Our tax system is based on voluntary compliance and retirement plan audits conducted by the Internal Revenue Service are one tool to ensure that.
The IRS has just announced a pilot program where they will send letters to plan sponsors letting them know that their retirement plan has been selected for examination.
Under this pilot program, plan sponsors who receive the pre-examination notice will have a 90-day window to review their retirement plan’s documents and operations to see if they meet tax law requirements and notify the IRS. Employers who don’t respond within 90 days will be contacted by the IRS to schedule an examination.
This will allow a plan sponsors that finds a compliance error to correct the error using the correction principles in the IRS’s Employee Plans Compliance Resolutions System (“EPCRS”). The IRS announcement states that the IRS will review the documentation of plan sponsors who have found and fixed errors to see if they agree with the correction.
This is a huge deal since EPCRS wasn’t available for plan sponsors that were under audit. This is a win-win for a plan sponsor to find errors before an IRS agent does.