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The IRS & You

Has the IRS called?

What is the IRS looking for?

  • Document failure
  • Operational failure

How do they select plans for audit? “Refined case selection techniques”

They segment the market and analyze plans by:

  • Type of plan
  • Level of compliance
  • Referrals from IRS business units and other government agencies

IRS Focused Audit Exam Project

  • Initially focus on 1000 5500’s for all types of plans except:
    • Plans with over 2500 participants
    • ESOPs
    • KSOPs
    • Cash balance plans

  • Focus industries:
    • Health Care
    • Manufacturing
    • Construction
    • Finance
    • Insurance
    • “Other Services”

  • Common Areas of Noncompliance
    • Eligibility
    • Compensation
    • Deduction
    • Top Heavy
    • Self Employed
    • Sub S
    • Nondiscrimination Testing
    • Coverage
    • Other Benefits, Rights and Features
    • Calculation of Benefits
    • Loans
    • Prohibited Investment Transactions

Employee Plan Examinations

Purpose of the examination process:

  • Compliance and enforcement program to positively impact the maintenance of the private retirement system.
  • To provide innovative solutions to keep the plans operational and minimize the burden on taxpayers.

Employee Plans Compliance Resolution System - EPCRS

  • SCP – Self Correction Program
  • VCP – Voluntary Correction Program
  • CAP – Audit Closing Agreement Program

Employee Plan Team Audit Program

What is it?

A program of broad-scope examinations of large employer plans with a team of specialists in the IRS.

What do they examine?

  • Approximately 4400 plans with more than 2500 participants
  • Only 1% of 690,000 qualified plans
  • But 60% or 48,000,000 of total participants
  • And 70% or $2,000,000,000 of plan assets


Case Selection Committee selects and assigns cases for EPTA Groups six Area Offices.

Specialized Training

  • Identify and develop issues involving complex abusive tax avoidance schemes
  • Conduct conferences
  • Construct the audit engagement agreement
  • Develop the administrative record
  • Complete Schedule M-1 reconciliation
  • Perform statistical sampling
  • Manipulate an access data base

Scope of Examinations:

  • 401(a) plans
  • 403(b) plans
  • 457 plans
  • Large and complex MAP plans