Voluntary Closing Agreement Program: What You Need to Know
The Voluntary Closing Agreement Program (VCAP) is a program offered by the Internal Revenue Service (IRS) that allows employers to voluntarily correct certain types of retirement plan errors. The program is designed to help employers avoid potential disqualification of their retirement plan due to compliance failures.
VCAP provides an opportunity for employers to identify, self-correct, and report plan failures related to plan document or operational compliance. It also allows employers to make appropriate payments to the IRS to compensate for any tax consequences resulting from the errors.
The program is available for all types of retirement plans, including 401(k), pension, and profit sharing plans. It is important to note that VCAP is a voluntary program, meaning that employers are not required to participate. However, participating in VCAP can provide significant benefits to employers who discover compliance failures in their retirement plans.
Benefits of VCAP
Participating in VCAP has several benefits for employers. Firstly, participating in the program can help employers avoid costly penalties and fees associated with non-compliance. Additionally, by voluntarily correcting any errors, employers can demonstrate their commitment to maintaining a compliant plan and help prevent potential litigation.
Moreover, participating in VCAP can prevent potential adverse tax consequences. Employers who identify and correct compliance failures through VCAP will only be required to pay a reduced penalty fee. This is significantly less than the fees that would be charged if the plan was audited by the IRS.
Process of VCAP
To participate in VCAP, an employer needs to submit a closing agreement request to the IRS. The request should include a detailed description of the failure, the steps taken to correct the error, and the amount of payment proposed to compensate for any adverse tax consequences.
The IRS reviews the request, and if it is accepted, the employer is required to take the corrective action within a specified time frame. Once the corrective action is complete, payment of the proposed amount is made to the IRS.
VCAP is a valuable program that provides employers with an opportunity to correct compliance failures related to their retirement plans. Participating in VCAP can help employers avoid costly penalties, demonstrate their commitment to maintaining a compliant plan, and prevent potential adverse tax consequences. Employers are encouraged to take advantage of this program and work with their tax advisors to ensure that their retirement plans are compliant.