Some additional thoughts regarding discussions with the IRS at the Mid-Atlantic Pension Liaison Group Meeting:
(1) The question has been asked by a reader as to why the fees listed in the Nonamender Fee Schedule at this post and given to practitioners at the Mid-Atlantic Pension Liaison Group meeting are higher than the fees listed here in Rev. Proc. 2003-44 (link via Benefitslink.com). The question has to do with my discussion of the IRS’s new Nonamender Fee Schedule detailing fees that the IRS will impose if a plan sponsor makes a favorable determination letter application for a qualified plan and, in the process, it is discovered that certain amendments are missing. With respect to the question asked, Rev. Proc. 2003-44 contains the following language:
A submission of a plan under the determination letter program does not constitute a submission under VCP. If the Service in connection with a determination letter application discovers a Qualification Failure, the agent may issue a closing agreement with respect to the failures identified or, if appropriate, refer the case to Employee Plans Examinations. In either case, the fee structure in section 12, applicable to VCP, will not apply. Instead, the fee structure in section 14 relating to Audit CAP will apply. (See sections 13 and 14.) If the Plan Sponsor discovers a Qualification Failure, the Plan Sponsor should submit an application under VCP to correct the failure.
The Nonamender Fee Schedule posted here at Benefitsblog only applies to the determination letter application process. In other words, the fees would only be utilized in the situation where a determination letter application is filed and it is discovered that the amendments are missing. Under the Revenue Procedure, the plan would no longer be eligible for the voluntary submission procedure known as “VCP” and would then be thrown into “audit CAP.” Without the Nonamender Fee Schedule, the sanction under Audit CAP would normally be a negotiated percentage of the Maximum Payment Amount according to the Revenue Procedure.
Thus, the difference in fees has to do with the point at which the document failure is disclosed to the IRS. If the document failure is submitted to the IRS under VCP, then the fees listed in Rev. Proc. 2003-44 would apply (i.e. the lesser fees.) However, if the document failure is discovered in the determination letter process, it is my understanding that the higher fees listed in the Nonamender Fee Schedule and posted previously would be applied.
According to comments made at the Liaison meeting, there is also a third level fee schedule being developed by the IRS which would be applied in cases where document failures are discovered in an audit situation (as opposed to the determination letter application process.) The IRS indicated that the fees imposed in an audit would likely be even higher than those listed in the Nonamender Fee Schedule posted previously.
Comment: The bottom line in all of this is that playing a round of “Ignorance is Bliss” or “Catch Me If You Can” may end up being more costly for plan sponsors than imagined, when evaluated in light of the less costly route of “Bearing the Soul” under VCP. In addition, when submitting plans under the determination letter process, practitioners would be wise to have in hand copies of previous versions of the documents and any required amendments at the time of filing in order to avoid the perilous “where is the amendment” routine which can occur, in some instances, if and when the IRS asks for copies of prior documents.
(2) On another note, I was reminded by a practitioner who was in attendance at the meeting of another comment made by the IRS which readers may find important. IRS News Release 2003-112 announced an extension of the deadline to file selected returns and to pay certain taxes for affected taxpayers located in (or whose records were housed in) the Hurricane Isabel disaster area. At the meeting, the IRS emphasized the point that this extension does include an extension of the 401(b) remedial amendment period. Apparently, it was not clear from the original News Release that 401(b) remedial amendment period relief was available. However, the IRS has posted the following statements regarding the 401(b) remedial amendment period relief at its website:
The tax relief granted by the Service to victims of Hurricane Isabel includes an extension of the GUST remedial amendment period under section 401(b) of the Internal Revenue Code. If the GUST remedial amendment period for a plan of an affected employer expired on or after September 18, 2003, the deadline to amend the plan to comply with GUST is extended to November 18, 2003.This extension also applies to any other remedial amendment period under section 401(b) for a plan of an affected employer that expired on or after September 18, 2003.
Affected employers who qualify for the extension and who file a determination letter application should write “Hurricane Isabel” at the top of the determination letter application.
According to the News Release, plan sponsors located in certain specified parts of Delaware, Maryland, North Carolina and Virginia would be able to take advantage of this relief.