Sponsor cannot reach an agreement with respect to the correction of the failure(s) or the amount of the sanction, the plan will be disqualified or, in the case of a 403(b) Plan or SEP, will not have reliance on this revenue procedure.

.05 Effect of closing agreement. A closing agreement constitutes an agreement between the Service and the Plan Sponsor that is binding with respect to the tax matters identified therein for the periods specified.

.06 Other procedural rules. The procedural rules for Audit CAP are set forth in Internal Revenue Manual (IRM) 7.9.2, EPCRS.

SECTION 14. AUDIT CAP SANCTION

.01 Determination of sanction. The sanction under Audit CAP is a negotiated percentage of the Maximum Payment Amount. For 403(b) Plans and SEPs, the sanction is a negotiated percentage of the Total Sanction Amount. Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures, based on the factors below.

.02 Factors considered. Factors include: (1) the steps taken by the Plan Sponsor to ensure that the plan either had no failures or corrected them through SCP or VCP, including the extent to which correction had progressed before the examination was initiated, (2) the amount of the fee the Plan Sponsor would have paid under section 12 for correcting the failures, (3) the number and type of employees affected by the failure, (4) the number of nonhighly compensated employees who would be adversely affected if the plan were not treated as qualified or as satisfying the requirements of section 403(b) or section 408(k), (5) whether the failure is a failure to satisfy the requirements of section 401(a)(4), section 401(a)(26), or section 410(b), either directly or through section 403(b)(12), (6) the period over which the failure occurred (for example, the time that has elapsed since the end of the applicable remedial amendment period under section 410(b) for a Plan Document Failure), and (7) the reason for the failure (for example, data errors such as errors in transcription of data, the transposition of numbers, or minor arithmetic errors). Factors relating only to Qualified Plans also include: (1) whether the plan is the subject of a Favorable Letter, (2) whether the plan has both Operational and other failures, and (3) the extent to which the plan has accepted Transferred Assets, and the extent to which failures relate to Transferred Assets and occurred before the transfer. Additional factors relating only to 403(b) Plans include: (1) whether the plan has a combination of Operational, Demographic, or Employer Eligibility Failures, (2) the extent to which the failure relates to Excess Amounts, and (3) whether the failure is solely an Employer Eligibility Failure.

.03 Transferred Assets. If the examination involves a plan with Transferred Assets and the Service determines that the failures did not occur after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction occurred, the sanction under Audit CAP will not exceed the sanction that would apply if the Transferred Assets were maintained as a separate plan.

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