SECTION 1. PURPOSE AND

OVERVIEW

.01 Purpose . This revenue procedure updates and consolidates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), § 403(a) or § 403(b) of the Internal Revenue Code (the “Code”), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System (“EPCRS”), permits plan sponsors to correct these Qualification or § 403(b) Failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Administrative Policy Regarding Self-Correction (“APRSC”), the Voluntary Compliance Resolution (“VCR”) program, the Walk-in Closing Agreement Program (“Walk-in CAP”), the Audit Closing Agreement Program (“Audit CAP”) and the Tax Sheltered Annuity Voluntary Correction (“TVC”) program. .02 Revisions . This revenue procedure modifies Rev. Proc. 98– 22, 1998–12

I.R.B. 11, which consolidated the correction programs into EPCRS. The modifications to Rev. Proc. 98–22 include:

(1) incorporating Rev. Proc. 99–13, 1999–5 I.R.B. 52, which applies EPCRS to 403(b) Plans;

(2) adding a new Appendix B which incorporates the correction methods described and illustrated in Rev. Proc. 99–31 1999–34 I.R.B. 280; (3) redesignating Appendix B of Rev. Proc. 98–22 as Appendix C; and

(4) reflecting the new Tax Exempt and Government Entities Division (TE/GE) of the IRS.

.03 General principles underlying EPCRS . EPCRS is based on the following general principles:

• Sponsors of tax-qualified retirement plans or 403(b) Plans should be encouraged to establish administrative practices and procedures that ensure that plans are operated properly in accordance with the tax qualification or 403(b) requirements.

• Sponsors of tax-qualified retirement plans should maintain plan docu

ments satisfying the tax qualification requirements.

• Plan sponsors should make voluntary and timely correction of any Qualification or 403(b) Failures, whether involving discrimination in favor of highly compensated employees, plan operations, or the terms of the plan document. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment.

• Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers’ uncertainty regarding their potential tax liability and participants’ potential income tax liability.

• Sanctions for Qualification or 403(b) Failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation.

• Administration of EPCRS should be consistent and uniform.

February 7, 2000 520 2000–6 I.R.B.

• Taxpayers should be able to rely on the availability of EPCRS in taking corrective actions to maintain the qualified or 403(b) status of their plans. .04 Overview . EPCRS includes the following basic elements:

• Self-correction . A plan sponsor that has established compliance practices and procedures may, at any time, correct insignificant Operational Failures without paying any fee or sanction. In addition, in the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or of a 403(b) Plan, the plan sponsor generally may correct even significant Operational Failures within a two-year period without payment of any fee or sanction. (APRSC)

• Voluntary correction with Service approval . In the case of any other Qualification or 403(b) Failure, a plan sponsor, at any time before audit, may pay a limited fee and receive the Service’s approval for the correction. (VCR, Walk-in CAP, and TVC)

• Correction on audit . If a Qualification or 403(b) Failure (other than a failure corrected as described above) is identified on audit and corrected, the sanction imposed will bear a reasonable relationship to the nature, extent and severity of the failure, taking into account the extent to which correction occurred before audit. (Audit CAP) .05 Future enhancements . The primary purpose of this revenue procedure is to consolidate in a single document, for ease of use and reference, the guidance previously published with respect to EPCRS. Certain clarifications and revisions, discussed below, that do not involve significant substantive modification of EPCRS and that generally reflect the current practice under EPCRS, are included in this revenue procedure.

The Service and Treasury are actively reviewing the comments that have been received on EPCRS that are not reflected in this revenue procedure. These additional enhancements will be incorporated into upcoming guidance on EPCRS. In addition to that guidance, it is anticipated that the consolidated EPCRS revenue pro

cedure will be updated on an annual basis to reflect changes published during the preceding calendar year.