Meaning Well Is Not Always Enough: Watch Your VCP Submission

The IRS’ Voluntary Correction Program (VCP) provides a means by which filers can correct errors before they are told to do so, but the good intentions entailed in using it do not guarantee that there will not be errors in the filings intended to correct mistakes. The IRS has outlined the top mistakes made by those who use it. 

Online VCP Submission Process

The IRS reports that errors VCP users have made in online submissions include the following:

Not following the VCP submission procedures. This includes failure to:

• convert required VCP submission documents to PDF files;
• combine PDF documents into a single PDF file that does not exceed 15MB;
• properly upload the PDF file with the submission document;
• correctly complete the Pay.gov Form 8950, https://www.pay.gov/public/form/start/438392465 the Application for VCP; and 
• pay the correct user fee.

Making multiple submissions of the same VCP case. The IRS says that taxpayers usually make multiple submissions to correct mistakes they identify after their submission was accepted. Those mistakes include: 

• incorrect completion of Form 8950;
• mistakes in the VCP submission documents that were uploaded with the PDF file; or
• payment of the incorrect user fee.

Rejection of remitted user fee. The IRS says that errors that result in remitted user fees being rejected include: 

• errors with the bank account/routing information; or
• an unauthorized payment (the applicant's bank believes the payment request is not authorized).

Form 8950: Application for VCP Submission

The IRS says that it sees errors by applicants in completing the Pay.gov version of Form 8950. These include:

• Line 1a: The name of the plan sponsor did not match the name on the other documents and files submitted.
• Lines 1b-1h: The plan sponsor’s address wasn't complete or didn’t match IRS records.
• Line 1i: The Employer Identification Number (EIN) was incorrect or did not match the plan sponsor’s EIN.
• Line 3: The correct VCP submission type wasn't chosen. Selecting the wrong type could lead to a failure to pay the correct user fee.
• Line 4c and 4d: Participant count information and plan assets totals inaccurate. 
• The submitted Form 8950 was not signed by the correct person. These mistakes include:
  • An officer of the plan sponsor didn't sign the form when the plan sponsor completed the form.
  • The signer did not properly sign and print their name on the form.
  • The signer’s title was incorrect. 

Form 2848: Power of Attorney and Declaration of Representation

The IRS says that errors it sees with Form 2848 include:

• Part I, Line 3, Act authorized, was incomplete or was not completed properly, because:
  • The current EPCRS revenue procedure wasn't listed.
  • The VCP program was not listed or referenced.
  • The Form 8950 was not listed or referenced.
  • The “Years or Periods” column was not blank.
• Part I, line 5.a, Other acts authorized, was not completed or was completed incorrectly for VCP submissions that were submitted on behalf of the plan sponsor by their representative.
• Part I, line 7, Signature of taxpayer, was not signed or dated by the officer of the plan sponsor, or the form was missing the printed name of signer, the signer's title, or the plan sponsor's name.
• Part II. Declaration of Representative was signed by the representative more than 45 days after the taxpayer signed and dated Part 1, line 7.

Form 14568: Model VCP Compliance Statement and Forms 14568-A through 14568-I

The IRS says that errors it sees with Form 14568 include the applicant:

• checking the wrong boxes or checked too many boxes;
• not including the plan name, EIN and plan number as a header on every page submitted;
• not submitting Form 14568 even though it was indicated they meant to do so;
• modifying the Form 14568 or the Forms 14568 A–I series, including deleting items on the forms that did not apply;
• failing to submit every page of the forms; and 
• requesting special tax relief on Form 14568, Section VI but did not include justification for the request.

The errors with that form also include:

• the tax relief check boxes were selected on Form 14568, Section VI but were not applicable; and
• the plan sponsor signed the form in the wrong place.

Required Narrative: Details of Plan Failures and the Correction Methods

The IRS says that errors it sees with the required narrative include:

• The descriptions of failures were not detailed enough or easy to understand.
• The descriptions of operational failures did not specify the plan sections not followed or the number of participants the failure affected.
• The method used to determine the earnings to correct contributions or distributions was not clear.
• The correction narrative refers to discontinued letter-forwarding programs.
• The submission did not state a plan qualification failure under Internal Revenue Code Section 401(a).
• The applicant did not include specific proposed changes to administrative procedures, or the proposed changes did not address how they would prevent the failure from happening again.

Submissions Involving Participant Loans and Internal Revenue Code Section 72(p)

The IRS says that errors it sees with such submissions include:

• Copies of loan agreements and amortization schedules for affected participants were missing.
• A copy of a referenced loan policy was not included.
• In cases in which the participant loan is being reamortized, it unclear whether the participant owed additional interest on missed payments and how it would be paid.
• The reamortized loan did not meet the requirements of the EPCRS revenue procedure or the Form 14568-E, Model VCP Compliance Statement - Schedule 5: Plan Loan Failures (Qualified Plans and 403(b) Plans, because it exceeded the five-year period that applied to the original participant loan.
• No explanation was provided as to how the deemed distribution amount reported on Form 1099-R issued in the year of correction complies with Treas. Reg. §1.72(p)-1, or no accrued interest was included in the amount of the deemed distribution.

Other Important Items Missing from VCP Submissions

The IRS says that other errors it sees with VCP submissions include operational failures, including:

• errors with detailed computations showing how corrective amounts were determined;
• mistakes in detailed computations showing how earnings were determined and how they affected the computation of the corrective amounts;
• not including a copy of the plan section (or plan document) in effect during the failure period; and
• not including additional documents and explanations discussed in IRM 7.2.2.19 for failures being corrected by plan amendment that conform the plan document to the plan's operations.

Late Plan Amendments 

The IRS says that it sees the following mistakes with Form 14568-A, Model VCP Compliance Statement - Schedule 1: Interim Nonamender Failures and Form 14568-B, Schedule 2 - Other Nonamender Failures and Failure to Adopt a 403(b) Plan Timely :

• The applicant did not specify the particular tax law items that were not timely reflected in the plan.
• The applicant did not specify the plan section that includes the amendment not timely adopted.
• The plan sponsor listed plan amendments as failures for tax law provisions that the plan was not required to adopt on Form 14568-A.
• The late amendment failure was not reported on the appropriate Form 14568-A or Form 14568-B.

 
“Before you (or your representative) send your VCP submission to the IRS, check to make sure it's error-free,” suggests the IRS. And the agency warns that it needs more time to review VCP submissions that have errors in them, which, in turn, delays issuance of a compliance statement.