SECTION 3. EARNINGS — Internal Revenue Bulletin 2006-22

ADJUSTMENT METHODS AND EXAMPLES

.01 Earnings Adjustment Methods . (1) In general. (a) Under section 6.02(4)(a) of this revenue procedure, whenever the appropriate correction method for an Operational Failure in a defined contribution plan includes a corrective contribution or allocation that increases one or more employees’ account balances (now or in the future), the contribution or allocation is adjusted for earnings and forfeitures. This section 3 provides earnings adjustment methods (but not forfeiture adjustment methods) that may be used by an em

ployer to adjust a corrective contribution or allocation for earnings in a defined contribution plan. Consequently, these earnings adjustment methods may be used to determine the earnings adjustments for corrective contributions or allocations made under the correction methods in section 2 and under the correction methods in Appendix A. If an earnings adjustment method in this section 3 is used to adjust a corrective contribution or allocation, that adjustment is treated as satisfying the earnings adjustment requirement of section 6.02(4)(a) of this revenue procedure. Other earnings adjustment methods, different from those illustrated in this section 3, may also be appropriate for adjusting corrective contributions or allocations to reflect earnings.

(b) Under the earnings adjustment methods of this section 3, a corrective contribution or allocation that increases an employee’s account balance is adjusted to reflect an “earnings amount” that is based on the earnings rate(s) (determined under section 3.01(3)) for the period of the failure (determined under section 3.01(2)). The earnings amount is allocated in accordance with section 3.01(4).

(c) The rule in section 6.02(5)(a) of this revenue procedure permitting reasonable estimates in certain circumstances applies for purposes of this section 3. For this purpose, a determination of earnings made in accordance with the rules of administrative convenience set forth in this section 3 is treated as a precise determination of earnings. Thus, if the probable difference between an approximate determination of earnings and a determination of earnings under this section 3 is insignificant and the administrative cost of a precise determination would significantly exceed the probable difference, reasonable estimates may be used in calculating the appropriate earnings.

(d) This section 3 does not apply to corrective distributions or corrective reductions in account balances. Thus, for example, while this section 3 applies in increasing the account balance of an improperly excluded employee to correct the exclusion of the employee under the reallocation correction method described in section 2.02(2)(a)(iii)(B), this section 3 does not apply in reducing the account balances of other employees under the reallocation correction method. (See section

2006–22 I.R.B. 984 May 30, 2006

riod in accordance with section 3.01(4)(b). (See Example 28.)

(e) Current Period Allocation Method. Under the current period allocation method, the portion of the earnings amount attributable to the valuation period during which the period of the failure begins (“first partial valuation period”) is allocated in the same manner as earnings for the valuation period during which the corrective contribution or allocation is made in accordance section 3.01(4)(b). The earnings for the subsequent full valuation periods ending before the beginning of the valuation period during which the corrective contribution or allocation is made are allocated solely to the employee for whom the required contribution should have been made. The earnings amount for the valuation period during which the corrective contribution or allocation is made (“second partial valuation period”) is allocated in accordance with the plan’s method for allocating other earnings for that valuation period in accordance with section 3.01(4)(b). (See Example 29.)

.02 Examples .

Example 26 :

Employer L maintains a profit-sharing plan that provides only for nonelective contributions. The plan has a single investment fund. Under the plan, assets are valued annually (the last day of the plan year) and earnings for the year are allocated in proportion to account balances as of the last day of the prior year, after reduction for distributions during the current year but without regard to contributions received during the current year (the “prior year account balance”). Plan contributions for 1997 were made on March 31, 1998. On April 20, 2000, Employer L determines that an operational failure occurred for 1997 because Employee X was improperly excluded from the plan. Employer L decides to correct the failure by using the Appendix A correction method for the exclusion of an eligible employee from nonelective contributions in a profit-sharing plan. Under this method, Employer L determines that this failure is corrected by making a contribution on behalf of Employee X of $5,000 (adjusted for earnings). The earnings rate under the plan for 1998 was +20%. The earnings rate under the plan for 1999 was +10%. On May 15, 2000, when Employer L determines that a contribution to correct for the failure will be made on June 1, 2000, a reasonable estimate of the earnings rate under the plan from January 1, 2000 to June 1, 2000 is +12%.

Earnings Adjustment on the Corrective Contribution:

The $5,000 corrective contribution on behalf of Employee X is adjusted to reflect an earnings amount based on the earnings rates for the period of the failure (March 31, 1998 through June 1, 2000) and the earnings amount is allocated using the plan allocation method. Employer L determines that a pro rata simplifying assumption may be used to determine the

ment results that would have applied to the corrective contribution or allocation if the failure had not occurred.

(b) Multiple Investment Funds. If a plan permits employees to direct the investment of account balances into more than one investment fund, the earnings rate is based on the rate applicable to the employee’s investment choices for the period of the failure. For administrative convenience, if most of the employees for whom the corrective contribution or allocation is made are nonhighly compensated employees, the rate of return of the fund with the highest earnings rate under the plan for the period of the failure may be used to determine the earnings rate for all corrective contributions or allocations. If the employee had not made any applicable investment choices, the earnings rate may be based on the earnings rate under the plan as a whole ( i.e., the average of the rates earned by all of the funds in the valuation periods during the period of the failure weighted by the portion of the plan assets invested in the various funds during the period of the failure).

(c) Other Simplifying Assumptions. For administrative convenience, the earnings rate applicable to the corrective contribution or allocation for a valuation period with respect to any investment fund may be assumed to be the actual earnings rate for the plan’s investments in that fund during that valuation period. For example, the earnings rate may be determined without regard to any special investment provisions that vary according to the size of the fund. Further, the earnings rate applicable to the corrective contribution or allocation for a portion of a valuation period may be a pro rata portion of the earnings rate for the entire valuation period, unless the application of this rule would result in either a significant understatement or overstatement of the actual earnings during that portion of the valuation period.

(4) Allocation Methods. (a) In General. For purposes of this section 3, the earnings amount generally may be allocated in accordance with any of the methods set forth in this paragraph (4). The methods under paragraph (4)(c), (d), and (e) are intended to be particularly helpful where corrective contributions are made at dates between the plan’s valuation dates.

(b) Plan Allocation Method. Under the plan allocation method, the earnings amount is allocated to account balances under the plan in accordance with the plan’s method for allocating earnings as if the failure had not occurred. (See Example 26.)

(c) Specific Employee Allocation Method. Under the specific employee allocation method, the entire earnings amount is allocated solely to the account balance of the employee on whose behalf the corrective contribution or allocation is made (regardless of whether the plan’s allocation method would have allocated the earnings solely to that employee). In determining the allocation of plan earnings for the valuation period during which the corrective contribution or allocation is made, the corrective contribution or allocation (including the earnings amount) is treated in the same manner as any other contribution under the plan on behalf of the employee during that valuation period. Alternatively, where the plan’s allocation method does not allocate plan earnings for a valuation period to a contribution made during that valuation period, plan earnings for the valuation period during which the corrective contribution or allocation is made may be allocated as if that employee’s account balance had been increased as of the last day of the prior valuation period by the corrective contribution or allocation, including only that portion of the earnings amount attributable to earnings through the last day of the prior valuation period. The employee’s account balance is then further increased as of the last day of the valuation period during which the corrective contribution or allocation is made by that portion of the earnings amount attributable to earnings after the last day of the prior valuation period. (See Example 27.)

(d) Bifurcated Allocation Method. Under the bifurcated allocation method, the entire earnings amount for the valuation periods ending before the date the corrective contribution or allocation is made is allocated solely to the account balance of the employee on whose behalf the corrective contribution or allocation is made. The earnings amount for the valuation period during which the corrective contribution or allocation is made is allocated in accordance with the plan’s method for allocating other earnings for that valuation pe

May 30, 2006 985 2006–22 I.R.B.

earnings rate for the period from March 31, 1998 to December 31, 1998, because that rate does not significantly understate or overstate the actual earnings

for that period. Accordingly, Employer L determines that the earnings rate for that period is 15% (9/12 of the plan’s 20% earnings rate for the year). Thus, ap

plicable earnings rates under the plan during the period of the failure are:

Time Periods Earnings Rate 3/31/98 - 12/31/98 (First Partial Valuation Period) +15% 1/1/99 - 12/31/99 +10% 1/1/00 - 6/1/00 (Second Partial Valuation Period) +12%

If the $5,000 corrective contribution had been contributed for Employee X on March 31, 1998, (1) earnings for 1998 would have been increased by the amount of the earnings on the additional $5,000 contribution from March 31, 1998 through December 31, 1998, and would have been allocated as 1998 earnings in proportion to the prior year (December 31, 1997) account balances, (2) Employee X’s account balance as of December 31, 1998, would have been increased by the additional $5,000 contribution, (3) earnings for 1999 would have been increased by the 1999 earnings on the additional $5,000 contribution (including 1998 earnings thereon) allocated in proportion to the prior year (December 31, 1998) account balances along with other 1999 earnings, and (4) earnings for 2000 would have been increased by the earnings on the additional $5,000 (including 1998 and 1999 earnings thereon) from January 1 to June 1, 2000, and would be allocated in proportion to the prior year (Decem

ber 31, 1999) account balances along with other 2000 earnings. Accordingly, the $5,000 corrective contribution is adjusted to reflect an earnings amount of $2,084 ($5,000[(1.15)(1.10)(1.12)–1]) and the earnings amount is allocated to the account balances under the plan allocation method as follows:

(a) Each account balance that shared in the allocation of earnings for 1998 is increased, as of December 31, 1998, by its appropriate share of the earnings amount for 1998, $750 ($5,000(.15)).

(b) Employee X’s account balance is increased, as of December 31, 1998, by $5,000.

(c) The resulting December 31, 1998 account balances will share in the 1999 earnings, including the $575 for 1999 earnings included in the corrective contribution ($5,750(.10)), to determine the account balances as of December 31, 1999. However, each account balance other than Employee X’s account balance has already shared in the 1999 earnings,

excluding the $575. Accordingly, Employee X’s account balance as of December 31, 1999 will include $500 of the 1999 portion of the earnings amount based on the $5,000 corrective contribution allocated to Employee X’s account balance as of December 31, 1998 ($5,000(.10)). Then each account balance that originally shared in the allocation of earnings for 1999 ( i.e., excluding the $5,500 additions to Employee X’s account balance) is increased by its appropriate share of the remaining 1999 portion of the earnings amount, $75.

(d) The resulting December 31, 1999 account balances (including the $5,500 additions to Employee X’s account balance) will share in the 2000 portion of the earnings amount based on the estimated January 1, 2000 to June 1, 2000 earnings included in the corrective contribution equal to $759 ($6,325(.12)). (See Table 1.)

TABLE 1
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS

	Earnings Rate	Amount	Allocated to:
Corrective Contribution		$5,000	Employee X
First Partial Valuation Period Earnings	15%	7501	All 12/31/1997 Account Balances4
1999 Earnings	10%	5752	Employee X ($500)/All 12/31/1998 Account Balances ($75)4
Second Partial Valuation Period Earnings	12%	7593	All 12/31/1999 Account Balances (including Employee X’s $5,500)4
Total Amount Contributed		$7,084

1$5,000 x 15% 2$5,750($5,000 +750) x 10% 3$6,325($5,000 +750 +575) x 12% 4 After reduction for distributions during the year for which earning are being determined but without regard to contributions received during the year for which earnings are being determined.

Example 27 :

The facts are the same as in Example 26 .

Earnings Adjustment on the Corrective Contribution :

The earnings amount on the corrective contribution is the same as in Example 23, but the earnings amount is allocated using the specific employee al

location method. Thus, the entire earnings amount for all periods through June 1, 2000 ( i.e., $750 for March 31, 1998 to December 31, 1998, $575 for 1999, and $759 for January 1, 2000 to June 1, 2000) is allocated to Employee X. Accordingly, Employer L makes a contribution on June 1, 2000 to the plan of $7,084 ($5,000(1.15)(1.10)(1.12)). Employee X’s

account balance as of December 31, 2000 is increased by $7,084. Alternatively, Employee X’s account balance as of December 31, 1999 is increased by $6,325 ($5,000(1.15)(1.10)), which shares in the allocation of earnings for 2000, and Employee X’s account balance as of December 31, 2000 is increased by the remaining $759. (See Table 2.)

2006–22 I.R.B. 986 May 30, 2006

TABLE 2
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS

	Earnings Rate	Amount	Allocated to:
Corrective Contribution		$5,000	Employee X
First Partial Valuation Period Earnings	15%	7501	Employee X
1999 Earnings	10%	5752	Employee X
Second Partial Valuation Period Earnings	12%	7593	Employee X
Total Amount Contributed		$7,084

1$5,000 x 15% 2$5,750($5,000 +750) x 10% 3$6,325($5,000 +750 +575) x 12%

$6,325 ($5,000(1.15)(1.10)); and the December 31, 1999 account balances of employees (including Employee X’s increased account balance) will share in estimated January 1, 2000 to June 1, 2000 earnings on the corrective contribution equal to $759 ($6,325(.12)). (See Table 3.)

Example 28 :

The facts are the same as in Example 26 .

Earnings Adjustment on the Corrective Contribution :

The earnings amount on the corrective contribution is the same as in Example 23, but the earnings amount is allocated using the bifurcated allocation

method. Thus, the earnings for the first partial valuation period (March 31, 1998 to December 31, 1998) and the earnings for 1999 are allocated to Employee X. Accordingly, Employer L makes a contribution on June 1, 2000 to the plan of $7,084 ($5,000(1.15)(1.10)(1.12)). Employee X’s account balance as of December 31, 1999 is increased by

TABLE 3
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS

	Earnings Rate	Amount	Allocated to:
Corrective Contribution		$5,000	Employee X
First Partial Valuation Period Earnings	15%	7501	Employee X
1999 Earnings	10%	5752	Employee X
Second Partial Valuation Period Earnings	12%	7593	12/31/99 Account Balances (including Employee X’s $6,325)4
Total Amount Contributed		$7,084

1$5,000 x 15% 2$5,750($5,000 +750) x 10% 3$6,325($5,000 +750 +575) x 12% 4After reduction for distributions during the 2000 year but without regard to contributions received during the 2000 year.

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Example 29 :

The facts are the same as in Example 26 .

Earnings Adjustment on the Corrective Contribution :

The earnings amount on the corrective contribution is the same as in Example 23, but the earnings amount is allocated using the current period allocation method. Thus, the earnings for the first partial valuation period (March 31, 1998 to December 31, 1998) are allocated as 2000 earnings. Accordingly,

Employer L makes a contribution on June 1, 2000 to the plan of $7,084 ($5,000 (1.15)(1.10)(1.12)). Employee X’s account balance as of December 31, 1999 is increased by the sum of $5,500 ($5,000(1.10)) and the remaining 1999 earnings on the corrective contribution equal to $75 ($5,000(.15)(.10)). Further, both (1) the estimated March 31, 1998 to December 31, 1998 earnings on the corrective contribution equal to $750 ($5,000(.15)) and (2) the estimated January 1, 2000 to June 1, 2000 earnings on the corrective

contribution equal to $759 ($6,325(.12)) are treated in the same manner as 2000 earnings by allocating these amounts to the December 31, 2000 account balances of employees in proportion to account balances as of December 31, 1999 (including Employee X’s increased account balance). (See, Table 4.) Thus, Employee X is allocated the earnings for the full valuation period during the period of the failure.

TABLE 4
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS

	Earnings Rate	Amount	Allocated to:
Corrective Contribution		$5,000	Employee X
First Partial Valuation Period Earnings	15%	7501	12/31/99 Account Balances (including Employee X’s $5,575)4
1999 Earnings	10%	5752	Employee X
Second Partial Valuation Period Earnings	12%	7593	12/31/99 Account Balances (including Employee X’s $5,575)4
Total Amount Contributed		$7,084

1$5,000 x 15% 2$5,750($5,000 +750) x 10% 3$6,325($5,000 +750 +575) x 12% 4After reduction for distributions during the year for which earnings are being determined but without regard to contributions received during the year for which earnings are being determined.

2006–22 I.R.B. 988 May 30, 2006

APPENDIX C VCP CHECKLIST IS YOUR SUBMISSION COMPLETE?

INSTRUCTIONS

The Service will be able to respond more quickly to your VCP request if it is carefully prepared and complete. To ensure that your request is in order, use this checklist. Answer each question in the checklist by inserting yes, no, or N/A, as appropriate, in the blank next to the item. Sign and date the checklist (as taxpayer or authorized representative) and include it in the submission as provided in section 11.09 of Rev. Proc. 2006–27 (Hereafter, all section references are to Rev. Proc. 2006–27.)

You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request, substantive consideration of your submission will be deferred until a completed checklist is received.

TAXPAYER’S NAME

TAXPAYER’S I.D. NO.

PLAN NAME & NO.

ATTORNEY/P.O.A.

The following items relate to all submissions:

Does the submission consist solely of a failure to amend a plan timely for (a) good faith plan amendments for EGTRRA, (b) plan amendments for the final and temporary regulations under § 401(a)(9) or (c) interim amendments? If yes, please proceed to Appendix F. (See section 11.01 and sections 4.06 and 10.08.)
Have you included an explanation of how and why the failure(s) arose, including a description of the administrative procedures for the plan in effect at the time the failure(s) occurred? (See section 11.02(3) and (4).)
Have you included a detailed description of the method for correcting the failure(s) identified in your submission? This description must include, for example, the number of employees affected and the expected cost of correction (both of which may be approximated if the exact number cannot be determined at the time of the request), the years involved, and calculations or assumptions the Plan Sponsor used to determine the amounts needed for correction. In lieu of providing correction calculations with respect to each employee affected by a failure, you may submit calculations with respect to a representative sample of affected employees. However, the representative sample calculations must be sufficient to demonstrate each aspect of the correction method proposed. Note that each step of the correction method must be described in narrative form. (See section 11.02(5).)
Have you described the earnings or interest methodology (indicating computation period and basis for determining earnings or interest rates) that will be used to calculate earnings or interest on any corrective contributions or distributions? (As a general rule, the interest rate (or rates) earned by the plan during the applicable period(s) should be used in determining the earnings for corrective contributions or distributions.) (See section 11.02(6).)
Have you submitted specific calculations for either affected employees or a representative sample of affected employees? (See section 11.02(7).)
Have you described the method that will be used to locate and notify former employees or, if there are no former employees affected by the failure(s) or the correction(s), provided an affirmative statement to that effect? (See section 11.02(8).)
Have you provided a description of the administrative measures that have been or will be implemented to ensure that the same failure(s) do not recur? (See section 11.02(9).)
Have you included a statement that, to the best of the Plan Sponsor’s knowledge, the plan is not currently under an Employee Plans examination? (See section 11.02(10).)
Have you included a statement that, to the best of the Plan Sponsor’s knowledge, the Plan Sponsor is not under an Exempt Organizations examination? (See section 11.02(10).)

May 30, 2006 989 2006–22 I.R.B.

Have you included a statement that neither the plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction? Alternatively, have you provided a statement identifying the abusive tax avoidance transaction(s) to which the plan or the Plan Sponsor has been a party? (See section 11.02(11).)
If the submission includes a failure related to Transferred Assets, have you included a description of the related employer transaction, including the date of the employer transaction and the date the assets were transferred to the plan? (See section 11.02(12).)
Have you included a copy of the portions of the plan document (and adoption agreement, if applicable) relevant to the failure(s) and method(s) of correction? (See section 11.03(2).)
Have you included the original signature of the sponsor or the sponsor’s authorized representative? (See section 11.06.)
Have you included a Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821)? Note: Authorization to represent a plan sponsor before the Service using Form 2848 is limited to attorneys, certified public accountants, enrolled agents, and enrolled actuaries. (See section 11.07.)
Have you included a Penalty of Perjury Statement signed (original signature only) and dated by the Plan Sponsor? (See section 11.08.)
Have you designated your submission for a Qualified Plan, 403(b) Plan, SEP, SIMPLE IRA Plan, or Orphan Plan? In addition, the submission should indicate if the submission is a Group Submission, an Anonymous Submission, a nonamender submission, a multiemployer or multiple employer plan submission. (See section 11.10.)
Have you submitted the Appendix E acknowledgement letter? (See section 11.11.)
If you are requesting a waiver of the excise tax under § 4974 of the Code, have you included the request, and, if applicable, an explanation supporting the request for any affected owner-employee or 10 percent owner? (See section 6.09(2).)
If you are requesting relief of the excise tax under §§ 4972 or 4979, have you included the request and a detailed description of the failure? (See sections 6.09 (3) & (4).)
If you are you requesting that participant loans being corrected under this revenue procedure not be treated as distributions pursuant to § 72(p), have you included the request and a detailed description of the failure? Alternatively, if you are requesting that participant loans being corrected under this revenue procedure be recognized as distributions in the year of correction, instead of the year that the deemed distribution occurred under § 72(p), have you included the request and a detailed description of the failure? (See sections 6.02(6) and 6.07.)
Where applicable, have you submitted an application for a determination letter and Form 8717 together with a check for the user fee made payable to the U.S. Treasury? (See sections 10.06 and 11.03(3).)
If the plan is currently being considered in an unrelated determination letter application, have you included a statement to that effect? (See section 11.02(12).)
Have you included a copy of the first three pages of the Form 5500 (which includes employee census information) and the applicable Financial Information Schedule of the most recently filed Form 5500 series return? Note: If a Form 5500 is not applicable, insert N/A and furnish the name of the plan, and the census information required of Form 5500 series filers. (See section 11.03(1).)
Where applicable have you included a check for the VCP compliance fee, and, if applicable, a separate check for the determination letter fee each made payable to the U.S. Treasury? (See sections 10.06 and 12.01).)
If your submission is for a terminating Orphan Plan, have you included a request for a waiver of the VCP fee? (See section 12.02(3).)
Have you assembled your submission as described in section 11.14?

2006–22 I.R.B. 990 May 30, 2006

If you inserted “N/A” for any item enter explanation:

Signature Date

Title or Authority

Typed or printed name of person signing checklist

May 30, 2006 991 2006–22 I.R.B.

APPENDIX D

SAMPLE FORMATS FOR VCP SUBMISSIONS

The following sample submission formats may be photocopied and used as part of a VCP submission.

I. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN

Indicate Plan Type, and whether submission is a Group or Anonymous Submission

Identification of Failures

A complete description, for each failure, which includes (but is not limited to):

A description of the failure
Years in which the failure occurred (including closed years)
Number of participants affected (may be estimated)
A description of the administrative procedures in effect at the time the failures occurred
Explanation of how and why the failures occurred

Description of Proposed Method of Correction

A complete description of the correction proposed, for each failure, which includes (but is not limited to):

a complete description of the method of correction proposed for correcting the failure and if multiple steps are involved, a narrative of the steps involved in implementing the proposed correction
the number of employees affected (may be estimated)
the expected cost of correction (may be estimated)
the years involved
calculations or assumptions used to determine the amounts needed for correction
a description of the methodology that will be used to calculate earnings or actuarial adjustments on any corrective contributions or distributions (indicating the computation periods and the basis for determining earnings or actuarial adjustments in accordance with section 6.02(4) of Rev. Proc. 2006–27)
specific calculations, sufficient to demonstrate each aspect of the correction method proposed, for each affected employee or a representative sample of affected employees
the method that will be used to locate and notify former employees and beneficiaries, or an affirmative statement that no former employees or beneficiaries were affected by the failures or will be affected by the correction
if a submission includes a failure that refers to Transferred Assets and the failure occurred prior to the transfer, a description of the transaction (including the dates of the employer change and the plan transfer)
any request (with supporting rationale) for either not treating participant loans as distributions pursuant to § 72(p) or that deemed distributions under § 72(p) be recognized in the year of correction
any specific request (with supporting rationale) for relief from excise taxes under §§ 4972, 4974 or 4979
for Orphan Plans only, any specific request for relief (with supporting rationale) from imposition of the Voluntary Compliance fee

Description of Administrative Procedures

A description of the administrative measures that have been or will be implemented to ensure that the failure(s) will not recur

Sample Statement regarding status of examination:

To the best of the Plan Sponsor’s knowledge (1) the subject Plan is not currently under examination of either an Employee Plans Form 5500 series return or other Employee Plans examination, (2) the Plan Sponsor is not under an Exempt Organizations examination (that is, an examination of a Form 990 series return or other Exempt Organizations examination, (3) neither the Employer nor any of its representatives have received verbal or written notification from the TEGE Division of an impending examination or of any impending referral for such examination, nor is the Plan in Appeals or litigation for any issues raised in such an examination, and (4) the subject Plan is not currently under investigation by the Criminal Investigation Division of the Internal Revenue Service.

2006–22 I.R.B. 992 May 30, 2006

Sample Statement (if applicable) regarding status of any determination letter application not related to the VCP submission

The Plan Sponsor applied for and has currently pending an application for a favorable determination letter with the Service filed on (insert date) .

Sample Statement regarding abusive tax avoidance transactions if neither the Plan nor the Plan Sponsor was a party to such a transaction (note - if either the plan or plan sponsor was a party to such a transaction, a statement describing the transaction will be required)

Neither the Plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction as defined in section 4.13(2) of Rev. Proc. 2006–27.

Sample Penalty of Perjury:

Under penalties of perjury, I declare that I have examined this submission, including accompanying documents and, to the best of my knowledge and belief, the facts and information presented in support of this submission are true, correct and complete.

Name and Title (Executed by Plan Sponsor)

Required Documentation:

Copy of plan document (or relevant plan provisions, i.e., those provisions relating to the failure(s) described in the submission)

Copy of the first three pages of the most recently filed Form 5500 series return and the applicable Financial Information Schedule. (In the case of a terminated plan, the Form 5500 must be the one filed for the plan year prior to the plan year for which the Final Form 5500 return was filed.)

Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821), if applicable

A statement that neither the plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction (as defined in section 4.13(2)) or a brief identification of any abusive tax avoidance transaction to which the plan or the Plan Sponsor has been a party

Determination letter application

Your submission must include a determination letter application on the appropriate Form 5300 series application form if you are correcting a nonamender failure. A nonamender failure is a failure to amend the plan to reflect a change in a qualification requirement within the plan’s applicable remedial amendment period. A change in a qualification requirement includes a change arising from a statutory change, issuance of regulations or other guidance published in the Internal Revenue Bulletin. If you are correcting the nonamender failure through the adoption of an amendment designated by the Service as a model amendment or the adoption of a prototype or volume submitter plan for which you have reliance on the plan’s opinion or advisory letter as provided in Rev. Proc. 2006–6, 2006–1 I.R.B. 204, no determination letter application is necessary. If your plan is terminating, or if you are correcting a failure other than a nonamender failure through a plan amendment and you are submitting your VCP submission during the same year the plan’s remedial amendment period is expiring, you may request a determination letter on the plan. When submitting for a determination letter with a VCP submission, please submit the following documents:

a copy of the amendment (or entire plan, in the case of a nonamender failure)

the appropriate Form 5300 series application form, and

Form 8717 and the appropriate determination letter user fee

Assembling your submission

Please assemble your submission package in the order provided in section 11.14 of this revenue procedure (and partially reproduced below). The sample format above may be used as a tool for preparing the information required for your submission.

If applicable, Form 8717, User Fee for Employee Plan Determination Letter Request, and the check for the determination letter user fee made payable to the U.S. Treasury
Determination letter application (Form 5300 series), if applicable

May 30, 2006 993 2006–22 I.R.B.

Submission signed by the Plan Sponsor or Plan Sponsor’s authorized representative, with a check for the VCP fee made payable to the U.S. Treasury attached to the front of the submission letter. The submission should include the following:

• Type of plan (or group of plans) being submitted • Description of the failures (if…¶

• An explanation of how and why the failures arose • Description of the method for…¶

• Description of the method used to locate or notify former employees affected by the…¶

former employees are affected by the failures or corrections, then the letter should affirmatively state that position when addressing this issue

Exceptions & meaning →

• Description of the administrative procedures that have been or will be implemented to…¶

being made and supporting rationale for such request. Alternatively, whether a request that participant loans corrected under this revenue procedure should be treated as distributions in the year of correction is being made and supporting rationale for such request.

Exceptions & meaning →

• Whether relief from imposition of the excise taxes under §§ 4972, 4974 or 4979 is…¶

• If the plan is an Orphan Plan, whether relief from the VCP application fee is being…¶

• A statement on whether the plan is being considered in an unrelated determination…¶

in section 4.13(2)) or a brief identification of any abusive tax avoidance transaction to which the plan or the Plan Sponsor has been a party

Exceptions & meaning →

• Penalty of perjury statement¶

Completed and signed checklist (see Appendix C of Rev. Proc. 2006–27)
Acknowledgement Letter, if desired (see Appendix E of Rev. Proc. 2006–27)
Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821), if applicable
Form 5500, (first three pages and the applicable Financial Information Schedule) or equivalent information
Copy of opinion or determination letter (if applicable)
Relevant plan document language or plan document (if applicable)
Any other items that may be relevant to the submission

2006–22 I.R.B. 994 May 30, 2006

II. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN WHERE THE

ONLY ISSUE IS A NONAMENDER FAILURE

Indicate Plan Type, and whether submission is a Group or Anonymous Submission

Identification of Failures

Indicate which tax legislation is the subject of the submission: (check all that apply)

The Employee Retirement Security Act of 1974 (ERISA)

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

The Deficit Reduction Act of 1984 (DEFRA)

The Retirement Equity Act of 1984 (REA)

The Tax Reform Act of 1986 (TRA ’86)

The Unemployment Compensation Act of 1992 (UCA)

The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93)

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”)

The good faith plan amendments for the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), within the period described in Notice 2001–42 including those changes listed in Notice 2005–5

The final and temporary regulations under § 401(a)(9) of the Internal Revenue Code

interim amendments pursuant to section 5 of Rev. Proc. 2005–66

Please List:

EGTRRA

Other:

Please list:

Years in which the failure(s) occurred (including closed years)
A description of the administrative procedures in effect at the time the failures occurred
Explanation of how and why the failures occurred

Description of Proposed Method of Correction

Include appropriate determination letter application (see “Required Documentation,” below).

Description of Administrative Procedures

A description of the administrative measures that have been or will be implemented to ensure that the failure(s) will not recur

May 30, 2006 995 2006–22 I.R.B.

Sample Statement regarding status of examination:

Neither the Plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction as defined in section 4.13(2) of Rev. Proc. 2006–27.

Sample Statement (if applicable) regarding status of any determination letter application not related to the VCP submission

The Plan Sponsor applied for and has currently pending an application for a favorable determination letter with the Service filed on (insert date) .

Sample Penalty of Perjury:

Name and Title (Executed by Plan Sponsor)

Required Documentation:

Appropriate determination letter application form ( i.e., Form 5300 series)

Copy of plan document in effect prior to proposed amendment

Copy of the proposed plan amendment

Form 8717 and determination user fee

Any other materials required to be submitted with determination letter application (see Forms 5300, 5310 & Schedule Q, and 5303)

Copy of the first three pages of the most recently filed Form 5500 series return and the applicable Financial Information Schedule (In the case of a terminated plan, include the Form 5500 filed for the plan year prior to the plan year for which the Final Form 5500 return was filed.)

Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821), if applicable

Copy of determination letter most recently issued with respect to the plan

2006–22 I.R.B. 996 May 30, 2006

Assembling your submission

If you are preparing your submission using the sample format provided above, please assemble your submission package in the following order:

If applicable, Form 8717, User Fee for Employee Plan Determination Letter Request, and the check for the determination letter user fee made payable to the U.S. Treasury
Determination letter application (Form 5300 series), if applicable
Submission, with a check for the VC fee made payable to the U.S. Treasury attached to the front of the submission letter, and including:

Exceptions & meaning →

• Identification of Failures • Description of Proposed Method of Correction •…¶

Completed and signed Checklist (see Appendix C of Rev. Proc. 2006–27)
Acknowledgement Letter, if desired (see Appendix E of Rev. Proc. 2006–27)
Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821), if applicable
Form 5500 (first three pages and the applicable Financial Information Schedule) or equivalent information including: number of participants in the plan and total amount of plan assets
Copy of opinion or determination letter
Copy of plan document in effect prior to the proposed plan amendment(s)
Copy of the proposed plan amendments

May 30, 2006 997 2006–22 I.R.B.

APPENDIX E Acknowledgement Letter

[ ]

Plan Name: [Insert plan name and plan number]

Control #: [To be completed by the Internal Revenue Service]

INSERT NAME AND ADDRESS OF PLAN SPONSOR OR POWER OF ATTORNEY AT LEFT

Received Date: [To be completed by the Internal Revenue Service]

The Internal Revenue Service, Employee Plans Voluntary Compliance, has received your VCP Submission for the above-captioned plan. Your request has been assigned the control number listed above. This number should be referred to in any communication to us concerning your submission.

You will be contacted when the case is assigned to an agent. If you are not contacted within 120 days from the date of this letter, and need to inquire about the status of your case, please call (202) 283–9888 (not a toll-free number). Please leave a message with the name of the Plan, the Control Number, your name and a phone number where you can be reached.

Thank you for your cooperation.

2006–22 I.R.B. 998 May 30, 2006

APPENDIX F VCP SAMPLE SUBMISSION FOR INTERIM NONAMENDERS

PLAN SPONSOR’S NAME

PLAN SPONSOR’S I.D. NO.

PLAN SPONSOR’S ADDRESS:

PLAN NAME & NO.

PLAN SPONSOR REPRESENTATIVE NAME

PLAN SPONSOR REPRESENTATIVE ADDRESS:

Identification of Failures:

The Plan identified above was not amended timely for: (check failure(s) that apply):

the good faith plan amendments for the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), within the period described in Notice 2001–42 including those changes listed in Notice 2005–5

the final and temporary regulations under § 401(a)(9) of the Internal Revenue Code

interim amendments pursuant to section 5 of Rev. Proc. 2005–66

Please List:

Description of Proposed Method of Correction

The Plan Sponsor adopted amendments required to correct the failure(s) identified above. The signed and dated amendments are attached to this submission.

Description of steps taken to ensure that the failure does not recur [INSERT below]

Plan Sponsor’s representations:

To the best of my knowledge (1) the subject Plan is not currently under examination of either an Employee Plans Form 5500 series return or other Employee Plans examination, (2) the Plan Sponsor is not under an Exempt Organizations examination (that is, an examination of a Form 990 series return or other Exempt Organizations examination, (3) neither the Employer nor any of its representatives have received verbal or written notification from the TEGE Division of an impending examination or of any impending referral for such examination, nor is the Plan in Appeals or litigation for any issues raised in such an examination, and (4) the subject Plan is not currently under investigation by the Criminal Investigation Division of the Internal Revenue Service.

Neither the Plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction as defined in section 4.13(2) of Rev. Proc. 2006–27.

May 30, 2006 999 2006–22 I.R.B.

The Plan Sponsor will neither attempt to amortize, deduct, or recover from the Internal Revenue Service any compliance fee paid in connection with this compliance statement, nor receive any Federal tax benefit on account of payment of such compliance fee.

Signed:

Name (printed):

Title:

Plan Sponsor’s documents:

In addition to the corrective plan amendments described in the “Proposed Method of Correction,” the Plan Sponsor encloses the following documents with this submission:

Exceptions & meaning →

• VC fee of $375 made payable to the U.S. Treasury • Copy of the first three pages of…¶

ule. (In the case of a terminated plan, the Form 5500 must be the one filed for the plan year prior to the plan year for which the Final Form 5500 return was filed)

Exceptions & meaning →

• Power of Attorney (Form 2848) or Tax Information Authorization (Form 8821), if…¶

Enforcement Resolution:

The Internal Revenue Service will not pursue the sanction of plan disqualification on account of the qualification failures described in this VCP submission.

The Internal Revenue Service will treat the adoption of the amendments as making available the remedial amendment period, currently described in Rev. Proc. 2005–66.

Approved:

Joyce Kahn, Manager Employee Plans Voluntary Compliance Tax Exempt and Government Entities Division Internal Revenue Service

Date:

2006–22 I.R.B. 1000 May 30, 2006

Exceptions & meaning →