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Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater Compliancedefects that could be self-corrected and it also extended relief to 403(b) plans. APRSCwas not available to correct violations that could be corrected only by plan amendment,nor was it available for exclusive benefit violations relating to the misuse or diversion ofplan assets.Relief under APRSC was predicated on the correction of all relevant violations for allplan years in which they occurred and, to the extent possible, the correction needed toput the Participants and the plan in the position in which they would have been had thePlan Failure not occurred. Moreover, the rights and benefits of all Participants andbeneficiaries were required to be fully restored.APRSC was available for the correction of both “significant” and “insignificant”Operational Failures. In the case of a Plan Failure which was determined to besignificant applying the criteria specified in APRSC, Plan Sponsors had until the last dayof the year following the plan year (subsequently extended to two years) in which thedefect occurred to make full correction, and the Plan Failure had to be corrected prior toan audit of the plan for the plan year in which the violation took place. Insignificantviolations, on the other hand, could be corrected at any time without penalty even ifdiscovered on audit.b. Approved CorrectionsIn Rev. Proc. 92-89, 17 the Service established a temporary, experimental programdesigned to encourage Plan Sponsors’ voluntary compliance with the qualificationrequirements. Unlike APRSC, which was a self-correction program as described above,the Voluntary Compliance Resolution Program (“VCR”) allowed Plan Sponsors tovoluntarily disclose Operational Failures and their correction to the Service and obtain a“compliance statement” from the Service assuring that it would not disqualify the planwith respect to the operational violations identified. One of the distinguishing features ofVCR was that monetary sanctions were fixed in advance in the form of a “compliancefee” based on the amount of plan assets and the number of plan Participants. For403(b) plans, the number of employees were used instead of the number ofParticipants.Rev. Proc. 93-36 18 extended VCR until December 31, 1994, and also identified andprovided standardized, pre-approved correction methods for certain commonQualification Failures. The Service collectively referred to these standardized correctionmethods as the Standardized Voluntary Correction Procedure or “SVP.” The Serviceestablished a reduced compliance fee to encourage the use of the SVP correctionmethods.17 1992-2 C.B. 498.18 1993-2 C.B. 474.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 10
Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater ComplianceRev. Proc. 92-89 and Rev. Proc. 93-36 were superseded by Rev. Proc. 94-62 19which extended the VCR program indefinitely, modified the VCR eligibility standardsand expanded the types of Plan Failures that could be corrected under SVP. Furtherchanges to VCR were made in Rev. Proc. 96-29 20 relating to eligibility standards and thecircumstances under which a plan is determined to be under examination.Most Operational Failures (except egregious Plan Failures or exclusive benefitviolations) could be corrected under VCR so long as the plan had a currentdetermination letter. The voluntary compliance fee ranged from $500 to $10,000,depending on the size of the plan and the number of plan Participants (or the number ofemployees where a 403(b) plan was involved). Under VCR, Plan Sponsors wererequired to identify and describe the Operational Failures and the proposed correctionmechanism. The Service could request modifications or changes to the correctionmechanism, and it could also require the amendment or adoption of administrativepractices and procedures. Plan Sponsors had 90 days in which to implementcorrections following the issuance of the VCR compliance statement.2. The Development of Audit Correction MechanismsOn December 21, 1990, 21 the Service announced the Employee Plans ClosingAgreements Pilot Program (“CAP”). CAP was originally designed to give Service FieldAgents the ability to negotiate a closing agreement with a Plan Sponsor under audit asan alternative to plan disqualification. This allowed the Service to meet its regulatoryobjectives without injuring plan Participants. Under CAP, the Service could agree not torevoke a plan’s qualified status if the identified Qualification Failures were completelycorrected and a sanction amount paid. The taxpayer had no right to participate in CAP;rather, the Service could agree in its sole discretion to enter into a closing agreementunder CAP. CAP was generally available as a possible alternative to revocation of aplan’s tax qualified status in cases involving (i) failure to timely amend a plan forTEFRA, DEFRA, and REA, (ii) improper application of an integration formula, (iii) partialtermination or (iv) operational top-heavy violations.Rev. Proc. 94-16, 22 effective January 12, 1994, gave retirement Plan Sponsors the rightto voluntarily request consideration of plan defects under CAP. This portion of the CAPprogram was separately referred to as “Walk-in CAP,” and the original CAP programwas alternatively referred to as “Field CAP” or “Audit CAP.” Rev. Proc. 94-16 explainedthe compliance options and sanction limitations applicable to Plan Sponsors whichvoluntarily requested consideration under CAP because of disqualifying defects thatwere not eligible for the VCR Program.19 1994-2 C.B. 778.20 1996-1 C.B. 693.21 CAP was initially announced in a memorandum from the Director, Employee Plans Technical and Actuarial Division, and theDirector, Employee Plans/Exempt Organizations Operations Division, to the Assistant Regional Commissioners. Bymemorandum dated October 9, 1991, to and from the same parties, CAP was established as a permanent program. Proceduresapplicable to closing agreements originating in field offices are set out in section 8(13)10 of the Internal Revenue Manual and inRev. Proc. 68-16, 1968-1 C.B. 770.22 1994-1 C.B. 576.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 11
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The Streamlined Closing Agreement F
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PROTECTING PLAN BENEFITS:IMPROVING
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Tax Treatment Of Cellular Telephone
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IRC, 2007-CODE-VOL, SEC. 280F. LIMI
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Withholding RequirementsACCOUNTING
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