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IRS Offers Price Incentives to ‘Come Clean’

The Internal Revenue Service wants to encourage plan sponsors to correct certain plan failures — and they’re offering some financial incentives to do so.

To encourage employers that sponsor 401(a) qualified retirement plans and 403(b) plans to correct plan failures through its Voluntary Correction Program (VCP), the IRS has reduced the general VCP fees for most new submissions made on or after Feb. 1, 2016, though the general fee amount for plans with 101 to 500 participants remains unchanged.

During 2015, the IRS began classifying VCP fees as user fees subject to Code Section 7528. As a result, in 2016, plan sponsors will refer to a new, annual revenue procedure to determine the appropriate fee when making a VCP submission to the IRS. In addition, the IRS made changes to the general fees for submissions for IRC 401(a) and 403(b) retirement plans.

The IRS says that, beginning Feb. 1, plan sponsors should:

  •  Use Rev. Proc. 2016-8, section 6.08 (and subsequent annual updates), to determine the appropriate fee for most VCP submissions. 
  •  Continue to use Rev. Proc. 2013-12 as modified by Rev. Proc. 2015-27, for additional guidance on VCP fees and eligibility for reduced fees for certain submissions.
New general VCP fees based on number of participants are:

 20 or fewer participants: $500

  •  21-50 participants: $750
  •  51-100 participants: $1,500
  •  101-1,000 participants: $5,000
  •  1,001-10,000 participants: $10,000
  •  More than 10,000 participants: $15,000

Interim Steps

The IRS says it is revising Form 8951, “Compliance Fee for Application for Voluntary Correction Program (VCP).” In the meantime, it recommends that you:

  • Continue to use the Form 8951 (9-2015 version) until the new version is published.
  • Ignore the general fee amounts on line 7.
  • Attach a check for the fee amount specified in Rev. Proc. 2016-8, Section 6.08 (or Rev. Proc. 2013-12, section 12, if applicable and as modified by Rev. Proc. 2015-27).

The IRS won’t apply the reduced fees for VCP submissions made before Feb. 1, 2016, or issue refunds for pre-Feb. 1, 2016 VCP submissions that are withdrawn and then resubmitted under the reduced fee schedule.

More information is available here.