SECTION 10. VCP GENERAL

PROCEDURES

.02 Identification of failures . VCP is not based upon an examination of the plan by the Service. Only the failures raised by the Plan Sponsor or failures identified by the Service in processing the application will be addressed under the program, and only those failures will be covered by the program. The Service will not make any investigation or finding under VCP concerning whether there are failures.

.03 Effect of VCP submission on examination . Because VCP does not arise out of an examination, consideration under VCP does not preclude or impede (under § 7605(b) or any administrative provisions adopted by the Service) a subsequent examination of the Plan Sponsor or the plan by the Service with respect to the taxable year (or years) involved with respect to matters that are outside the compliance statement. However, a Plan Sponsor’s statements describing failures are made only for purposes of VCP and will not be regarded by the Service as an admission of a failure for purposes of any subsequent examination.

.04 No concurrent examination activi- ty . Except in unusual circumstances, a plan that has been properly submitted under VCP will not be examined while the submission is pending. This practice regarding concurrent examinations does not extend to other plans of the Plan Sponsor. Thus, any plan of the Plan Sponsor that is not pending under VCP could be subject to examination.

.05 Submission of determination letter application for plan amendments . In any case in which correction of a Qualified Plan failure includes correction of a Plan Document Failure or correction of an Operational Failure by plan amendment as permitted under section 4.06, other than adoption of an amendment designated by the Service as a model amendment or a standardized or prototype plan, the Plan Sponsor should submit a copy of the amendment, the appropriate application form (i.e., Form 5300 series or Form 6406), and the appropriate user fee concurrently and to the same address as the VCP submission.

the plan, several employees eligible to participate dance with the requirements of this sec- .06 Processing of submission . (1) in the plan were excluded from participation. The tion 10 if the Plan Sponsor pays the com- Screening of submission . Upon receipt of administrator also found that for 1998 Operational Failures occurred because the elective deferrals of pliance fee required under section 12 and a submission under VCP, the Service will additional employees exceeded the § 402(g) limit implements the corrective actions and sat- review whether the eligibility requireand Employer Z failed to make the required top- isfies any other conditions in the compli- ments of section 4 and the submission heavy minimum contribution. During the 1999 plan ance statement described in section 10.07. requirements of section 11 are satisfied.

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If the Service determines that a VCP submission is seriously deficient, the Service reserves the right to return the submission, including any compliance fee, without contacting the Plan Sponsor.

(2) Review of submission . Once the Service determines that the submission is complete under VCP, the Service will consult with the Plan Sponsor or the Plan Sponsor’s representative to discuss the proposed corrections and the plan’s administrative procedures.

(3) Additional information required . If additional information is required, a Service representative will generally contact the Plan Sponsor or the Plan Sponsor’s representative and explain what is needed to complete the submission. The Plan Sponsor will have 21 calendar days from the date of this contact to provide the requested information. If the information is not received within 21 days, the matter will be closed, the compliance fee will not be returned, and the case may be referred to Employee Plans Examinations. Any request for an extension of the 21-day time period must be made in writing within the 21-day time period and must be approved by the Service (by the applicable group manager).

(4) Additional failures discovered after initial submission . (a) A Plan Sponsor that discovers additional, unrelated failures after its initial submission may request that such failures be added to its submission. However, the Service retains the discretion to reject the inclusion of such failures if the request is not timely, for example, if the Plan Sponsor makes its request when processing of the submission is substantially complete.

(b) If the Service discovers an unrelated failure while the request is pending, the failure generally will be added to the failures under consideration. However, the Service retains the discretion to determine that a failure is outside the scope of the voluntary request for consideration because it was not voluntarily brought forward by the Plan Sponsor. In this case, if the additional failure is significant, all aspects of the plan may be examined and the rules pertaining to Audit CAP will apply. (See sections 13 and 14.)

(5) Conference right . If the Service initially determines that it cannot issue a compliance statement because the parties cannot agree upon correction or a change

in administrative procedures, the Plan Sponsor (generally through the Plan Sponsor’s representative) will be contacted by the Service representative and offered a conference with the Service. The conference can be held either in person or by telephone, and must be held within 21 calendar days of the date of contact. The Plan Sponsor will have 21 calendar days after the date of the conference to submit additional information in support of the submission. Any request for an extension of the 21-day time period must be made in writing within the 21-day time period and must be approved by the Service (by the applicable group manager). Additional conferences may be held at the discretion of the Service.

(6) Failure to reach resolution . If the Service and the Plan Sponsor cannot reach agreement with respect to the submission, all aspects of the plan may be examined, and the Service may refer the submission to Employee Plans Examinations.

(7) Issuance of compliance state- ment . If agreement is reached, the Service will send to the Plan Sponsor an unsigned compliance statement specifying the corrective action required. Within 30 calendar days of the date the compliance statement is sent, a Plan Sponsor must sign the compliance statement and return it and any compliance fee required to be paid at the time that the compliance statement is signed (see sections 11.05 and 11.06 regarding timing of payment of compliance fee). The Service will then issue a signed copy of the compliance statement to the Plan Sponsor. If the Plan Sponsor does not send the Service the signed compliance statement (with the compliance fee) within 30 calendar days, the plan may be referred to Employee Plans Examinations for examination consideration.

(8) Timing of correction . The Plan Sponsor must implement the specific corrections and administrative changes set forth in the compliance statement within 150 days of the date of the compliance statement. Any request for an extension of this time period must be made in advance and in writing and must be approved by the Service.

(9) Modification of compliance state- ment . Once the compliance statement has been issued (based on the information

provided), the Plan Sponsor cannot request a modification of the compliance terms except by a new request for a compliance statement. However, if the requested modification is minor and is postmarked no later than 30 days after the compliance statement is issued, the compliance fee for the modification will be the lesser of the original compliance fee or $1,250.

(10) Verification . Once the compliance statement has been issued, the Service may require verification that the corrections have been made and that any plan administrative procedures required by the statement have been implemented. This verification does not constitute an examination of the books and records of the employer or the plan (within the meaning of § 7605(b)). If the Service determines that the Plan Sponsor did not implement the corrections and procedures within the stated time period, the plan may be referred to Employee Plans Examinations for examination consideration.

.07 Compliance statement . (1) General description of compliance state- ment . The compliance statement issued for a VCP submission addresses the failures identified, the terms of correction, including any revision of administrative procedures, and the time period within which proposed corrections must be implemented, including any changes in administrative procedures. The compliance statement also provides that the Service will not treat the plan as failing to satisfy the applicable requirements of the Code on account of the failures described in the compliance statement if the conditions of the compliance statement are satisfied. Where current procedures are inadequate for operating the plan in conformance with the applicable requirements of the Code, the compliance statement will be conditioned upon the implementation of stated administrative procedures. The Service may prescribe appropriate administrative procedures in the compliance statement.

(2) Compliance statement condi- tioned upon timely correction . The compliance statement is conditioned on (i) there being no misstatement or omission of material facts in connection with the submission and (ii) the implementation of the specific corrections and satisfaction of

2001–7 I.R.B. 603 February 12, 2001

any other conditions in the compliance statement.

(3) Authority delegated . Compliance statements (including any waiver of the excise tax under § 4974) are authorized to be signed by Area Managers reporting to the Director, Employee Plans Examinations, and managers within Employee Plans Rulings and Agreements, under the Tax Exempt and Government Entities Division of the Service.

.08 Effect of compliance statement on examination . The compliance statement is binding upon both the Service and the Plan Sponsor or Eligible Organization with respect to the specific tax matters identified therein for the periods specified, but does not preclude or impede an examination of the plan by the Service relating to matters outside the compliance statement, even with respect to the same taxable year or years to which the compliance statement relates.

.09 Processing of determination letter applications not submitted under VCP . (1) The Service may process a determination letter application submitted under the determination letter program (including an application requested on Form 5310) concurrently with a VCP submission for the same plan. However, issuance of the determination letter in response to an application made on a Form 5310 will be suspended pending the closure of the VCP submission.

(2) A submission of a plan under the determination letter program does not constitute a submission under VCP. Thus, a Plan Sponsor that discovers a Qualification Failure in its plan must make a separate application under VCP. If the failure is discovered by the Service in connection with a determination letter application, the agent may issue a closing agreement with respect to the failures identified or, if appropriate, refer the case to Employee Plans Examinations. In either case, the fee structure in section 12, applicable to VCP, will not apply. Instead, the fee structure in section 14 relating to Audit CAP will apply. (See sections 13 and 14.)

.10 Special rules relating to VCO . (1) Under VCP, Operational Failures in a Qualified Plan may be corrected under the VCO rules in this subsection. VCO is available only if the plan’s identified fail

ures are all Operational Failures and only if the plan has a Favorable Letter.

(2) If the plan is not the subject of a Favorable Letter, or if the submission either includes a failure other than an Operational Failure or includes an egregious failure described in section 4.09, the submission will be converted from a submission under VCO to a submission under the VCP general procedures. The compliance fee will be retained and will be applied to the compliance fee required under the VCP general procedures. The Service retains the discretion to determine whether a submission is outside the scope of the special VCO rules even if the identified failures are Operational Failures and the plan has a Favorable Letter. The discretion will be applied only in rare and unusual circumstances.

(3) Reliance on any compliance statement issued for a plan initially adopted or effective after December 7, 1994, other than an adoption of a master or prototype or regional prototype plan, is conditioned upon the plan being timely submitted for a determination letter within the plan’s remedial amendment period under § 401(b).

.11 Special rules relating to VCS . (1) Under VCO, certain Operational Failures in a Qualified Plan may be corrected under the VCS rules in this subsection. VCS is available only if the plan’s only identified Operational Failures are failures addressed in Appendix A or Appendix B of this revenue procedure and the failures are corrected in accordance with an applicable correction method set forth in Appendix A or Appendix B. Appropriate correction must be made for any Qualification Failure that results from the application of a VCS correction.

(2) The correction methods set forth in Appendix A and Appendix B are strictly construed and are the only acceptable correction methods for failures corrected under VCS. If the Plan Sponsor wishes to modify a correction method provided in Appendix A or Appendix B or to propose another method, the Plan Sponsor may not use VCS, but may request a compliance statement under the VCO procedure.

(3) VCS is not available if the Plan Sponsor has identified more than two

failures in a single VCS request. If there are one or two failures that can be corrected under VCS and there are other failures that cannot be corrected under VCS, VCS is not available. The Service reserves the right to shift requests for consideration under VCS into VCO if the Plan Sponsor submits a second VCS request with respect to the same plan while the first VCS request is being considered or during the 12 months after the first VCS compliance statement is issued. Both VCS requests may be shifted into VCO if the first VCS request is still being considered.

(4) The Service will review a VCS request within 120 days of the date the submission is received and determined to be complete. If the Service determines that the request is acceptable, the Service will issue a compliance statement on the Plan Sponsor’s proposed correction.

.12 Special rules relating to Anonymous (John Doe) Submission Procedure . (1) The Service has established an Anonymous Submission Procedure that permits submission of a Qualified or 403(b) Plan under VCP without initially identifying the plan or the Plan Sponsor. Only failures other than those addressed in Appendix A and Appendix B may be submitted under this procedure. A plan is not eligible for the Anonymous Submission Procedure with respect to a failure that was submitted under the Anonymous Submission Procedure within the preceding two years. The requirements of this revenue procedure relating to VCP, including sections 10, 11, and 12, apply to these submissions. However, information identifying the plan or the Plan Sponsor may be redacted. Once the Service and the plan representative reach agreement with respect to the submission, the Service will contact the plan representative in writing indicating the terms of the agreement. The Plan Sponsor will have 21 calendar days from the date of the letter of agreement to identify the plan and Plan Sponsor. If the Plan Sponsor does not submit the identifying material within 21 calendar days of the letter of agreement, the matter will be closed and the compliance fee will not be returned.

(2) Notwithstanding section 10.04, until the plan and Plan Sponsor are identi

February 12, 2001 604 2001–7 I.R.B.

fied to the Service, a submission under this subsection does not preclude or impede an examination of the Plan Sponsor or its plan(s). Thus, a plan submitted under the Anonymous Submission Procedure that comes Under Examination prior to the date the plan and Plan Sponsor identifying materials are received by the Service will no longer be eligible for either the Anonymous Submission Procedure or VCP.

(3) Unless otherwise extended, the Anonymous Submission Procedure will not apply to applications submitted after December 31, 2002.

.13 Special rules relating to VCT . A VCP submission for a 403(b) Plan is required to be made under the VCT procedure. A VCT submission is subject to the procedures of sections 10 and 11. A 403(b) Plan is not eligible for VCO or VCS.

.14 Special rules relating to VCGroup . (1) General rules . An Eligible Organization may submit a VCP request for a Qualified Plan or a 403(b) Plan under the VCGroup procedure under this subsection and may not submit an application under VCO, VCS, VCT, or the Anonymous Submission Procedure. VCGroup applies if (a) the failures are all Operational Failures and the Eligible Organization is an Eligible Organization defined in sections 10.14(2)(b) or (c), or (b) the failures are all Plan Document Failures and the Eligible Organization is a Sponsor as defined in section 10.14(2)(a). (2) Eligible Organizations . For purposes of VCGroup, the term “Eligible Organization” means either (a) a Sponsor (as that term is defined in section 4.09 of Rev. Proc. 2000–20 2000–6 I.R.B. 553) of a master or prototype plan that (i) receives an opinion letter that considers the provisions of GUST, or (ii) has received an opinion letter that considers TRA ’86 and has been submitted for a GUST opinion letter by December 31, 2000, (b) an insurance company or other entity that has issued annuity contracts or provides services with respect to assets for 403(b) Plans, or (c) an entity that provides its clients with administrative services with respect to Qualified Plans or 403(b) Plans. An Eligible Organization is not eligible for VCGroup unless the submission includes a failure

resulting from a systemic error involving the Eligible Organization that affects at least 20 plans. If, at any time before the Service provides an unsigned compliance statement, the number of plans that have the same failure falls below 20, the Eligible Organization must notify the Service that it is no longer eligible for VCGroup (and the compliance fee will be retained).

(3) Special VCGroup procedures . (a) A VCGroup submission is subject to the same procedures as any VCP submission in accordance with sections 10 and 11, except that the Eligible Organization is responsible for performing the procedural obligations imposed on the Plan Sponsor under sections 10 and 11.

(b) When an Eligible Organization under VCGroup receives an unsigned compliance statement on the proposed correction and agrees to the terms of the compliance statement, the Eligible Organization must return to the Service within 120 calendar days not only the signed compliance statement and any additional compliance fee under section 12.06, but also a list containing (i) the employers’ tax identification numbers for the Plan Sponsors of the plans to whom the compliance statement may be applicable and (ii) the plans by name, plan number, type of plan, number of plan participants, and trust’s tax identification numbers, if applicable, along with (iii) a power of attorney (which may be a limited power of attorney) from each of the Plan Sponsors authorizing the Eligible Organization or its representative to act on the Plan Sponsor’s behalf with respect to the items in the compliance statement and (iv) a copy of the most recently filed Form 5500 series return for each plan. Only those plans for which correction is actually made within 240 calendar days of the date of the signed compliance statement (or within such longer period as may be agreed to by the Service at the request of the Eligible Organization) will be covered by that statement.

(c) Notwithstanding section 10.04, until the Eligible Organization provides the Service with the information of section 10.14(3)(b)(i) through (iv) with respect to a Plan Sponsor and its plan(s), a VCGroup submission does not preclude or impede an examination of the Plan

Sponsor or its plan(s).

(4) VCGroup implementation . The VCGroup procedure is being implemented on a provisional basis, and the Service and Treasury invite comments on the operation of the VCGroup procedure. While the Anonymous Submission Procedure is not available in connection with the VCGroup procedure, Eligible Organizations that are considering filing a VCGroup submission may, of course, discuss the submission with the Service on an anonymous basis before filing the VCGroup submission.

.15 Special rules relating to VCSEP . A VCP submission for a SEP is required to be made under the VCSEP procedure. A VCSEP submission is subject to the procedures of sections 10 and 11. A SEP Plan is not eligible for VCO or VCS.

.16 Multiemployer and multiple employer plans . (1) In the case of a multiemployer or multiple employer plan, the plan administrator (rather than any contributing or adopting employer) must request consideration of the plan under the programs. The request must be with respect to the plan, rather than a portion of the plan affecting any particular employer.

(2) If a VCP submission for a multiemployer or multiple employer plan has failures that apply to fewer than all of the employers under the plan, the plan administrator may choose to have the compliance fee (in section 12) or sanction (in section 14) calculated separately for each employer based on the assets attributable to that employer, rather than being attributable to the assets of the entire plan. Thus, the plan administrator may choose to apply the provisions of this paragraph where the failure is attributable in whole or in part to data, information, actions, or inactions that are within the control of the employers rather than the multiemployer or multiple employer plan (such as attribution in whole or in part to the failure of a employer to provide the plan administrator with full and complete information).