SECTION 13. DESCRIPTION OF

AUDIT CAP

participants is determined from the most recently filed Form 5500 series. Thus, with respect to the applicable 2010 or 2011 Form 5500, the Plan Sponsor would use the number shown in item 6f (or the equivalent item on the Form 5500-SF 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. If the Plan Sponsor is not required to file a Form 5500 series return with regard to any Qualified Plan or 403(b) Plan eligible for VCP, the number of plan participants for compliance fee purposes will generally be the number of plan participants as of the last day of the most recently completed plan year preceding the date of the VCP submission. However, if this information has not been compiled by the time the Plan Sponsor is ready to make a VCP submission to the Service, the Plan Sponsor may use the number of plan participants associated with the most recently completed prior plan year for which information on the number of plan participants is available. This exception would not apply if the VCP submission is mailed to the Service more than seven months after the close of the most recently completed plan year preceding the date of the VCP submission.

.09 Insufficient VCP fee . If the compliance fee included with the VCP submission is less than the compliance fee required under this section 12, the submission may be returned.

.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. This section 13 also applies if the Service identifies a participant loan that did not comply with the requirements of § 72(p)(2) (other than a loan failure that is corrected in accordance with SCP or VCP) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan or 403(b) Plan.

.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 United States 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, pursuant to section 6.05, 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 then the plan will be disqualified, the plan or contract will be treated as if it did not comply with § 403(b), the SEP will be treated as if it did not comply with § 408(k), or the SIMPLE IRA Plan will be treated as if it did not comply with § 408(p), as applicable.

2013–4 I.R.B. 361 January 22, 2013