SECTION 13. DESCRIPTION OF

AUDIT CAP

.01 Audit CAP requirements . If the IRS 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 IRS. This section 13 also applies if the IRS 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. However, at the Plan Sponsor’s option, the sanction may be paid by credit or debit card or directly from a checking or savings account through www.pay.gov .

.03 Additional requirements . Depending on the nature of the failure, the IRS 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.

.04 Failure to reach resolution . If the IRS 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.

.05 Effect of closing agreement . A closing agreement constitutes an agreement between the IRS and the Plan Sponsor that is binding with respect to the tax matters identified in the agreement for the periods specified.

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