Revenue Procedure 2003-44, Part VI

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Part VI. Correction on Audit (Audit CAP)

Section 13. Description of Audit CAP .01 Audit CAP requirements. .02 Payment of sanction. .03 Additional requirements. .04 Failure to reach resolution. .05 Effect of closing agreement. .06 Other procedural rules. Section 14. Audit CAP Sanction .01 Determination of sanction. .02 Factors considered. .03 Transferred Assets.

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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, SEP, or SIMPLE IRA Plan, 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. All sanction amounts should be submitted by certified or cashier's check made payable to the U.S. Treasury.

.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, SEP, or SIMPLE IRA Plan 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") 7.2.2, 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, SEPs and SIMPLE IRA Plans, 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 had no failures, (2) the steps taken to identify failures that may have occurred, (3) the extent to which correction had progressed before the examination was initiated, including full correction, (4) the number and type of employees affected by the failure, (5) 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 § 403(b), § 408(k) or § 408(p), (6) whether the failure is a failure to satisfy the requirements of § 401(a)(4), § 401(a)(26), or § 410(b), either directly or through § 403(b)(12), (7) the period over which the failure(s) occurred (for example, the time that has elapsed since the end of the applicable remedial amendment period under § 401(b) for a Plan Document Failure), and (8) the reason for the failure(s) (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, (3) the extent to which the plan has accepted Transferred Assets, and the extent to which the failure(s) relate to Transferred Assets and occurred before the transfer, and (4) whether the failure(s) were discovered during the determination letter process. 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 no new incidents of the failures that relate to the Transferred Assets occur after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, 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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Official location: 2003-25 I.R.B. 1051 (June 23, 2003)

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