SECTION 3. DEFINITIONS

(1) APRSC: Self-correction. The Administrative Policy Regarding Self-Correction (APRSC), as described in Rev. Proc. 98–22, is a voluntary employer-initiated program that does not involve Service approval. Under APRSC, an employer that has compliance practices and procedures may correct Operational Failures, without paying any fee or sanction, including Operational Failures relating to contributions to a 403(b) Plan that are in excess of the § 415 limit or the § 403(b)(2) limit (the exclusion allowance). APRSC is described in Section 7 of Rev. Proc. 98–22, as modified by sections 4 and 5 below.

tion (as defined in Section 5.06 of Rev. Proc. 98–22) may pay a limited fee and receive the Service’s approval for the correction in the form of a closing agreement with the appropriate Key District Office. TVC allows correction of Operational Failures, Demographic Failures, and Eligibility Failures that are within the jurisdiction of the EP/EO Division of the Key District Office, including a Plan of an Ineligible Employer. TVC is described in sections 4, 6, 7, and 8 below.

(3) Audit CAP for 403(b) Plans: Correction on audit. Audit CAP as described in Rev. Proc. 98–22 is expanded by this revenue procedure to cover closing agreements in connection with a 403(b) Plan that is Under Examination. Under Audit CAP for 403(b) Plans, if an Operational Failure that is not eligible for APRSC, a Demographic Failure, or an Eligibility Failure is identified with respect to a 403(b) Plan that is Under Examination, and the failure is corrected, the sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the failure. Audit CAP for 403(b) Plans is described in section 9 below (extending the program described in Sections 14 and 15 of Rev. Proc. 98–22). .03 Request for comments. The Service specifically solicits comments or suggestions relating to the guidance provided in this revenue procedure. It is requested that comments or suggestions be submitted by May 2, 1999, addressed to CC:DOM:CORP:R (Rev. Proc. 99–13), Room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, comments may be hand-delivered between the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (Rev. Proc. 99–13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may transmit comments electronically via the Service’s Internet site at “http://www. irs.ustreas.gov/prod/tax_regs/comments. html”.

SECTION 2. EFFECT OF EPCRS; RELIANCE

.01 Income taxes. If the applicable eligibility requirements are satisfied and the employer corrects a failure in accordance with the requirements of APRSC, TVC, or Audit CAP for 403(b) Plans, the Ser

(2) TVC: Voluntary correction with Service approval. Under TVC, an employer or plan that is not Under Examina

February 1, 1999 52 1999–5 I.R.B.

.05 Operational Failure. The term “Operational Failure” means, with respect to a 403(b) Plan, any of the following:

(1) A failure to satisfy the requirements in § 403(b)(12)(A)(ii) (relating to the availability of salary reduction contributions);

(2) A failure to satisfy the requirements of § 401(m) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i));

(3) A failure to satisfy the requirements of § 401(a)(17) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i));

(4) A failure to satisfy the distribution restrictions of § 403(b)(7) or § 403(b)(11);

(5) A failure to satisfy the incidental death benefit rules of § 403(b)(10);

(6) A failure to pay minimum required distributions under § 403(b)(10);

(7) A failure to give employees the right to elect a direct rollover under § 403(b)(10), including the failure to give meaningful notice of such right;

(8) A failure to satisfy the limit on elective deferrals under § 403(b)(1)(E);

(9) A failure involving contributions or allocations of Excess Amounts; or

(10) Any other failure to satisfy applicable requirements under § 403(b) that (a) results in the loss of § 403(b) status for the plan or the loss of § 403(b) status for the custodial account(s) or annuity contract(s) under the plan and (b) is not a Demographic Failure, an Eligibility Failure, or a failure related to the purchase of annuity contracts, or contributions to custodial accounts, on behalf of individuals who are not employees of the employer.

.06 Plan of an Ineligible Employer. The term “Plan of an Ineligible Employer” means a plan intended to satisfy the requirements of § 403(b) but which is not eligible for favorable tax treatment under § 403(b) because the employer is not a tax-exempt organization described in § 501(c)(3) or a public educational organization described in § 170(b)(1)(A)(ii).

.07 Total Sanction Amount. The term “Total Sanction Amount” means a monetary amount that is approximately equal to the income tax the Service could collect as a result of the failure.