What is an IRS Compliance Statement?
When a plan sponsor and the IRS agree with the proposed correction to retirement plan errors disclosed in a Voluntary Correction Program (VCP) submission, the IRS issues a compliance statement listing the failures and the applicant’s proposed corrections. The final compliance statement is mailed by the IRS to the sponsor and, if applicable, the plan representative.
Correcting the failures by the end of the correction period
The compliance statement is conditioned on the plan sponsor correcting the failures before the end of the correction period. The correction period in most cases is 150 days after the date the compliance statement is signed by the IRS (there is a longer correction period for group submissions). You must completely correct plan errors by following the compliance statement and listed proposed corrections. In addition, you must take action as outlined to locate former employees and beneficiaries and revise any administrative procedures.
Requesting an extension of the correction period
If you’re near the 150-day expiration date or know that you can’t meet the deadline, you can send the IRS, whose contact information is on the closing letter issued with the compliance statement, a letter to request an extension of the correction period and explain why you need an extension. IRS specialists may, at their discretion, extend the correction period if you send the request before the 150-day correction period expires. If the IRS extends the correction period, the IRS will mail a letter to the sponsor and plan representative, confirming the extended due date. Keep this letter with the original compliance statement.
Failing to meet the correction period
If the plan sponsor doesn’t fully correct according to the compliance statement by the end of the correction period or approved extension date, the compliance statement is not valid. To correct plan failures, the plan sponsor must submit a new Voluntary Correction Program submission according to Revenue Procedure 2013-12, section 11 with a new fee, and include the previously issued compliance statement and an explanation why correction was not completed.
Modifying the compliance statement
Generally, once the compliance statement is issued, it can’t be modified. Therefore, you’d need to submit a new Voluntary Correction Program submission. However, if the modification is minor and you mail your request to make a minor modification, the IRS will consider it. For example, your compliance statement listed 200 affected participants, however, after recalculating the failure affected 225 participants.
To request a minor modification:
- Include all items listed in of Rev. Proc. 2013-12 section 10.07(10).
- Send the request to the address in section 11.12.
- Pay the applicable fee, which is the lesser of: one-half of the original fee paid or $1,500.
If accepted, the IRS mails a letter to you and your plan representative reflecting the minor modification and a revised compliance statement. Keep those documents with your original compliance statement.
Keeping the compliance statement and correction records
Because the compliance statement resolves plan failures, you should keep this statement, evidence of corrections, and any follow up letters, such as an extension letter, minor modification letter and revised compliance statement.