Employee Plans Compliance Resolution System (EPCRS)
December 9, 2006

The Employee Relations Law Journal has written about the recent updates to the Employee Plans Compliance Resolution System (EPCRS).  The article starts by establishing the IRS position on errors:

“The IRS takes the position that any errors in the operation of a plan or the form of plan documentation, no matter how inconsequential or unintentional, can disqualify a plan, and when challenged (which is infrequent), the courts have held that this position was not an abuse of the IRS’s discretion.  The IRS has also consistently refused to recognize a “scrivener’s error” defense for plan language that does not reflect actual operations.  Most plans with errors discovered on audit are not disqualified, but they face heavy penalties, and the threat of disqualification and the loss of prior and future tax benefits is a major bargaining tool for the IRS.”

1. Self-Correction Program (SCP) – self-correction without IRS approval
2. Voluntary Correction Program (VCP) – self-correction with IRS approval
3. Correction on Audit Program (Audit CAP) – correction after IRS catches the error(s)

• Operational (e.g., incorrect administration or failure to follow the plan document)
• Plan document (e.g., failure to amend timely or properly)
• Demographic (failing a nondiscrimination test)
• Employer eligibility (an employer not being eligible to adopt the plan it is using)