Skip to main content

You are here

Advertisement


Has the IRS Changed its Position on VCP-Triggered Audits?

We’ve heard concerns from a number of members lately that the IRS is planning to refer more VCP applicants for auditand we have an update.   

More specifically, we’ve heard about situations that suggest that plan sponsors who submit Voluntary Correction Program applications might be referred for IRS audit, as well as concerns that the IRS was intending to refer more applicants for an audit. 

It has long been the position of the IRS that agents working on VCP applications will not make referrals to the IRS Examination functions, except in very limited circumstances. A change to this policy would be very concerning; therefore, we reached out to representatives at the IRS. The good news is there has been no overarching change to IRS policy on referrals to examination. 

As we reported last year, the IRS did update its procedures in early 2020 to provide that applicants who are unresponsive to IRS requests could be referred to examination (an issue generally impacting less than 1% of VCP applicants). At that time, the IRS also confirmed that its long-existing procedures permitted applicants who did not reach an agreement with the IRS to be referred for examination. We were told that while a referral is permitted, it is not required, and each case is reviewed independently. 

In September 2020, the Internal Revenue Manual (IRM) was updated consistent with this position—requiring only that VC agents discuss with their manager whether a referral to EP Examinations is appropriate when an application is withdrawn. Nothing in the IRM requires a referral and there has been no other policy change regarding referrals.

Plan sponsors who are concerned about their ability to reach an agreement on correction methodology should consider submitting their applications anonymously before Jan. 1, 2022, and after 2021 requesting the new anonymous pre-submission conference announced in Revenue Procedure 2021-30 to determine whether the desired correction may be permissible.

VCP has been an incredibly valuable program to the industry—encouraging maintenance of plans and increasing compliance—and the ability to use VCP with confidence that doing so won’t increase a sponsor's risk of an IRS audit has been vital. We are pleased that no change has been made to that policy and it will continue to be a valuable resource. 

Kelsey Mayo is ARA Director of Regulatory Policy and Partner at Poyner & Spruill LLP.