Revenue Procedure 2003-44, Part II

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Part II. Program Effect and Eligibility

Section 3. Effect of EPCRS; Reliance .01 Effect of EPCRS on Qualified Plans. .02 Effect of EPCRS on 403(b) Plans. .03 Effect of EPCRS on SEPs and SIMPLE IRA Plans. .04 Compliance Statement. .05 Other taxes and penalties. .06 Reliance. Section 4. Program Eligibility .01 EPCRS Programs. .02 Effect of examination. .03 Favorable Letter requirement. .04 Established practices and procedures. .05 Correction by plan amendment. .06 Submission for a determination letter. .07 Availability of correction of Employer Eligibility Failure. .08 Egregious failures. .09 Diversion or misuse of plan assets. .10 EGTRRA nonamenders.

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Part II. Program Effect and Eligibility

Section 3. Effect of EPCRS; Reliance

.01 Effect of EPCRS on Qualified Plans. For a Qualified Plan, if the eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a Qualification Failure in accordance with the applicable requirements of SCP in section 7, VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not treat the Qualified Plan as failing to meet § 401(a). Thus, for example, if the Plan Sponsor corrects the failures in accordance with the requirements of this revenue procedure, the plan will be treated as a qualified plan for purposes of applying § 3121(a)(5) (FICA taxes) and § 3306(b)(5) (FUTA taxes).

.02 Effect of EPCRS on 403(b) Plans.

(1) Income taxes. For a 403(b) Plan, if the applicable eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a failure in accordance with the applicable requirements of SCP in section 7, VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not pursue income inclusion for affected participants, or liability for income tax withholding, on account of the failure. However, the correction of a failure may result in income tax consequences to participants and beneficiaries (for example, participants may be required to include in gross income distributions of Excess Amounts in the year of distribution).

(2) Excise and employment taxes. Excise taxes, FICA taxes, and FUTA taxes (and corresponding withholding obligations), if applicable, that result from a failure are not waived merely because the failure has been corrected.

.03 Effect of EPCRS on SEPs and SIMPLE IRA Plans. If the eligibility requirements of section 4 are satisfied and the Plan Sponsor, as defined in section 5.01(7), corrects a failure to satisfy the requirements of § 408(k) for a SEP or § 408(p) for a SIMPLE IRA Plan in accordance with the applicable requirements of SCP in section 7 (but only if the failure is an insignificant Operational Failure), VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not treat the SEP or SIMPLE IRA Plan as failing to meet § 408(k) or § 408(p), as applicable. Thus, for example, if the Plan Sponsor corrects the failures in accordance with the requirements of this revenue procedure, the SEP will be treated as satisfying § 408(k) and the SIMPLE IRA Plan will be treated as satisfying § 408(p), for purposes of applying § 3121(a)(5) (FICA taxes) and § 3306(b)(5) (FUTA taxes).

.04 Compliance Statement. If a Plan Sponsor or Eligible Organization receives a compliance statement under VCP, the compliance statement is binding upon the Service and the Plan Sponsor or Eligible Organization as provided in section 10.09.

.05 Other taxes and penalties. See section 6.09 for rules relating to other taxes and penalties.

.06 Reliance. Taxpayers may rely on this revenue procedure, including the relief described in sections 3.01, 3.02, and 3.03.

Section 4. Program Eligibility

.01 EPCRS Programs.

(1) SCP. SCP is available only for Operational Failures. Qualified Plans and 403(b) Plans are eligible for SCP with respect to significant and insignificant Operational Failures. SEPs and SIMPLE IRA Plans are eligible for SCP with respect to insignificant Operational Failures only.

(2) VCP. Qualified Plans, 403(b) Plans, SEPs and SIMPLE IRA Plans are eligible for VCP. VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility.

(3) Audit CAP. Audit CAP is available for Qualified Plans, 403(b) Plans, SEPs and SIMPLE IRA Plans for correction of all failures found on examination that have not been corrected in accordance with SCP or VCP.

(4) Eligibility for other arrangements. The Service may extend EPCRS to other arrangements.

.02 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available. However, while the plan or Plan Sponsor is Under Examination, insignificant Operational Failures can be corrected under SCP and, if correction has been substantially completed before the plan or Plan Sponsor is Under Examination, significant Operational Failures can be corrected under SCP.

.03 Favorable Letter requirement. The provisions of SCP relating to significant Operational Failures (see section 9) are available for a Qualified Plan only if the plan is the subject of a Favorable Letter. The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SEP but only if the plan document consists of either (i) a valid Model Form 5305-SEP or 5305A-SEP adopted by an employer in accordance with the instructions on the applicable form, or (ii) a current favorable opinion letter for a Plan Sponsor that has adopted a prototype SEP which has been amended in accordance with the procedures set forth in Rev. Proc. 2002-10, 2002-4 I.R.B. 401. The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SIMPLE IRA Plan but only if the plan document consists of either (i) a valid Model Form 5305-SIMPLE or 5304-SIMPLE adopted by an employer in accordance with the instructions on the applicable form, or (ii) a current favorable opinion letter for a Plan Sponsor that has adopted a prototype SIMPLE which has been amended in accordance with the procedures set forth in Rev. Proc. 2002-10, 2002-4 I.R.B. 401.

.04 Established practices and procedures. In order to be eligible for SCP, the Plan Sponsor or administrator of a plan must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with applicable Code requirements. For example, the plan administrator of a Qualified Plan that may be top-heavy under § 416 may include in its plan operating manual a specific annual step to determine whether the plan is top-heavy and, if so, to ensure that the minimum contribution requirements of the top-heavy rules are satisfied. A plan document alone does not constitute evidence of established procedures. In order for a Plan Sponsor or administrator to use SCP, these established procedures must have been in place and routinely followed, and an Operational Failure must have occurred through an oversight or mistake in applying them or because of an inadequacy in the procedures. In the case of a failure that relates to Transferred Assets or to a plan assumed in connection with a corporate merger, acquisition, or other similar employer transaction between the Plan Sponsor and sponsor of the transferor plan or the prior plan sponsor of an assumed plan, the plan is considered to have established practices and procedures if such practices and procedures are in effect by the end of the first plan year that begins after the corporate merger, acquisition, or other similar transaction.

.05 Correction by plan amendment.

(1) Availability of correction by plan amendment in VCP. A Plan Sponsor may use VCP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations, provided that the amendment complies with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6).

(2) Certain correction by plan amendment permitted in SCP. A Plan Sponsor may use SCP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations only to correct Operational Failures listed in section 2.07 of Appendix B. These failures must be corrected in accordance with the correction methods set forth in section 2.07 of Appendix B. The amendment must comply with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6). SCP is not otherwise available for a Plan Sponsor to correct an Operational Failure by a plan amendment. Thus, if loans were made to participants, but the plan document did not permit loans to be made to participants, the failure cannot be corrected under SCP by retroactively amending the plan to provide for the loans. However, if a Plan Sponsor corrects an Operational Failure in accordance with SCP, it may amend the plan to the extent necessary to reflect the corrective action. For example, if the plan failed to satisfy the average deferral percentage ("ADP") test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. The issuance of a compliance statement does not constitute a determination as to the effect of any plan amendment on the qualification of the plan.

.06 Submission for a determination letter. In any case in which correction of a Qualification Failure includes correction of a Plan Document Failure or Demographic Failure, or an Operational Failure by plan amendment, as permitted under section 4.05, other than the adoption of an amendment designated by the Service as a model amendment or the adoption of a prototype or volume submitter plan for which the Plan Sponsor has reliance on the plan's opinion or advisory letter as provided in Rev. Proc. 2003-6, 2003-1 I.R.B. 191, the amendment must be submitted to the Service for approval using the appropriate application form (i.e., the Form 5300 series or, if permitted, Form 6406) to ensure that the amendment satisfies applicable qualification requirements. In the case of a plan amendment under SCP, as permitted under section 4.05(2), the determination letter application must be submitted before the end of the SCP correction period in section 9.02.

.07 Availability of correction of Employer Eligibility Failure. SCP and Group Submissions under VCP are not available for a Plan Sponsor to correct an Employer Eligibility Failure.

.08 Egregious failures. SCP is not available to correct Operational Failures that are egregious. For example, if an employer has consistently and improperly covered only highly compensated employees or if a contribution to a defined contribution plan for a highly compensated individual is several times greater than the dollar limit set forth in § 415, the failure would be considered egregious. VCP is available to correct egregious failures; however, these failures are subject to the fees described in section 12.06.

.09 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not available to correct failures relating to the diversion or misuse of plan assets.

.10 EGTRRA nonamenders. EPCRS is available for correction of Qualified Plans that have failed to adopt good faith plan amendments for the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16 (EGTRRA) within the period described in Notice 2001-42, 2001-30 I.R.B. 70. In the case of a terminated Qualified Plan, the VCP submission must include the EGTRRA amendment(s) and Form 5310. The Service will process the VCP submission and, when approved, issue a compliance statement and determination letter on the terminated plan. In the case of all other EGTRRA good faith nonamenders, a Plan Sponsor may submit under VCP to receive a compliance statement. The Plan Sponsor must adopt EGTRRA good faith amendment(s) within the time period set forth in the compliance statement. If adopted, the plan will not be treated as failing to adopt the EGTRRA good faith amendment(s) in a timely manner. Because the Service's determination letter program has not opened for EGTRRA amendments, a determination letter will not be issued as part of the VCP submission. In addition, Plan Sponsors may have to amend the plan further within the EGTRRA remedial amendment period as provided in Notice 2001-42. Failure to amend, if required, will result in a failure requiring a subsequent VCP submission.

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Official location: 2003-25 I.R.B. 1051 (June 23, 2003)

Also online at https://benefitslink.com/IRS/revproc2003-44.pdf