IRS Webpage: Top Mistakes in Voluntary Correction Program (VCP) Submissions (Mar. 31, 2021)
The IRS has updated its webpage listing common mistakes in Voluntary Correction Program (VCP) submissions. VCP is one of three retirement plan correction programs under the IRS’s Employee Plans Compliance Resolution System (EPCRS) (see our Checkpoint article). VCP allows sponsors to pay a limited fee and receive IRS approval for the correction of certain types of plan qualification failures. While many of the submission mistakes listed on the updated webpage are essentially unchanged from the previous list (see our Checkpoint article), there are new items relating to the electronic submission of VCP applications on Pay.gov (which became required on April 1, 2019; see our Checkpoint article), VCP form errors, the required narrative detailing plan failures and correction methods, and late plan amendments. Here are highlights:
Online VCP Submission Process. Many common submission mistakes involve failures to follow the submission procedures described in Revenue Procedure 2019-19, including PDF filing errors, incorrect completion of the Pay.gov version of Form 8950, and failure to pay the correct user fee. Another common error is to make multiple submissions of the same VCP submission, typically to correct errors identified following acceptance of an initial submission. The IRS advises users to contact the VCP status hotline to discuss how to correct these errors instead of submitting a corrected application. Other errors include user fee payment errors, including errors caused by incorrect bank account or routing information, and nonpayment because the bank believed the payment was unauthorized.
Application on Form 8950. Errors relating to Form 8950 include selecting the incorrect VCP submission type; reporting incorrect participant count information and plan asset totals; and incorrectly checking the “Yes” box for the termination of an orphan plan, resulting in an incorrect user fee amount.
Form 14568 Series. Mistakes with respect to the Model VCP compliance statement and related forms include: not putting the plan name, EIN and plan number as a header on every submitted page; modifying the forms by deleting items that did not apply; failing to submit every page of the forms; selecting inapplicable tax relief check boxes; and requesting special tax relief in Section VI of the Form without including a justification for the request.
Narrative of Failures and Correction Methods. Additional errors noted include not identifying a plan qualification error (the IRS won’t review submissions to identify the plan failure for applicants), not including specific proposed changes to administrative procedures, or failing to explain how proposed changes would prevent the failure from recurring.
Late Plan Amendments. Plan amendment errors include failure to specify the specific tax law items that were not timely reflected in the plan or the plan section that includes the untimely amendment, failure to report late amendments on the correct form, and listing as an error the failure to adopt a plan amendment that the plan was not required to adopt.
EBIA Comment: Plan sponsors and advisors preparing VCP requests would be wise to carefully review this list of common errors to ensure they do not replicate them in their own applications, because mistakes can slow down the processing of submissions and delay the issuance of compliance statements. For more information, see EBIA’s 401(k) Plans manual at Sections XXXIV (“Correcting Plan Mistakes: Identifying and Fixing Common Errors”) and XXXV.E (“Voluntary Correction Program (VCP) With IRS Approval”).
Contributing Editors: EBIA Staff.