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IRS Expands Self-Correction Program for Retirement Accounts

 Posted on May 13, 2019 in Taxation Law

San Jose retirement plan tax attorney self-correctionThe administration of retirement accounts is notoriously technical, and mistakes by plan sponsors can occur. Furthermore, since an account holder will be maintaining and contributing to a retirement account for many years, there are often changes that must be made. Tax issues may arise when 403(b) and 401(a) retirement plans need to be corrected, and the IRS must typically be notified of any corrections. Fortunately, the IRS has several self-correction mechanisms in place that allow plan sponsors to resolve errors or mistakes on their own.

The IRS has three correction programs:

  1. Self-Correction Program (SCP): Used to amend certain plan failures without communicating with the IRS or paying a user fee.
  2. Voluntary Correction Program (VCP): Used to rectify failures not eligible for the SCP or get the IRS’s statement in writing that specified failures were correctly resolved.
  3. Audit Closing Agreement Program (CAP): Used to correct failures found in the course of an IRS audit that cannot be self-corrected.  

The IRS recently announced an expansion of the self-correction program to allow additional types of failures to be remedied through the SCP instead of requiring parties to make a VCP submission to the IRS. The VCP process can often be expensive and lengthy.

There are several situations that will be positively affected by this self-correction expansion, including when a retirement plan participant takes a loan against his/her account and later defaults, which can cause substantial tax consequences to the participant. In these cases, the SCP can be used, and plan sponsors can cure the default via reamortization or by making a lump sum repayment. 

Self-correction can also be used to fix a failure to receive spousal consent for a loan or for a failure relating to giving loans above the number of loans allowed under a plan. In addition, under the expanded self-correction program, it is now permitted to self-correct certain operational and plan document failures through retroactive plan amendments. 

Call a San Jose Retirement Accounts Tax Lawyer

If you need guidance on how to comply with this area of tax law or on how to avail yourself of these new self-correction opportunities, you should seek the services of a tax attorney. Disclosing non-compliance, even if done through an IRS-sanctioned program, needs to be done with care to avoid any further complications.

The respected San Jose, CA tax law attorney at the John D. Teter Law Offices can advise you and your business on how to handle retirement accounts and how to correct any mistakes you may discover along the way. Our firm has helped businesses with tax issues for decades. We pride ourselves in our ability to clearly advise our clients on how to comply with complex tax laws as well as how to use tax laws to their advantage. To set up your first meeting with our firm, call our offices at 408-866-1810.


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