In June 2022 the IRS announced that they were beginning a pilot program of pre-audits, whereby they will send a letter to a plan sponsor which informs them that their plan has been selected for audit, along with instructions that state that they have 90 days from the date of the letter in which to respond to the IRS agent. These letters usually are choosing one primary issue that they are reviewing.
The advantage to the plan sponsor with this type of audit is that it allows the plan sponsor time to review their plan, identify any compliance issues, make corrections under the Employee Plans Correction Resolution System (EPCRS), if necessary, and receive a closing letter if the corrections are accepted by the IRS. Additionally, if there are other items found under this type of audit, the fees are lower than the Closing Agreement Program sanctions.
The first thing that a sponsor should do if they receive one of these letters it to contact their third-party administrator (“TPA”) or service provider. Their TPA can assist with reviewing the plan for issues, assisting with correction (if necessary) and providing the substantiating documentation to the agent.
Once the IRS agent has reviewed and approved any corrections, a Closing Letter will be issued stating the plan is qualified.
For additional information or questions, please contact your TPA.
By: Karen Foster, QKA
Director of Retirement Plan Services