SECTION 13. DESCRIPTION — Internal Revenue Bulletin 2006-22

AUDIT CAP

.01 Audit CAP requirements . If the Service identifies a Qualification or 403(b) Failure (other than a failure that has been corrected in accordance with SCP or VCP) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan, 403(b) Plan, SEP, or SIMPLE IRA Plan, the requirements of this section 13 are satisfied with respect to the failure if the Plan Sponsor corrects the failure, pays a sanction in accordance with section 14, satisfies any additional requirements of section 13.03, and enters into a closing agreement with the Service.

.02 Payment of sanction . Payment of the sanction under section 14 generally is required at the time the closing agreement is signed. All sanction amounts should be submitted by certified check or cashier’s check made payable to the U.S. Treasury.

.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. If existing administrative procedures are inadequate for operating the plan in conformance with the applicable requirements of the Code, the closing agreement may be conditioned upon the implementation of stated procedures. In addition, for Qualified Plans, pursuant to section 4.06, the Plan Sponsor may be required to obtain a Favorable Letter before the closing agreement is signed. If a Favorable Letter is required, the Plan Sponsor is 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, SEP, or SIMPLE IRA Plan will 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.

the submission must include a request for a waiver of the VCP fee.

.03 VCP fee for nonamender failures . In general, the compliance fee for plans with a nonamender failure, as described in section 4.06, is determined in accordance with the chart in section 12.02. The applicable fee for a VCP submission that contains only nonamender failures is reduced by 50% if it is submitted within a one-year period following the expiration of the plan’s remedial amendment period for complying with such changes. Notwithstanding the above, the compliance fee for a submission that contains only a failure to amend the plan timely with respect to (a) good faith plan amendments for EGTRRA within the period described in Notice 2001–42 including those changes listed in Notice 2005–5, (b) plan amendments for the § 401(a)(9) final and temporary regulations within the period described in Rev. Proc. 2002–29, as modified by Rev. Proc. 2003–10, or (c) interim amendments as provided in section 5 of Rev. Proc. 2005–66 is $375.00.

.04 VCP fee for Group Submission . The compliance fee for a Group Submission is based on the number of plans affected by the failure as described in the compliance statement. The initial fee for the first 20 plans is $10,000. An additional fee is due equal to the product of the number of plans in excess of 20 multiplied by $250. The maximum compliance fee for a Group Submission is $50,000. If more than one master or prototype plan is submitted as a Group Submission, each master or prototype plan is considered a separate Group Submission for purposes of the compliance fee.

.05 VCP fee for SEPs and SIMPLE IRA Plans . (1) In general, the compliance fee for a SEP or a SIMPLE IRA Plan submission (including an Anonymous Submission) is $250. Notwithstanding the preceding sentence, the Service reserves the right to impose the fee schedule under section 12.02 or section 12.06 in appropriate circumstances.

(2) In any case in which a SEP or SIMPLE IRA Plan correction is not similar to a correction for a similar Qualification Failure (as provided under section 6.10(1)), the Service may impose an additional fee. If the failure involves an Excess Amount to a SEP or a SIMPLE IRA Plan

and the Plan Sponsor retains the Excess Amount in the SEP or SIMPLE IRA Plan, a fee equal to at least 10 percent of the Excess Amount excluding earnings will be imposed. This is in addition to the SEP or SIMPLE IRA Plan compliance fee set forth in section 12.05(1).

.06 VCP fee for egregious failures . Notwithstanding the preceding provisions of this section 12, in cases involving failures that are egregious (as described in section 4.08), the compliance fee for Qualified Plans, 403(b) Plans, SEPs and SIMPLE IRA Plans is the greater of (1) the fee that would be determined under the preceding provisions of this section 12, or (2) an amount equal to a negotiated percentage of the Maximum Payment Amount, such percentage not to exceed 40 percent.

.07 Establishing the number of plan participants . Compliance fees under this section 12 are determined based on the total number of plan participants. For a description of participant, see the Instructions for Form 5500, lines 6 and 7. For new plans and ongoing plans, the number of plan participants is determined from the most recently filed Form 5500 series. Thus, with respect to the 2004 Form 5500, the Plan Sponsor would use the number shown in item 7f (or the equivalent item on the Form 5500 C/R or EZ) to establish the total number of plan participants. In the case of a terminated plan, the Form 5500 used to determine the number of plan participants must be the one filed for the plan year prior to the plan year for which the Final Form 5500 return was filed. If the submission involves a plan with Transferred Assets and no new incidents of the failure occurred after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, the Plan Sponsor may calculate the number of plan participants based on the Form 5500 information that would have been filed by the Plan Sponsor for the plan year that includes the employer transaction if the Transferred Assets were maintained as a separate plan.

2006–22 I.R.B. 968 May 30, 2006

(as defined in section 4.06) not voluntarily identified by the Plan Sponsor, but instead discovered by the Service in connection with the determination letter application process as described in section 5.03(3) is determined in accordance with the chart below. This fee schedule applies if the only failure in the submission is the nonamender failure.

(2) The acronyms listed in the chart refer to the following laws:

(a) Employee Retirement Income Security Act of 1974 (ERISA),

(b) Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA); Deficit Reduction Act of 1984 (DEFRA); and Retirement Equity Act of 1984 (REA) together (T/D/R),

(d) Unemployment Compensation Act of 1992 (UCA); Omnibus Budget and Reconciliation Act of 1993 (OBRA ’93),

(e) The Uruguay Round Agreements Act; the Uniformed Services Employment and Reemployment Rights Act of 1994; the Small Business Job Protection Act of 1996; the Taxpayer Relief Act of 1997; the Internal Revenue Service Restructuring and Reform Act of 1998; and the Community Renewal Tax Relief Act of 2000 (collectively known as “GUST”),

(f) Final and temporary regulations under § 401(a)(9), 74 FR 18987, published on April 17, 2002 (“401(a)(9) Regs”),

(g) The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).

.06 Other procedural rules . The procedural rules for Audit CAP are set forth in Internal Revenue Manual (“IRM”) 7.2.2, EPCRS.