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House Subcommittee Chair, Ranking Member Press IRS for VCP Update

Following a House subcommittee hearing, the Chairman and Ranking Member want some answers from the IRS on changes that dramatically increased the cost to small plans of correcting plan mistakes.

In a letter to Sunita Lough, Commissioner of the IRS’s Tax Exempt/Government Entities (TEGE) division, who testified at the April 17 hearing, Subcommittee Chairman Dave Brat (R-VA), and Ranking Member Dwight Evans (D-PA) pressed for follow up on commitments Lough made during the hearing, specifically whether meetings with “several key small-business organizations, including the Small Business Council of America” had taken place, and if so, with which organizations, the outcome of the meeting(s), and anticipated next steps, as well as if there were any other examples of outreach to the small business community.

The IRS unveiled the massive change in fee structure for the Voluntary Correction Program on Jan. 2 in Revenue Procedure 2018-4 “with no advance warning, no discussion, and no grace period to allow plan sponsors the opportunity to make their VCP submissions prior to the new fees taking effect,” as was previously pointed out in a comment letter from the American Retirement Association. The true beneficiaries of the new VCP user fees were larger plan sponsors with plans that cover more than 100, more than 1,000, and more than 10,000 participants.

As for smaller plans — and hence the focus of the subcommittee and the June 5 letter — the new fee schedule triples, quadruples or even sextuples the VCP fee for small plans. In the hearing, Lough had justified the shift by claiming that it was consistent with the time and effort expended on the smaller plans.

Consequently, in the letter, the Congressmen went on to ask if Lough’s statement at the hearing that the IRS was looking to “see how we can streamline the Voluntary Compliance Program so we don’t spend as much time” had made any progress, specifically:

  • If the IRS planned to expand the Self-Correction Program; if so, how, and if not, why not
  • To explain “how the Self-Correction Program is limited because of ‘real tax consequences to the participants’”
  • To provide an update on whether the program would be streamlined, if so how and when, and if not, why not

The American Retirement Association has previously expressed its deep concern that the vast majority of small plans will now see a significant fee increase when a small business has to correct a retirement plan mistake, a concern that was shared and communicated directly to the IRS during the hearing from subcommittee members of both political parties.