IRS Revises EPCRS Guidance with Main Changes in VCP Program Application and Payment

A 120-page revision to the Employee Plans Compliance Resolution System (EPCRS) has been issued by the IRS in Revenue Procedure 2018-52.  This system involves three distinct programs that deal with compliance issues arising in qualified retirement programs.  These programs are:

  • Self Correction Program (SCP)

  • Voluntary Correction Program with IRS Approval (VCP)

  • Audit Closing Agreement Program (Audit CAP)

The procedure describes the purpose of the EPCRS programs as follows:

.01 Purpose. This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue Code (the "Code"), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System ("EPCRS"), permits Plan Sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), and the Audit Closing Agreement Program ("Audit CAP").

The procedure goes on to describe the basic elements of the program:

Self-correction (SCP). A Plan Sponsor that has established compliance practices and procedures may, at any time without paying any fee or sanction, correct insignificant Operational Failures under a Qualified Plan, a 403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or SIMPLE IRA Plan, however, SCP is available only if the SEP or SIMPLE IRA Plan is established and maintained on a document approved by the IRS. In the case of a Qualified Plan or 403(b) Plan that satisfies the requirements of sections 4.03 and 4.04, the Plan Sponsor generally may correct even significant Operational Failures without payment of any fee or sanction if the correction is made within the time specified in section 9.02.

Voluntary correction with IRS approval (VCP). A Plan Sponsor, at any time before audit, may pay a limited fee and receive the IRS's approval for correction of a Qualified Plan, 403(b) Plan, SEP, or SIMPLE IRA Plan failure. Under VCP, there are special procedures for Anonymous Submissions and Group Submissions.

Correction on audit (Audit CAP). If a failure (other than a failure corrected through SCP or VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. The sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the failure, taking into account the extent to which correction occurred before audit.

While this procedure contains full guidance on the program, the IRS notes that only limited changes were made to the programs.  The procedure notes that it was “published primarily to set forth new VCP submission procedures, including the required use of the website.”[1]

The changes to the VCP program are summarized in the following three paragraphs by the IRS:

.02 Modifications relating to VCP submission procedures. (1) In general. Beginning April 1, 2019, Plan Sponsors must use the website when filing a VCP submission and paying applicable user fees. To ease the transition to the new submission procedures, from January 1, 2019, through March 31, 2019, Plan Sponsors may file VCP submissions with the IRS either by using in accordance with sections 10 and 11 of this revenue procedure or by filing paper VCP submissions in accordance with the procedures in sections 10 and 11 of Rev. Proc. 2016-51. However, the IRS will not accept paper VCP submissions postmarked on or after April 1, 2019.

(2) Modifications to section 10. Section 10.01 is revised to modify and clarify the requirements for satisfying the VCP procedures, including new procedures for filing a VCP submission and paying applicable user fees on the website.  Although the Plan Sponsor is responsible for filing the VCP submission and paying the user fee using the website, section 10.01 clarifies that a Plan Sponsor may designate an authorized representative to file the VCP submission if certain requirements are satisfied.

(3) Modifications to section 11. Section 11 sets forth filing procedures for VCP submissions. These procedures have been modified to reflect electronic filing of VCP submissions and payment of applicable user fees using the website. An electronic VCP submission filed using the website must include many of the same documents as a VCP submission filed on paper pursuant to Rev. Proc. 2016-51; however, there are procedural differences. First, an applicant must use the website to create a account. This account will be used when filing a VCP submission and paying applicable user fees. Second, after a account has been established, the applicant must complete Form 8950, Application for Voluntary Correction Program (VCP) Submission Under the Employee Plans Compliance Resolution System, using the website. Beginning April 1, 2019, applicants are not permitted to submit a paper version of Form 8950. Third, documents relating to the VCP submission, including the description of failures, Form 14568 (Model VCP Compliance Statement), Schedules 1 through 9 of Form 14568, and any other applicable items (as set forth in section 11.04) for a VCP submission generally must be converted into a single PDF (Portable Document Format) document and then uploaded onto the website. However, there is a 15 MB size limitation for uploading a PDF document onto the website; thus special instructions are provided for PDF files that exceed that limitation. Fourth, section 11 provides new procedures relating to the payment of user fees using the website, including the generation of a payment confirmation. For submissions made using the website, the IRS will no longer mail an acknowledgment letter to the applicant. Receipt of a submission will be acknowledged through the generation of a unique Tracking ID on the payment confirmation after the VCP submission is filed and the user fee is paid. A Plan Sponsor may designate an authorized representative to file a VCP submission with the IRS using the website. Section 11.08(2) sets forth specific instructions on how to designate an authorized representative using the Form 2848, Power of Attorney and Declaration of Representation.[2]

The procedure goes on to note a number of other less significant modifications made to the programs in Section 2.03.

The IRS also provided the following information about expected future enhancements to the programs:

(1) In general. It is expected that the IRS and the Treasury Department will continue to update the EPCRS revenue procedure, in whole or in part, from time to time, including further improvements to EPCRS based on comments received. Accordingly, the IRS and Treasury Department continue to invite further comments on how to improve EPCRS. For information on how to submit comments, see section 17.

(2) Recoupment of Overpayments and potential modifications to SCP. The Treasury Department and the IRS requested comments in Rev. Proc. 2015-27, 2015-16 I.R.B. 914, on potential changes to EPCRS relating to the recoupment of Overpayments. The Treasury Department and the IRS received and are reviewing responsive comments, and are in the process of developing further changes to modify the EPCRS rules on the correction of Overpayments. In addition, the Treasury Department and the IRS have received comments relating to expanding SCP and are in the process of reviewing the comments received. The Treasury Department and the IRS are considering changes to the program based on those comments.[3]

As you might expect, coming forward before an exam results in more favorable treatment than if the issue is first raised on an exam.  As well, those errors eligible for correction under SCP can be undertaken without the need to obtain IRS permission.

[1] Revenue Procedure 2018-52, Section 2.01

[2] Revenue Procedure 2018-52, Section 2.02

[3] Revenue Procedure 2018-52, Section 2.04