Internal Revenue Service Simplifies and Streamlines the Employee Plans Compliance Resolution System


In June 2003, the Internal Revenue Service (the “IRS “) issued Revenue Procedure 2003–44 (the “Revenue Procedure “) in order to simplify and streamline the Employee Plans Compliance Resolution System ( “EPCRS “). EPCRS is a program designed to encourage plan sponsors to correct certain qualification failures, and to facilitate the process, while allowing the plans to continue providing retirement benefits to participants on a tax-favored basis. Although the new Revenue Procedure becomes effective on October 1, 2003, plan sponsors could begin using it on or after June 5, 2003. This Revenue Procedure modifies and supercedes Revenue Procedure 2002–47, which was issued in June 2002 and was the earlier consolidated statement of the correction programs under EPCRS. In the following discussion, capitalized terms are terms that are defined in the Revenue Procedure.

Current Structure of EPCRS

Although the Revenue Procedure makes many changes to EPCRS, the program will maintain the following three-program structure:

  • Self-Correction Program ( “SCP “):Under this program, plan sponsors can identify and correct either significant or insignificant operational failures without the need to notify the IRS or pay a fee.
  • Voluntary Compliance Program ( “VCP “): VCP permits plan sponsors to request that the IRS approve a proposed method for correction of certain failures (e.g., plan document and/or operational failures). In order to utilize this program, the plan may not currently be the subject of an audit ( “Under Examination “) by the IRS and the plan sponsor must pay a fee to the IRS.
  • Audit Closing Agreement Program ( “Audit CAP “): If a plan is Under Examination by the IRS, a plan sponsor may correct uncovered failures and pay a fee to the IRS.

Highlights of EPCRS Changes

The following are highlights of the changes made to EPCRS by the Revenue Procedure:

  • EPCRS is now available for the correction of failures in SIMPLE IRA plans (to the same extent as SEPs);
  • Voluntary Correction of Operational Failures Standardized procedure ( “VCS “) has been eliminated;
  • VCP, which previously consisted of seven subprograms categorized by type of failure, has now been consolidated into a single program;
  • The payment structure for VCP has been simplified (the scheduled range of fees is from $750 to $25,000 for VCP requests and from $10,000 to $50,000 for Group Submission requests);
  • All VCP fees now must be included with the submission. Payments, however, are no longer required to be in the form of a certified or cashier’s check;
  • SIMPLE IRAs and SEPs may now utilize the Anonymous and Group Submission programs;
  • Plans which have failed to adopt good faith amendments to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001 ( “EGTRRA “) may use EPCRS to obtain approval of late amendments. As an incentive for EGTRRA nonamenders (or other nonamenders) to quickly correct a failure to amend to comply with tax legislation, the applicable fee is reduced fifty percent for nonamenders that submit under VCP within a one-year period following the expiration of the plan’s remedial amendment period for complying with tax law changes;
  • The definition of the term “Under Examination ” is revised to:
    • Clarify that an Employee Plans examination includes the review of any determination letter application that has been submitted, not just Form 5310; and
    • Provide that if, during the process of review of an application for determination, the agent reviewing the application requests additional information that indicates the potential existence of a Qualification Failure that has not been previously identified by the Plan Sponsor, the plan is considered “Under Examination. ” Previously, the plan was not considered “Under Examination ” unless the agent had notified the Plan Sponsor, or a representative, of possible Qualification Failures.
  • A correction method for the failure to obtain spousal consent has been added: in the event that the consent cannot be obtained due to spousal refusal, failure to respond, or because the spouse cannot be located, the spouse is entitled to a benefit equal to the portion of the qualified joint and survivor annuity that would have been payable to the spouse upon the death of the participant had a qualified joint and survivor annuity been provided to the participant under the plan at his or her retirement;
  • EPCRS was revised to clarify the special exception to full correction for imprecise or unavailable data: reasonable estimates can be used in calculating the appropriate correction where it is not possible to make precise calculations—for example, in situations where it is impossible to provide plan data;
  • As in the previous version of EPCRS, a plan sponsor is not required to seek the return of a small overpayment (less than $100) from a beneficiary or participant, but now is required to notify the participant or beneficiary that the overpayment is not eligible for favorable tax treatment accorded to distributions from qualified plans;
  • Certain correction methods in Appendix A and Appendix B of the Revenue Procedure now apply to 403(b) plans, SEPs, and SIMPLE IRAs;
  • Two sample formats to assist plan sponsors in preparing VCP submissions were added to the Revenue Procedure as Appendix D. The first sample is a generic format that can be used for Operational Failures, Demographic Failures, Employer Eligibility Failures and Plan Document Failures (other than nonamenders). The second sample is a format designed specifically for nonamenders.


This article has discussed a number of the more significant changes to EPCRS, but has not comprehensively addressed every change in the Revenue Procedure—such a review is beyond the scope of this newsletter article. These changes to EPCRS provide for a more simplified program, and should encourage plan sponsors to make necessary corrections in order to satisfy various IRS requirements and provide retirement benefits to participants on a tax-favored basis. Although EPCRS is now more user-friendly for plan sponsors, it is still recommended that plan sponsors seek legal advice to ensure proper compliance with EPCRS programs.