June 2022 Compliance News Article

The IRS announced Friday that it will begin piloting a pre-examination retirement plan compliance program beginning this month. The goal is ultimately to reduce taxpayer burden and the amount of time spent on retirement plan examinations.

Notification and Timing

The IRS will notify a plan sponsor by letter if their retirement plan is selected for an upcoming examination. Plan sponsors will have 90 days to review and confirm that their retirement plan document and operations are compliant with current tax law requirements.

If the plan sponsor does not respond within 90 days, then the IRS will schedule an exam.

Next Steps if Issues

If the plan sponsor find s issues in the plan document or operations, then the IRS offers the following alternatives:

Possible self-correction using the Employee Plans Compliance Resolution System (EPCRS) guidance published within Revenue Procedure 2021-30.

If the issues are not eligible for self-correction, the plan sponsor may request a closing agreement. The IRS will use the Voluntary Correction Program fee structure to determine the sanction amount to pay. These fees vary based on plan asset size ranging from $1,500 for assets $500,000 or less to up to $3,500 for plan assets over $10 million.

IRS Review

The IRS will review plan sponsor documentation and self-correction, if any. If the IRS agrees, they will issue a closing letter or may conduct a limited or full scope examination.

The IRS did not indicate a time period for this pilot but did say that they will evaluate its effectiveness and determine if it should continue as part of their overall compliance strategy.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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