SECTION 5. DEFINITIONS

The following definitions apply for purposes of this revenue procedure:

.01 Qualification Failure. A Qualification Failure is any failure that adversely affects the qualification of a plan. There are three types of Qualification Failures: (1) Plan Document Failures, (2) Operational Failures, and (3) Demographic Failures.

(1) Plan Document Failure. The term “Plan Document Failure” means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a) or § 403(a). Thus, for example, the failure of a plan to be amended to reflect a new qualification requirement within the plan’s applicable remedial amendment period under § 401(b) is a Plan Document Failure. For purposes of this revenue procedure, a Plan Document Failure includes any Qualification Failure that is a violation of the requirements of § 401(a) or § 403(a) and that is neither an Operational Failure nor a Demographic Failure.

(2) Operational Failure. The term “Operational Failure” means, with respect to a Qualified Plan, a Qualification Failure that arises solely from the failure to follow plan provisions.

A failure to follow the terms of the plan providing for the satisfaction of the requirements of § 401(k) and § 401(m) is considered to be an Operational Failure. A plan does not have an Operational Failure to the extent the plan is permitted to be amended retroactively pursuant to § 401(b) or another statutory provision to reflect the plan’s operations. However, if within an applicable remedial amendment period under § 401(b), a plan has been properly amended for statutory or regulatory changes, and, on or after the later of the date the amendment is effective or is

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(3) The plan is initially adopted or effective after December 7, 1994, and the plan sponsor timely submits an application for a determination, opinion, or notification letter within the plan’s remedial amendment period under § 401(b).

.03 Maximum Payment Amount. The term “Maximum Payment Amount” means a monetary amount that is approximately equal to the tax the Service could collect upon plan disqualification and is the sum for the open taxable years of the:

(1) tax on the trust (Form 1041), (2) additional income tax resulting from the loss of employer deductions for plan contributions (and any interest or penalties applicable to the plan sponsor’s return), and

(3) additional income tax resulting from income inclusion for participants in the plan (Form 1040).

For purposes of determining the maximum compliance correction fee applicable under section 13.05(3), relating to egregious failures under Walk-in CAP, paragraph (2) above is modified to exclude interest or penalties applicable to the plan sponsor’s return, and paragraph (3) above is modified to include only the additional income tax resulting from income inclusion for highly compensated employees, as defined in § 414(q).

.04 Qualified Plan. The term “Qualified Plan” means a plan intended to satisfy the requirements of § 401(a) or § 403(a).

.05 § 403(b) Plan. The term “§ 403(b) Plan” means a plan intended to satisfy the requirements of § 403(b).

.06 Under Examination. The term “Under Examination” means: (1) a plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series or other Employee Plans examination), or (2) a plan sponsor that is under an Exempt Organizations examination (that is, an examination of a Form 990 series or other Exempt Organizations examination).

A plan that is under an Employee Plans examination includes any plan for which the plan sponsor, or a representative, has received verbal or written notification from the Employee Plans Division of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, and also includes any plan that has been under an

Employee Plans examination and is now in Appeals or in litigation for issues raised in an Employee Plans examination. A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the nondiscrimination requirements of § 401(a)(4), the minimum participation requirements of § 401(a)(26), or the minimum coverage requirements of § 410(b), or the requirements of § 403(b)(12), with a plan(s) that is Under Examination. In addition, a plan is considered to be Under Examination with respect to a failure of a qualification requirement (other than those described in the preceding sentence) if the plan is aggregated with another plan for purposes of satisfying that qualification requirement (for example, § 402(g), § 415, or § 416) and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case, Plan A is considered to be Under Examination with respect to the § 415 failure. However, if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of § 411, Plan A is not considered to be Under Examination with respect to the § 417 or § 411 failure. For purposes of this revenue procedure, the term aggregation does not include consideration of benefits provided by various plans for purposes of the average benefits test set forth in § 410(b)(2).

An Employee Plans examination also includes a case in which a plan sponsor has submitted a Form 5310, Application for Determination of Qualification Upon Termination, and the Employee Plans agent notifies the plan sponsor, or a representative, of possible Qualification Failures, whether or not the plan sponsor is officially notified of an “examination.” This would include the case where, for example, a plan sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the plan sponsor that there are partial termination concerns.

A plan sponsor that is under an Exempt Organizations examination includes any plan sponsor that has received (or its representative has received) verbal or written notification from the Exempt Organizations Division of an impending Exempt

Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any plan sponsor that has been under an Exempt Organizations examination and is now in Appeals or in litigation for issues raised in an Exempt Organizations examination.