SECTION 1. PURPOSE AND

OVERVIEW

.01 Purpose . This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) 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 failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”).

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

eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code.

eligible plans should satisfy the applicable plan document requirements of the Code.

should make voluntary and timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment.

providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers’ uncertainty regarding their potential tax

2006–22 I.R.B. 948 May 30, 2006

Anonymous Submissions (section 10.10), and Group Submissions (section 10.11)

dures of receipt of a submission (section 11.11 and new Appendix E — Acknowledgement Letter)

where the sole failure is the failure to satisfy the minimum distribution rules for 50 or fewer employees (section 12.02(2))

where the sole failure is the failure to timely adopt certain plan amendments (section 12.03)

for SEPs and SIMPLE IRAs (section 12.05)

determination letter process found to be nonamenders of tax law changes (section 14.04)

ure is discovered during an Employee Plans Examination, then it is expected that the applicable sanction will be greater than the applicable fee under section 14.04 (section 14.02)

procedure for certain nonamender failures (Appendix F) .02 Future enhancements . (1) It is expected that the EPCRS revenue procedure will continue to be updated from time to time, including, as noted above, further improvements to EPCRS based on comments previously received. In addition, the Service and Treasury continue to invite further comments on how to improve EPCRS. Comments should be sent to:

Internal Revenue Service Attention: SE:T:EP:RA:VC 1111 Constitution Avenue, NW Washington, D.C. 20224

(2) Comments are requested for certain specific issues under EPCRS. First, comments are requested regarding methods to correct a failure to provide an eligible employee the opportunity to make a catch-up contribution that is permitted under the terms of the plan and § 414(v). (See 6.02(7) and Appendix B 2.02.) Sec

In addition, in the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or in the case of a 403(b) Plan, the Plan Sponsor generally may correct even significant Operational Failures without payment of any fee or sanction.

proval (VCP) . A Plan Sponsor, at any time before audit, may pay a limited fee and receive the Service’s approval for correction of a Qualified Plan, 403(b) Plan, SEP or SIMPLE IRA Plan. Under VCP, there are special procedures for anonymous submissions and group submissions.

failure (other than a failure corrected through SCP or VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. 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.