SECTION 14. DESCRIPTION OF

AUDIT CAP

.01 Audit CAP requirements . In the event the Service identifies a Qualification or 403(b)Failure (other than a failure that is not treated as resulting in disqualification of the plan under APRSC, VCR, Walk-in CAP, or TVC) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan or a 403(b) Plan, the requirements of this section are satisfied with respect to the failure if the Plan Sponsor corrects the failure, pays a sanction in accordance with section 14.02, satisfies any additional requirements of section 14.03, and enters into a closing agreement with the Service.

.02 Payment of sanction . Under Audit CAP, the Plan Sponsor is subject to a sanction determined in accordance with section 15. Payment of the sanction generally will be required at the time the closing agreement is signed.

.03 Additional requirements . Depending on the nature of the failure, the Service will discuss the appropriateness of the plan’s existing administrative procedures with the Plan Sponsor. Where existing administrative procedures are inadequate for operating the plan in conformance with the qualification requirements of the Code, the closing agreement may be conditioned upon the implementation of stated procedures. In addition, for Qualified Plans, the Plan Sponsor may be required to obtain a Favorable Letter before the closing agreement is signed unless the Service determines that it is unnecessary based on the facts and circumstances (for example, because the plan already has a Favorable Letter and no significant amendments are adopted). If a Favorable Letter is required, the Plan Sponsor would be required to pay the applicable user fee for obtaining the letter.

.04 Failure to reach resolution . If the Service and the Plan Sponsor cannot

reach an agreement with respect to the correction of the failure(s) or the amount of the sanction, the plan will be disqualified or, in the case of a 403(b) Plan, would not have reliance on this revenue procedure.

.05 Effect of closing agreement . A closing agreement constitutes an agreement between the Service and the Plan Sponsor that is binding with respect to the tax matters identified therein for the periods specified.

.06 Other procedural rules. The procedural rules for Audit CAP are set forth in Internal Revenue Manual (“IRM”) 7.9.2, EPCRS.