Bulletin No. 2021–31

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2021–31

August 2, 2021

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Announcement 2021-12, page 267.

The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled

retirement plan agents, and appraisers. These individuals are

subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code

of Federal Regulations, Part 10, and which are published in

pamphlet form as Treasury Department Circular No. 230.

The regulations prescribe the duties and restrictions relating

to such practice and prescribe the disciplinary sanctions for

violating the regulations.

EMPLOYEE PLANS

Notice 2021-44, page 166.

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for July

2021 used under § 417(e)(3)(D), the 24-month average segment rates applicable for July 2021, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)

(iv).

Rev. Proc. 2021-30, page 172.

Rev. Proc. 2021-30 adds two new benefit overpayment correction methods that encourage employers to avoid seeking

Finding Lists begin on page ii.

recoupment of benefit overpayments made to participants

and beneficiaries, either by not requiring correction if the

plan satisfies a specified funding level, or by limiting the

amount to be recouped under certain circumstances. In addition, the revenue procedure eliminates the VCP anonymous

submission procedure and adds an anonymous, no-fee, VCP

pre-submission conference procedure. The revenue procedure also expands correction by plan amendment under SCP,

extends the end of the SCP correction period for significant

failures by one year, and extends the sunset of the safe harbor correction method for certain missed elective deferrals

by three years.

INCOME TAX

Notice 2021-45, page 170.

This notice advises State and local housing credit agencies

that allocate low-income housing tax credits under § 42 of

the Internal Revenue Code of the county and parish-level populations residing in a qualified disaster zone to use in calculating the applicable dollar limitation for 2021 and 2022 as

provided in section 305 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Pub. L. 116-260) (Act).

Rev. Rul. 2021-14, page 164.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of

the Code, tables set forth the rates for August 2021.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

August 2, 2021 

Bulletin No. 2021–31

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2021-14

This revenue ruling provides various

prescribed rates for federal income tax

AFR

110% AFR

120% AFR

130% AFR

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

AFR

110% AFR

120% AFR

130% AFR

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

August 2, 2021

purposes for August 2021 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appropri-

ate percentages for determining the

low-income housing credit described in

section 42(b)(1) for buildings placed in

service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service

after July 30, 2008, shall not be less

than 9%. Finally, Table 5 contains the

federal rate for determining the present

value of an annuity, an interest for life

or for a term of years, or a remainder or

a reversionary interest for purposes of

section 7520.

REV. RUL. 2021-14 TABLE 1

Applicable Federal Rates (AFR) for August 2021

Period for Compounding

Annual

Semiannual

Quarterly

Short-term

0.19%

0.19%

0.19%

0.21%

0.21%

0.21%

0.23%

0.23%

0.23%

0.25%

0.25%

0.25%

Mid-term

1.00%

1.00%

1.00%

1.10%

1.10%

1.10%

1.20%

1.20%

1.20%

1.30%

1.30%

1.30%

1.51%

1.50%

1.50%

1.76%

1.75%

1.75%

Long-term

1.89%

1.88%

1.88%

2.08%

2.07%

2.06%

2.27%

2.26%

2.25%

2.45%

2.44%

2.43%

Annual

0.14%

0.76%

1.44%

REV. RUL. 2021-14 TABLE 2

Adjusted AFR for August 2021

Period for Compounding

Semiannual

0.14%

0.76%

1.43%

164

Monthly

0.19%

0.21%

0.23%

0.25%

1.00%

1.10%

1.20%

1.30%

1.50%

1.74%

1.87%

2.06%

2.25%

2.43%

Quarterly

0.14%

0.76%

1.43%

Monthly

0.14%

0.76%

1.43%

Bulletin No. 2021–31

REV. RUL. 2021-14 TABLE 3

Rates Under Section 382 for August 2021

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal

long-term rates for the current month and the prior two months.)

1.44%

1.58%

REV. RUL. 2021-14 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for August 2021

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July

30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

7.33%

Appropriate percentage for the 30% present value low-income housing credit

3.14%

REV. RUL. 2021-14 TABLE 5

Rate Under Section 7520 for August 2021

Applicable federal rate for determining the present value of an annuity, an interest for life or a

term of years, or a remainder or reversionary interest

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of August 2021. See Rev.

Rul. 2021-14, page 164.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of August 2021. See Rev. Rul.

2021-14, page 164.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

1.2%

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of August 2021. See Rev. Rul.

2021-14, page 164.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2021. See Rev. Rul. 2021-14, page 164.

Bulletin No. 2021–31

165

August 2, 2021

Part III

Update for Weighted

Average Interest Rates,

Yield Curves, and Segment

Rates

Notice 2021-44

This notice provides guidance on the

corporate bond monthly yield curve, the

corresponding spot segment rates used

under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the

Internal Revenue Code. In addition, this

notice provides guidance as to the interest

rate on 30-year Treasury securities under

§ 417(e)(3)(A)(ii)(II) as in effect for plan

years beginning before 2008 and the 30year Treasury weighted average rate under

§ 431(c)(6)(E)(ii)(I).

YIELD CURVE AND SEGMENT

RATES

Section 430 specifies the minimum

funding requirements that apply to sin-

Applicable Month

July 2021

gle-employer plans (except for CSEC

plans under § 414(y)) pursuant to § 412.

Section 430(h)(2) specifies the interest rates that must be used to determine

a plan’s target normal cost and funding

target. Under this provision, present value is generally determined using three

24-month average interest rates (“segment rates”), each of which applies to

cash flows during specified periods. To

the extent provided under § 430(h)(2)

(C)(iv), these segment rates are adjusted

by the applicable percentage of the 25year average segment rates for the period

ending September 30 of the year preceding the calendar year in which the plan

year begins.1 However, an election may

be made under § 430(h)(2)(D)(ii) to use

the monthly yield curve in place of the

segment rates.

Notice 2007-81, 2007-44 I.R.B. 899,

provides guidelines for determining the

monthly corporate bond yield curve, and

the 24-month average corporate bond

segment rates used to compute the target

normal cost and the funding target. Consistent with the methodology specified in

Notice 2007-81, the monthly corporate

bond yield curve derived from June 2021

data is in Table 2021-6 at the end of this

notice. The spot first, second, and third

segment rates for the month of June 2021

are, respectively, 0.63, 2.70, and 3.32.

The 24-month average segment rates

determined under § 430(h)(2)(C)(i)

through (iii) must be adjusted pursuant to

§ 430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average

segment rates.

The 25-year average segment rates for

plan years beginning in 2020 and 2021

were published Notice 2019-51, 2019-41

I.R.B. 866, and Notice 2020-72, 2020-40

I.R.B. 789, respectively.

24-MONTH AVERAGE CORPORATE

BOND SEGMENT RATES

The three 24-month average corporate

bond segment rates applicable for July

2021 without adjustment for the 25-year

average segment rate limits are as follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment

First Segment

Second Segment

1.20

2.73

25-YEAR AVERAGE SEGMENT

RATES

Section 9706(a) of the American Rescue Plan Act of 2021, Pub. L. No. 1172 (ARP), which was enacted on March

11, 2021, changes the 25-year average

segment rates and the applicable minimum and maximum percentages used

under § 430(h)(3)(C)(iv) of the Code to

adjust the 24-month average segment

rates. Prior to this change, the applicable minimum and maximum percentages

were 90% and 110% for a plan year beginning in 2020, and 85% and 115% for

a plan year beginning in 2021, respectively. After this change, the applicable

minimum and maximum percentages are

95% and 105% for a plan year beginning

in 2020 or 2021. In addition, pursuant

to this change, any 25-year average segment rate that is less than 5% is deemed

to be 5%.2

Pursuant to § 9706(c)(1) of ARP, these

changes apply with respect to plan years

beginning on or after January 1, 2020.

Third Segment

3.42

However, § 9706(c)(2) of ARP provides

that a plan sponsor may elect not to have

these changes apply to any plan year beginning before January 1, 2022.3

The adjusted 24-month average segment rates set forth in the chart below

reflect § 430(h)(2)(C)(iv) of the Code as

amended by § 9706(a) of ARP. These adjusted 24-month average segment rates

apply only for plan years for which an

election under § 9706(c)(2) of ARP is not

in effect. For a plan year for which such

an election does not apply, the 24-month

Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount

of the full funding limitation under § 433(c)(7)(C)).

2

Pursuant to this change, the 25-year averages of the first segment rate for 2020 and 2021 are increased to 5.00% because those 25-year averages as originally published are below 5.00%.

3

This election may be made either for all purposes for which the amendments under § 9706 of ARP apply or solely for purposes of determining the adjusted funding target attainment percentage under § 436 of the Code for the plan year.

1

August 2, 2021

166

Bulletin No. 2021–31

averages applicable for July 2021, adjusted to be within the applicable minimum

For Plan Years

Beginning In

and maximum percentages of the corresponding 25-year average segment rates

in accordance with § 430(h)(2)(C)(iv) of

the Code, are as follows:

Adjusted 24-Month Average Segment Rates

Applicable

First

Second

Month

Segment

Segment

Third

Segment

2020

July 2021

4.75

5.50

6.27

2021

July 2021

4.75

5.36

6.11

The adjusted 24-month average segment rates set forth in the chart below do

not reflect the changes to § 430(h)(2)(C)

(iv) of the Code made by § 9706(a) of

ARP. These adjusted 24-month average

For Plan Years

Beginning In

segment rates apply only for plan years for

which an election under § 9706(c)(2) of

ARP is in effect. For a plan year for which

such an election applies, the 24-month averages applicable for July 2021, adjusted

to be within the applicable minimum and

maximum percentages of the corresponding 25-year average segment rates in accordance with § 430(h)(2)(C)(iv) of the

Code, are as follows:

Pre-ARP Adjusted 24-Month Average Segment Rates

Applicable

First

Second

Month

Segment

Segment

Third

Segment

2020

July 2021

3.64

5.21

5.94

2021

July 2021

3.32

4.79

5.47

30-YEAR TREASURY SECURITIES

INTEREST RATES

late current liability for this purpose must

be no more than 5 percent above and no

more than 10 percent below the weighted

average of the rates of interest on 30-year

Treasury securities during the four-year

period ending on the last day before the

beginning of the plan year. Notice 88-73,

1988-2 C.B. 383, provides guidelines for

determining the weighted average interest

rate. The rate of interest on 30-year Trea-

sury securities for June 2021 is 2.16 percent. The Service determined this rate as

the average of the daily determinations of

yield on the 30-year Treasury bond maturing in May 2051. For plan years beginning

in July 2021, the weighted average of the

rates of interest on 30-year Treasury securities and the permissible range of rates

used to calculate current liability are as

follows:

For Plan Years

Beginning In

Treasury Weighted Average Rates

30-Year Treasury

Weighted Average

Permissible Range

90% to 105%

July 2021

2.22

1.99 to 2.33

under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month

average. Notice 2007-81 provides guidelines for determining the minimum pres-

ent value segment rates. Pursuant to that

notice, the minimum present value segment rates determined for June 2021 are

as follows:

Section 431 specifies the minimum

funding requirements that apply to multiemployer plans pursuant to § 412. Section

431(c)(6)(B) specifies a minimum amount

for the full-funding limitation described in

§ 431(c)(6)(A), based on the plan’s current

liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calcu-

MINIMUM PRESENT VALUE

SEGMENT RATES

In general, the applicable interest rates

Month

June 2021

Bulletin No. 2021–31

Minimum Present Value Segment Rates

First Segment

Second Segment

0.63

2.70

Third Segment

3.32

167

August 2, 2021

DRAFTING INFORMATION

The principal author of this notice is

Tom Morgan of the Office of the Asso-

August 2, 2021

ciate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). However, other personnel from

the IRS participated in the development

168

of this guidance. For further information

regarding this notice, contact Mr. Morgan

at 202-317-6700 or Paul Stern at 202-3178702 (not toll-free numbers).

Bulletin No. 2021–31

Table 2021-6

Monthly Yield Curve for June 2021

Derived from June 2021 Data

Maturity

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

Yield

0.13

0.22

0.32

0.42

0.54

0.66

0.79

0.93

1.07

1.22

1.37

1.52

1.67

1.82

1.96

2.10

2.22

2.34

2.45

2.55

2.64

2.72

2.80

2.86

2.92

2.97

3.01

3.05

3.08

3.11

3.13

3.15

3.17

3.18

3.19

3.20

3.21

3.22

3.22

3.23

Maturity

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

35.5

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

Bulletin No. 2021–31

Yield

3.23

3.24

3.24

3.24

3.24

3.25

3.25

3.25

3.26

3.26

3.26

3.26

3.27

3.27

3.27

3.28

3.28

3.28

3.29

3.29

3.29

3.29

3.30

3.30

3.30

3.31

3.31

3.31

3.31

3.31

3.32

3.32

3.32

3.32

3.32

3.33

3.33

3.33

3.33

3.33

Maturity

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

58.5

59.0

59.5

60.0

Yield

3.34

3.34

3.34

3.34

3.34

3.34

3.34

3.35

3.35

3.35

3.35

3.35

3.35

3.35

3.36

3.36

3.36

3.36

3.36

3.36

3.36

3.36

3.36

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.38

3.38

3.38

3.38

3.38

3.38

169

Maturity

60.5

61.0

61.5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

70.0

70.5

71.0

71.5

72.0

72.5

73.0

73.5

74.0

74.5

75.0

75.5

76.0

76.5

77.0

77.5

78.0

78.5

79.0

79.5

80.0

Yield

3.38

3.38

3.38

3.38

3.38

3.38

3.38

3.38

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

Maturity

80.5

81.0

81.5

82.0

82.5

83.0

83.5

84.0

84.5

85.0

85.5

86.0

86.5

87.0

87.5

88.0

88.5

89.0

89.5

90.0

90.5

91.0

91.5

92.0

92.5

93.0

93.5

94.0

94.5

95.0

95.5

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100.0

Yield

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

August 2, 2021

State Populations Residing

in a Qualified Disaster Zone

Notice 2021-45

I. PURPOSE

This notice advises State and local housing credit agencies that allocate low-income housing tax credits under § 42 of the

Internal Revenue Code of the county and

parish-level populations residing in a qualified disaster zone to use in calculating the

applicable dollar limitation for 2021 and

2022 as provided in section 305 of the Taxpayer Certainty and Disaster Tax Relief Act

of 2020 (Pub. L. 116-260) (Act).

II. BACKGROUND

Under section 305(a)(1) of the Act, for

purposes of § 42, the State housing credit

ceiling for any State for each of calendar

years 2021 and 2022 shall be increased by

the aggregate housing credit dollar amount

allocated by the State housing credit agencies of the State for the calendar year to

buildings located in any qualified disaster

zone in the State.

Section 305(a)(2)(A) of the Act limits

the aggregate increase in any State housing

credit ceiling in calendar years 2021 and

2022 to the applicable dollar limitation.

Section 305(a)(2)(B) of the Act defines

the applicable dollar limitation, with respect to any State, as the lesser of (i) $3.50

multiplied by the population of the State

(as determined for calendar year 2020) residing in a qualified disaster zone, or (ii)

65% of the State housing credit ceiling for

such State for calendar year 2020.

Section 301(2) of the Act defines qualified disaster zone as the portion of any

qualified disaster area (as defined in 301(1)

of the Act) which was determined by the

President, during the period beginning on

January 1, 2020, and ending on February

25, 2021 (the date which is 60 days after

enactment of the Act), to warrant individual or individual and public assistance from

the Federal Government under the Robert

T. Stafford Disaster Relief and Emergency

Assistance Act, 42 U.S.C. §§ 5121-5206

(the Stafford Act) by reason of the qualified disaster with respect to the disaster

area. Section 301(1) of the Act generally

August 2, 2021

defines qualified disaster area as any area

with respect to which a major disaster was

declared (excluding disasters as a result of

COVID-19), during the period beginning

on January 1, 2020, and ending on February

25, 2021, by the President under section 401

of the Stafford Act, if the incident period of

the disaster began on or after December 28,

2019 and before or on December 27, 2020.

The President of the United States issued major disaster declarations with

respect to damage in 11 states and Puerto Rico that meet the criteria of the Act.

More information related to each of the

major disasters is available at www.fema.

gov. This includes information related

to the counties and parishes determined

to warrant individual or individual and

public assistance from the Federal Government under the Stafford Act, which

are also listed later in this notice and are

needed to determine the population of a

State residing in a qualified disaster zone.

The major disasters that resulted in declarations meeting the criteria of the Act are:

• Hurricane Sally for Alabama and

Florida. See DR-4563-AL and DR4564-FL.

• Hurricane Zeta for Alabama, Louisiana, and Mississippi. See DR-4573AL, DR-4577-LA, and DR-4576-MS.

• Hurricane Laura for Louisiana. See

DR-4559-LA.

• Hurricane Delta for Louisiana. See

DR-4570-LA.

• Wildfires for California. See DR4558-CA and DR-4569-CA.

• Severe Storms for Iowa. See DR4557-IA.

• Severe Storms and Flooding for

Michigan. See DR-4547-MI.

• Severe Storms, Tornadoes, Straightline Winds, and Flooding for Mississippi. See DR-4536-MS.

• Wildfires and Straight-line Winds for

Oregon. See DR-4562-OR.

• Severe Storms, Flooding, Landslides,

and Mudslides for Oregon. See DR4519-OR.

• Severe Storm and Flooding for Puerto

Rico. See DR-4571-PR.

• Tropical Storm Isaias for Puerto Rico.

See DR-4560-PR.

• Earthquakes for Puerto Rico. See DR4473-PR.

• Severe Storms, Tornadoes, and

Straight-line Winds for South Carolina. See DR-4542-SC.

170

•

Severe Storms, Tornadoes, Straightline Winds, and Flooding for Tennessee. See DR-4541-TN and DR-4476TN.

• Earthquake and Aftershocks for Utah.

See DR-4548-UT.

The counties and parishes located in a

qualified disaster zone in the 11 states, and

Puerto Rico are:

Alabama- Baldwin, Clarke, Dallas,

Escambia, Marengo, Mobile, Perry, Washington, and Wilcox.

California- Butte, Fresno, Lake, Lassen, Los Angeles, Madera, Mendocino,

Monterey, Napa, San Bernardino, San Diego, San Mateo, Santa Clara, Santa Cruz,

Shasta, Siskiyou, Solano, Sonoma, Stanislaus, Trinity, Tulare, and Yolo.

Florida- Bay, Escambia, Okaloosa,

Santa Rosa, and Walton.

Iowa- Benton, Boone, Cedar, Clinton,

Jasper, Linn, Marshall, Polk, Poweshiek,

Scott, Story, and Tama.

Louisiana- Acadia, Allen, Beauregard, Caddo, Calcasieu, Cameron, Grant,

Iberia, Jackson, Jefferson, Jefferson Davis, Lafayette, Laforuche, LaSalle, Lincoln, Morehouse, Natchitoches, Orleans,

Ouachita, Plaquemines, Rapides, Sabine,

St. Bernard, St. Landry, St. Martin, Terrebone, Union, Vermilion, Vernon, and

Winn.

Michigan- Arenac, Gladwin, Iosco,

Midland, and Saginaw.

MississippiClarke,

Covington,

George, Greene, Grenada, Hancock,

Harrison, Jackson, Jasper, Jefferson Davis, Jones, Lawrence, Panola, Stone, and

Walthall.

Oregon- Clackamas, Douglas, Jackson, Klamath, Lane, Lincoln, Linn, Marion, and Umatilla.

Puerto Rico- Adjuntas, Aguada, Añasco, Arecibo, Barecloneta, Cabo Rojo, Ciales, Coamo, Corozal, Guánica, Guayanilla,

Hormigueros, Jayuya, Juana Díaz, Lajas,

Lares, Las Marías, Maricao, Mayagüez,

Moca, Morovis, Naranjito, Orocovis,

Peñuelas, Ponce, Rincón, Sabana Grande,

Salinas, San Germán, San Sebastián, Santa

Isabel, Utuado, Villalba, and Yauco.

South Carolina- Aiken, Barnwell,

Berkeley, Colleton, Hampton, Marlboro,

Oconee, Orangeburg, and Pickens.

Tennessee- Bradley, Davidson, Hamilton, Putnam, and Wilson.

Utah- Davis, and Salt Lake.

Bulletin No. 2021–31

For the counties and parishes located in

a qualified disaster zone in the 11 states,

and Puerto Rico, the 2020 calendar year

population figures to be used in calculating the additional credit authority in

the Act are the resident population county-level estimates as of July 1, 2019 that

were released electronically by the U.S.

Census Bureau on March 26, 2020 and

described in Press Release CB20-53. This

is consistent with the population figures

used in Notice 2020-10, 2020-10 I.R.B.

456, which advised State and local housing credit agencies on the 2020 calendar

year resident population figures.

III. STATE POPULATIONS RESIDING

IN A QUALIFIED DISASTER ZONE

Based on the foregoing, the portion of

each jurisdiction’s population residing in a

Bulletin No. 2021–31

qualified disaster zone for calculating the

applicable dollar limitation is provided

below:

Alabama

California

Florida

Iowa

Louisiana

Michigan

Mississippi

Oregon

Puerto Rico

South Carolina

Tennessee

Utah

788,380

23,069,525

962,143

1,215,774

2,770,640

339,154

667,359

1,805,895

1,053,857

795,267

1,394,960

1,515,918

171

IV. DRAFTING INFORMATION

The principal author of this notice is

Michael J. Torruella Costa, Office of the

Associate Chief Counsel (Passthroughs

and Special Industries). For further information regarding this notice, please contact Mr. Torruella Costa at (202) 317-4137

(not a toll-free number).

August 2, 2021

Rev. Proc. 2021-30

TABLE OF CONTENTS

PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM

SECTION 1. PURPOSE AND OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

.01 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

.02 General principles underlying EPCRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

.03 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .176

.01 Effect on programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

.02 Correction of Overpayment (defined benefit plans). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

.03 Description of other modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

.04 Future enhancements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

PART II. PROGRAM EFFECT AND ELIGIBILITY

SECTION 3. EFFECT OF EPCRS; RELIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.01 Effect of EPCRS on retirement plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.02 Compliance statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.03 Excise and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.04 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

SECTION 4. PROGRAM ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.01 EPCRS Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

.02 Effect of examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

.03 SCP eligibility requirements relating to plan documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

.04 Established practices and procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

.05 Correction by plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

.06 Availability of correction for Employer Eligibility Failures and Demographic Failures. . . . . . . . . . . . . . . . . . . . . . 182

.07 Availability of correction for a terminated plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

.08 Availability of correction for an Orphan Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

.09 Availability of correction for § 457(b) plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

.10 Egregious failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

.11 Diversion or misuse of plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

.12 Abusive tax avoidance transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY

SECTION 5. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

.01 Definitions for Qualified Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

.02 Definitions for § 403(b) Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

.03 Definitions for Orphan Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

.04 Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

.05 IRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

.06 SEP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

.07 SIMPLE IRA Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

.08 Under Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY. . . . . . . . . . . . . . . . . . . . . . . 190

.01 Correction principles; rules of general applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

.02 Correction principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

.03 Correction of an Employer Eligibility Failure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

.04 Correction of a failure to obtain spousal consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

August 2, 2021

172

Bulletin No. 2021–31

.05 Determination letter application not permitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

.06 Special rules relating to Excess Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

.07 Correction of plan loan failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

.08 Correction under statute or regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

.09 Matters subject to excise or other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

.10 Correction for § 403(b) Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

.11 Correction for SEPs and SIMPLE IRA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

.12 Confidentiality and disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

.13 No effect on other law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

PART IV. SELF-CORRECTION (SCP)

SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES AND

PLAN DOCUMENT FAILURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

.01 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

.02 Operational Failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

.03 Plan Document Failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES . . . . . . . . . . . . . . . . . . . . . . . . . . 205

.01 Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

.02 Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

.03 Multiple failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

.04 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL FAILURES AND

PLAN DOCUMENT FAILURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

.01 Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

.02 Correction period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

.03 Substantial completion of correction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

.04 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP)

SECTION 10. VCP PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

.01 VCP pre-submission conference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

.02 VCP requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

.03 Identification of failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

.04 Effect of VCP submission on examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

.05 No concurrent examination activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

.06 Determination letter applications not related to a VCP submission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

.07 Processing of submission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

.08 Compliance statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

.09 Effect of compliance statement on examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

.10 Anonymous submissions not permitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

.11 Special rules relating to group submissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

.12 Multiemployer and multiple employer plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

SECTION 11. SUBMISSION PROCEDURES FOR VCP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

.01 General rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

.02 Submission of model forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

.03 Mandatory Submission Process using the Pay.gov website. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

.04 PDF file submission contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

.05 User fee due at the time of VCP submission using the Pay.gov website. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

.06 Additional user fee due for group submissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

.07 Additional amounts due for certain submissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

.08 Power of attorney requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

.09 Acknowledgement of filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

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.10 Maintenance of copies of submissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

.11 Assembling the submission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .218

SECTION 12. VCP USER FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

.01 User fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

PART VI. CORRECTION ON AUDIT (AUDIT CAP)

SECTION 13. DESCRIPTION OF AUDIT CAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.01 Audit CAP requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.02 Payment of sanction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.03 Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.04 Failure to reach resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.05 Effect of closing agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.06 Other procedural rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

SECTION 14. AUDIT CAP SANCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.01 Determination of sanction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

.02 Factors considered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

.03 Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

.04 Sanction for Nonamender Failures discovered during the determination letter application process. . . . . . . . . . . . . 222

PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK REDUCTION ACT

SECTION 15. EFFECT ON OTHER DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

SECTION 16. EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

SECTION 17. PUBLIC COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

SECTION 18. PAPERWORK REDUCTION ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

APPENDIX A. OPERATIONAL FAILURES AND CORRECTION METHODS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

.01 General rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

.02 Failure to properly provide the minimum top-heavy benefit under § 416 to non-key employees. . . . . . . . . . . . . . . 225

.03 Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth in § 401(m)(2), or,

for plan years beginning on or before December 31, 2001, the multiple use test of § 401(m)(9). . . . . . . . . . . . . . . 225

.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in contravention of § 401(a)(30)) . . . . . . . . 226

.05 Exclusion of an eligible employee from all contributions or accruals under the plan for one or

more plan years.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

.06 Failure to timely pay the minimum distribution required under § 401(a)(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

.07 Failure to obtain participant or spousal consent for a distribution subject to the participant and

spousal consent rules under §§ 401(a)(11), 411(a)(11), and 417. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

.08 Failure to satisfy the § 415 limits in a defined contribution plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

.09 Orphan Plans; orphan contracts and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

APPENDIX B. CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS AND EXAMPLES. . 236

SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION REFERENCES. . . . . . . . . . . . . . . . . . . . . 236

.01 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

.02 Assumptions for Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

.03 Designated Roth contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

.04 Section references. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

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SECTION 2. CORRECTION METHODS AND EXAMPLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

.01 ADP/ACP Failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

.02 Exclusion of Otherwise Eligible Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

.03 Vesting Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

.04 Section 415(c) Failures and Correction of Overpayments (Defined Contribution Plans and § 403(b) Plans). . . . . . 251

.05 Section 415(b) Failures and Correction of Overpayments (Defined Benefit Plans). . . . . . . . . . . . . . . . . . . . . . . . . .252

.06 § 401(a)(17) Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

.07 Correction by Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

.01 Earnings Adjustment Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

.02 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

PART I.

INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM

SECTION 1. PURPOSE AND OVERVIEW

.01 Purpose. This revenue procedure updates the comprehensive system of correction programs

for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), 403(a),

403(b), 408(k), or 408(p) of the Internal Revenue Code (the “Code”), but that have not met these

requirements for a period of time. This system, the Employee Plans Compliance Resolution System (“EPCRS”), permits Plan Sponsors to correct these failures and thereby continue to provide

their employees with retirement benefits on a tax-favored basis. The components of EPCRS are

the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit

Closing Agreement Program (“Audit CAP”).

.02 General principles underlying EPCRS. EPCRS is based on the following general principles:

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Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in

accordance with the applicable requirements of the Code.

•

Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code.

•

Sponsors and other administrators should make voluntary and timely correction of any plan

failures, whether involving discrimination in favor of highly compensated employees, plan

operations, the terms of the plan document, or adoption of a plan by an ineligible employer.

Timely and efficient correction protects participating employees by providing them with their

expected retirement benefits, including favorable tax treatment.

•

Voluntary compliance is promoted by establishing limited fees for voluntary corrections approved by the Internal Revenue Service (“IRS”), thereby reducing employers’ uncertainty

regarding their potential tax liability and participants’ potential tax liability.

•

Fees and sanctions should be graduated in a series of steps so that there is always an incentive

to correct promptly.

•

Sanctions for plan failures identified on audit should be reasonable in light of the nature,

extent, and severity of the violation.

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•

Administration of EPCRS should be consistent and uniform.

•

Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to

maintain the tax-favored status of their plans.

.03 Overview. EPCRS includes the following basic elements:

•

Self-correction (SCP). A Plan Sponsor that has established compliance practices and procedures may, at any time without paying any fee or sanction, correct insignificant Operational

Failures under a Qualified Plan, a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or

SIMPLE IRA Plan, SCP is available only if the SEP or SIMPLE IRA Plan is established and

maintained on a document approved by the IRS. In addition, in the case of a Qualified Plan or

§ 403(b) Plan that satisfies the requirements of sections 4.03 and 4.04, the Plan Sponsor generally may correct significant Operational Failures and Plan Document Failures without payment of any fee or sanction if the correction is made within the time specified in section 9.02.

•

Voluntary correction with IRS approval (VCP). A Plan Sponsor, at any time before audit,

may pay a limited fee and receive the IRS’s approval for correction of a Qualified Plan,

§ 403(b) Plan, SEP, or SIMPLE IRA Plan failure. Under VCP, there are special procedures

for anonymous submissions and group submissions. However, effective January 1, 2022, the

anonymous submission procedure is eliminated. VCP submissions may not be submitted on

an anonymous basis on or after that date. Additionally, an anonymous, no-fee, VCP pre-submission conference procedure is added, effective January 1, 2022.

•

Correction on audit (Audit CAP). If a failure (other than a failure corrected through SCP or

VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. The

sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the

failure, taking into account the extent to which correction occurred before audit.

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS

.01 Effect on programs. This revenue procedure modifies and supersedes Rev. Proc. 2019‑19,

2019‑19 I.R.B. 1086, the most recent prior consolidated statement of the correction programs

under EPCRS. This update to Rev. Proc. 2019‑19 is a limited update and is published primarily to:

(1) expand guidance on the recoupment of Overpayments;

(2) eliminate the anonymous submission procedure under VCP, effective January 1, 2022;

(3) add an anonymous, no-fee, VCP pre-submission conference procedure, effective January 1,

2022;

(4) extend the end of the SCP correction period for significant failures by one year (which has

the result of also extending the safe harbor correction method for Employee Elective Deferral

Failures lasting more than three months but not beyond the extended SCP correction period

for significant failures);

(5) expand the ability of a Plan Sponsor to correct an Operational Failure under SCP by plan

amendment; and

(6) extend by three years the sunset of the safe harbor correction method available for certain

Employee Elective Deferral Failures associated with missed elective deferrals for eligible

employees who are subject to an automatic contribution feature in a § 401(k) plan or § 403(b)

Plan (from December 31, 2020, to December 31, 2023).

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.02 Correction of Overpayment (defined benefit plans). (1) In general. Rev. Proc. 2015‑27,

2015‑16 I.R.B. 914, clarified the permissible methods for correcting Overpayments under EPCRS by noting that, depending on the facts and circumstances, correcting an Overpayment under

EPCRS may not need to include requesting that Overpayments be returned to the plan by plan

participants and beneficiaries. The Department of the Treasury (“Treasury Department”) and the

IRS also requested comments in Rev. Proc. 2015‑27 on potential changes relating to the recoupment of Overpayments. In light of comments received, the Treasury Department and the IRS are

modifying Rev. Proc. 2019‑19 to further clarify and expand options available for the recoupment

of Overpayments.

(2) Modifications to current correction methods. Sections 6.06(3), 6.06(4), and Appendix B, section 2.05, are revised to provide that Plan Sponsors may provide Overpayment recipients the

option of repaying an Overpayment in a single sum payment, through an installment agreement,

or through an adjustment in future payments.

(3) New correction methods. Section 6.06(3) is revised to provide two new Overpayment correction methods, the funding exception correction method and the contribution credit correction

method. These methods reduce the need for defined benefit plans to seek recoupment from Overpayment recipients and ease the process for Overpayment recipients repaying Overpayments,

while balancing the interest of other participants in the plan.

(i) Funding exception correction method. Section 6.06(3)(d)(i) sets forth the new funding exception correction method, which provides that corrective payments are not required for a plan

subject to § 436, provided that the plan’s certified or presumed adjusted funding target attainment

percentage (“AFTAP”) determined under § 436 that is applicable to the plan at the date of correction is equal to at least 100 percent (or, in the case of a multiemployer plan, the plan’s most

recent annual funding certification indicates that the plan is not in critical, critical and declining,

or endangered status (as defined in § 432), determined at the date of correction). Future benefit

payments to an Overpayment recipient must be reduced to the correct benefit payment amount.

For purposes of EPCRS, no further corrective payments from any party are required, no further

reductions to future benefit payments to an Overpayment recipient, or any spouse or beneficiary

of an Overpayment recipient, are permitted, and no further corrective payments from an Overpayment recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted. See

section 6.06(3)(d)(i) and Appendix B, section 2.05(3).

(ii) Contribution credit correction method. Section 6.06(3)(d)(ii) sets forth the new contribution credit correction method, which provides that the amount of Overpayments required to

be repaid to the plan is the amount of the Overpayments reduced (but not below zero) by:

(A) the cumulative increase in the plan’s minimum funding requirements attributable to the

Overpayments (including the increase attributable to the overstatement of liabilities, whether

funded through cash contributions or through the use of a funding standard carryover balance,

prefunding balance, or funding standard account credit balance), beginning with (1) the plan

year for which the Overpayments are taken into account for funding purposes, through (2) the

end of the plan year preceding the plan year for which the corrected benefit payment amount is

taken into account for funding purposes; and (B) certain additional contributions in excess of

minimum funding requirements paid to the plan after the first of the Overpayments was made.

This reduction is referred to as a “contribution credit.” Future benefit payments to an Overpayment recipient must be reduced to the correct benefit payment amount. For purposes of EPCRS,

if the amount of the Overpayments is reduced to zero after the contribution credit is applied,

no further corrective payments from any party are required, no further reductions to future

benefit payments to an Overpayment recipient, or any spouse or beneficiary of an Overpayment

recipient, are permitted, and no further corrective payments from an Overpayment recipient, or

any spouse or beneficiary of an Overpayment recipient, are permitted. However, if a net Overpayment remains after the application of the contribution credit, the Plan Sponsor or another

party must take further action to reimburse the plan for the remainder of the Overpayment. See

section 6.06(3)(d)(ii) and Appendix B, section 2.05(4).

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.03 Description of other modifications. The other modifications to Rev. Proc. 2019‑19 that are

made by this revenue procedure include the following—

1.

Eliminating the condition previously set forth in section 4.05(2)(a)(ii) (relating to correction by plan amendment of Operational Failures under SCP for Qualified Plans and § 403(b)

Plans) that requires a plan amendment that increases a benefit, right, or feature to apply to all

participants eligible to participate under the plan.

2.

Increasing from $100 to $250 the threshold for certain de minimis amounts for which a Plan

Sponsor is not required to implement correction. See sections 6.02(5)(c), 6.02(5)(e), and

6.11(5)(c).

3.

Modifying the structure of section 6.06(4) and Appendix B, section 2.04, to be more consistent with changes made to section 6.06(3) and Appendix B, section 2.05, and to clarify the

correction principles relating to Overpayments from defined contribution plans and § 403(b)

Plans.

4.

Extending the end of the SCP correction period for significant failures (set forth in section

9.02) from the last day of the second plan year following the plan year for which the failure

occurred to the last day of the third plan year following the plan year for which the failure

occurred (which has the result of also extending the safe harbor correction method set forth

in Appendix A, section .05(9)(b) for Employee Elective Deferral Failures lasting more than

three months but not beyond the extended SCP correction period for significant failures) and

modifying the examples in section 9.04 to reflect this extension.

5.

Revising section 10.01 to add an option, effective January 1, 2022, for Plan Sponsors to request a no-fee anonymous VCP pre-submission conference under specified circumstances.

6.

Eliminating the anonymous submission procedure described in section 10.09 of Rev. Proc.

2019-19, which permits submission of a Qualified Plan, § 403(b) Plan, SEP, or SIMPLE IRA

Plan under VCP without initially identifying the applicable plan, the Plan Sponsor, or the Eligible Organization, effective January 1, 2022, and making conforming revisions to sections

11.04(16) and 11.08(2) to reflect the elimination of this procedure. See section 10.10 of this

revenue procedure.

7.

Requiring that Audit CAP sanctions be paid through the Pay.gov website (instead of by certified check or cashier’s check) beginning January 1, 2022. See section 13.02.

8.

Revising Appendix A, section .05(8), to extend by three years (from December 31, 2020,

to December 31, 2023) the sunset of the safe harbor correction method available for certain

Employee Elective Deferral Failures associated with missed elective deferrals for eligible

employees who are subject to an automatic contribution feature in a § 401(k) plan or § 403(b)

Plan.

.04 Future enhancements.

It is expected that the Treasury Department and the IRS will continue to update the EPCRS revenue procedure, in whole or in part, from time to time, including further improvements to EPCRS

based on comments received. Accordingly, the Treasury Department and the IRS continue to invite further comments on how to improve EPCRS. For information on how to submit comments,

see section 17.

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PART II.

PROGRAM EFFECT AND ELIGIBILITY

SECTION 3. EFFECT OF EPCRS; RELIANCE

.01 Effect of EPCRS on retirement plans. For a Qualified Plan, a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan, if the eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a failure in accordance with the applicable requirements of SCP in section 7, VCP in section

10, or Audit CAP in section 13, the IRS will not treat the plan as failing to satisfy the requirements

of § 401(a), 403(b), 408(k), or 408(p), as applicable, because of the failure. For example, if the

Plan Sponsor corrects a failure in accordance with the requirements of this revenue procedure, the

plan will not thereby be treated as failing to satisfy § 401(a), 403(b), 408(k), or 408(p), as applicable, for purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5) (FUTA taxes).

.02 Compliance statement. If a Plan Sponsor or Eligible Organization receives a compliance statement under VCP, the compliance statement is binding upon the IRS and the Plan Sponsor or Eligible Organization as provided in section 10.08.

.03 Excise and other taxes. See section 6.09 for rules relating to excise and other taxes.

.04 Reliance. Taxpayers may rely on this revenue procedure, including the relief described in

section 3.01.

SECTION 4. PROGRAM ELIGIBILITY

.01 EPCRS Programs. (1) SCP. SCP is available to correct Operational Failures and certain Plan

Document Failures as follows:

(a) Operational Failures. A Plan Sponsor of a Qualified Plan or § 403(b) Plan that is otherwise

eligible for correction under SCP may use SCP to correct significant and insignificant Operational

Failures (including certain plan loan failures described in section 6.07). Operational Failures that

are significant may be corrected under SCP only if the correction of the failure is completed or

substantially completed (in accordance with section 9.03) by the last day of the correction period

described in section 9.02.

(b) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may use SCP to

correct certain Plan Document Failures, as defined in section 5.01(2)(a) for a Qualified Plan and

section 5.02(2)(a) for a § 403(b) Plan, that are otherwise eligible for correction under SCP. A Plan

Document Failure consisting of the initial failure to adopt a Qualified Plan, or the failure to adopt

a written § 403(b) Plan timely in accordance with §1.403(b)‑3(b)(3) and Notice 2009‑3, 2009‑2

I.R.B. 250, is treated as a Plan Document Failure that is not eligible to be corrected under SCP. All

Plan Document Failures that are eligible to be corrected under SCP are treated as significant; thus,

the correction must be completed by the last day of the correction period described in section 9.02.

(c) SEPs and SIMPLE IRA Plans. SEPs and SIMPLE IRA Plans are eligible to be corrected under

SCP only with respect to insignificant Operational Failures.

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(d) Demographic Failures and Employer Eligibility Failures. Demographic Failures and Employer Eligibility Failures may not be corrected under SCP.

(2) VCP. Qualified Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans are eligible for correction under VCP. VCP provides general procedures for correction of all Qualification Failures:

Operational, Plan Document, Demographic, and Employer Eligibility. VCP also provides general

procedures for the correction of plan loan failures (see section 6.07). Effective January 1, 2022,

VCP submissions may not be submitted on an anonymous basis.

(3) Audit CAP. Unless otherwise provided, Audit CAP is available for the correction of Qualified

Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans for all failures found on examination that

have not been corrected in accordance with SCP or VCP. Audit CAP also provides general procedures for the correction of plan loan failures (see section 6.07).

(4) Eligibility for other arrangements. The IRS may extend EPCRS to other arrangements.

(5) Appropriate use of programs. In a particular case, the IRS may decline to make available one

or more correction programs under EPCRS in the interest of sound tax administration.

.02 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available.

SCP is available only as follows:

(1) Insignificant Operational Failures. While the plan or Plan Sponsor is Under Examination,

insignificant Operational Failures may be corrected under SCP.

(2) Significant Operational Failures. If correction of significant Operational Failures has been

substantially completed (as described in section 9.03) before the plan or Plan Sponsor is Under

Examination, the Plan Sponsor may complete correction of those failures under SCP.

.03 SCP eligibility requirements relating to plan documents. (1) Requirements for Qualified Plans

and § 403(b) Plans. The provisions of SCP relating to certain Plan Document Failures, as described in section 4.01(1)(b), and significant Operational Failures, as described in section 9, are

available for a Qualified Plan that, as of the date of correction, is the subject of a Favorable Letter.

See section 5.01(4) for the definition of Favorable Letter for a Qualified Plan. The provisions of

SCP relating to certain Plan Document Failures and significant Operational Failures are available

for a § 403(b) Plan if the conditions for being treated as having a Favorable Letter in section

6.10(2) are satisfied. See section 5.02(5) for the definition of Favorable Letter for a § 403(b) Plan.

(2) Requirements for SEPs and SIMPLE IRAs. The provisions of SCP relating to insignificant

Operational Failures (see section 8) are available for a SEP only if the plan document consists of

either (i) a valid Model Form 5305-SEP, Simplified Employee Pension—Individual Retirement

Accounts Contribution Agreement, or 5305A-SEP, Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement, adopted by an employer in accordance with the instructions on the applicable form (see Rev. Proc. 2002‑10, 2002‑1 C.B. 401)

or (ii) a prototype SEP that has a current favorable opinion letter and that has been amended in

accordance with the procedures set forth in Rev. Proc. 2002‑10. The provisions of SCP relating

to insignificant Operational Failures are available for a SIMPLE IRA Plan only if the plan document consists of either (i) a valid Model Form 5305-SIMPLE, Savings Incentive Match Plan for

Employees of Small Employers (SIMPLE)—for Use with a Designated Financial Institution, or

5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—

Not for Use with a Designated Financial Institution, adopted by an employer in accordance with

the instructions on the applicable form (see Rev. Proc. 2002-10) or (ii) a prototype SIMPLE IRA

Plan that has a current favorable opinion letter and that has been amended in accordance with the

procedures set forth in Rev. Proc. 2002-10.

.04 Established practices and procedures. To be eligible for SCP, the Plan Sponsor or administrator

of a plan must have established practices and procedures (formal or informal) reasonably designed

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to promote and facilitate overall compliance in form and operation with applicable Code requirements. For example, the plan administrator of a Qualified Plan that may be top-heavy under § 416

may include in its plan operating manual a specific annual step to determine whether the plan is

top-heavy and, if so, to ensure that the minimum contribution requirements of the top-heavy rules

are satisfied. A plan document alone does not constitute evidence of established procedures. In

order for a Plan Sponsor or administrator to use SCP, these established procedures must have been

in place and routinely followed, and an Operational Failure or Plan Document Failure must have

occurred through an oversight or mistake in applying them. SCP also may be used in situations

in which the Operational Failure or Plan Document Failure occurred because the procedures that

were in place, while reasonable, were not sufficient to prevent the occurrence of the failure. A plan

that provides for elective deferrals and nonelective employer contributions that are not matching

contributions is not treated as failing to have established practices and procedures to prevent the

occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under

§ 415(c) are regularly corrected by return of elective deferrals to the affected employee within

9½ months after the end of the plan’s limitation year. The correction, however, should not violate

another applicable Code requirement. In the case of a failure that relates to Transferred Assets or

to a plan assumed in connection with a corporate merger, acquisition, or other similar employer

transaction between the Plan Sponsor and the sponsor of the transferor plan or the prior Plan

Sponsor of an assumed plan, the plan is considered to have established practices and procedures

for the Transferred Assets if such practices and procedures are in effect for the Transferred Assets

by the end of the first plan year that begins after the corporate merger, acquisition, or other similar

transaction. (See section 6.10(2) for special rules regarding established practices and procedures

for § 403(b) Plans.)

.05 Correction by plan amendment. (1) Availability of correction by plan amendment in VCP or

Audit CAP. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may use VCP or Audit CAP to

correct Plan Document, Demographic, and Operational Failures by plan amendment, including to

correct an Operational Failure by plan amendment to conform the terms of the plan to the plan’s

prior operations, provided that the amendment complies with the applicable Code requirements

(including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable). In

addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For example,

if the plan failed to satisfy the actual deferral percentage (“ADP”) test required under § 401(k)

(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for

under the plan, the plan may be amended to provide for qualified nonelective contributions. As

explained further in sections 6.05 and 10.08(2), the issuance of a compliance statement constitutes

a determination that the failure identified has been corrected, but does not constitute a determination that the terms of the plan, including the corrective plan amendment, satisfy the qualification

requirements in form.

(2) Availability of correction by plan amendment in SCP. SCP is available for corrections made

by plan amendment, as provided in section 4.05(2)(a), (b), and (c). In addition, a Plan Sponsor

may adopt a plan amendment to reflect corrective action. For example, if the plan failed to satisfy

the ADP test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective

contributions not already provided for under the plan, the plan may be amended to provide for

qualified nonelective contributions.

(a) Correction of Operational Failure by plan amendment for a Qualified Plan or § 403(b) Plan.

A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an Operational Failure by plan

amendment in order to conform the terms of the plan to the plan’s prior operations only if the

following conditions are satisfied:

(i) The plan amendment would result in an increase of a benefit, right, or feature.

(ii) The provision of the increase in the benefit, right, or feature to participants is permitted under

the Code (including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of section 6.02 and any other applicable rules of

this revenue procedure.

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(b) Operational Failure correction methods in accordance with Appendix B. In addition to correction by plan amendment as described in section 4.05(2)(a), a Plan Sponsor of a Qualified Plan

or § 403(b) Plan may use SCP to correct Operational Failures listed in Appendix B, section 2.07,

by plan amendment to conform the terms of the plan to the plan’s prior operations. Under SCP,

these failures must be corrected in accordance with the correction methods set forth in Appendix

B, section 2.07.

(c) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may use SCP to

correct an eligible Plan Document Failure, as described in section 4.01(1)(b), only if the following

conditions are satisfied:

(i) The Qualified Plan or § 403(b) Plan has been issued a Favorable Letter, as respectively defined

in sections 5.01(4) and 5.02(5).

(ii) The Plan Sponsor satisfies the requirements in section 9 relating to correcting a Plan Document Failure. Thus, for example, the Plan Sponsor must adopt a corrective plan amendment by the

end the correction period set forth in section 9.02.

.06 Availability of correction for Employer Eligibility Failures and Demographic Failures. SCP is

not available for a Plan Sponsor to correct Employer Eligibility Failures or Demographic Failures.

.07 Availability of correction for a terminated plan. Correction of Qualification Failures and

§ 403(b) Failures in a terminated plan may be made under VCP or Audit CAP, whether or not the

plan trust or contract is still in existence.

.08 Availability of correction for an Orphan Plan. A failure in an Orphan Plan that is terminating

may be corrected under VCP or Audit CAP if the party acting on behalf of the plan is an Eligible

Party, as defined in section 5.03(2). See, generally, section 6.02(2)(e)(i). SCP is not available for

correcting failures in Orphan Plans. In the case of a terminating Orphan Plan, the IRS may, in its

discretion, waive the user fee. In such a case, the submission must include a request for a waiver

of the user fee. See section 11.04(14).

.09 Availability of correction for § 457(b) plans. The IRS will accept submissions relating to

§ 457(b) plans on a provisional basis outside of EPCRS through standards that are similar to those

that apply with respect to VCP filings under sections 10 and 11, as applicable, including procedures for filing a submission on the Pay.gov website. The availability of correction is generally

limited to plans that are sponsored by governmental entities described in § 457(e)(1)(A). In the

case of a § 457(b) plan that is an unfunded deferred compensation plan established for the benefit

of top hat employees of a tax-exempt entity described in § 457(e)(1)(B), the IRS generally will not

enter into an agreement to address problems associated with such a plan. However, the IRS may

consider a submission for such a plan where, for example, the plan was erroneously established to

benefit the entity’s nonhighly compensated employees and the plan has been operated in a manner

that is similar to a Qualified Plan.

.10 Egregious failures. (1) In general. Egregious failures include: (a) a plan that has consistently

and improperly covered only highly compensated employees; (b) a plan that provides more favorable benefits for an owner of the employer based on a purported collective bargaining agreement

where there has in fact been no good faith bargaining between bona fide employee representatives

and the employer (see Notice 2003‑24, 2003‑1 C.B. 853, with respect to good faith bargaining and

welfare benefit funds); or (c) a defined contribution plan where a contribution is made on behalf

of a highly compensated employee that is several times greater than the dollar limit set forth in

§ 415(c).

(2) SCP. SCP is not available to correct Operational Failures or Plan Document Failures that are

egregious.

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(3) VCP. VCP is available to correct egregious failures. However, the IRS reserves the right to

impose a sanction that may be larger than the user fee described in Rev. Proc. 2021‑4, 2021‑1

I.R.B. 157 (and its annual successors). For this purpose, an egregious failure would include any

case in which the IRS concludes that the parties controlling the plan recognized that the action

taken would constitute a failure and the failure either involves a substantial number of participants

or beneficiaries or involves participants who are predominantly highly compensated employees.

(4) Audit CAP. Audit CAP is available to correct egregious failures.

.11 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not available to correct failures relating to the diversion or misuse of plan assets.

.12 Abusive tax avoidance transactions. (1) Effect on Programs. (a) SCP. With respect to SCP, in

the event that the plan or the Plan Sponsor has been a party to an abusive tax avoidance transaction (as defined in section 4.12(2)), SCP is not available to correct any Operational Failure or Plan

Document Failure that is directly or indirectly related to the abusive tax avoidance transaction.

(b) VCP. With respect to VCP, if the IRS determines that a plan or Plan Sponsor was, or may

have been, a party to an abusive tax avoidance transaction (as defined in section 4.12(2)), then the

matter will be discussed and coordinated with appropriate IRS personnel. The IRS may determine

that the plan or the Plan Sponsor has been a party to an abusive tax avoidance transaction, and that

the failures addressed in the VCP submission are related to that transaction. In those situations, the

IRS will conclude the review of the submission without issuing a compliance statement and will

refer the case for examination. However, if the IRS determines that the plan failures are unrelated

to the abusive tax avoidance transaction or that no abusive tax avoidance transaction occurred,

then the IRS will permit the VCP submission to address the failures identified in the VCP submission, and may issue a compliance statement with respect to those failures. In no event may

a compliance statement be relied on for the purpose of concluding that the plan or Plan Sponsor

was not a party to an abusive tax avoidance transaction. In addition, even if it is concluded that

the failures can be addressed pursuant to a VCP submission, the IRS reserves the right to make a

referral of the abusive tax avoidance transaction matter for examination.

(c) Audit CAP and SCP (for plans Under Examination). For plans Under Examination, if the IRS

determines that the plan or Plan Sponsor was, or may have been, a party to an abusive tax avoidance transaction, the matter may be discussed and coordinated with appropriate IRS personnel.

With respect to plans Under Examination, an abusive tax avoidance transaction includes a transaction described in section 4.12(2) and any other transaction that the IRS determines was designed

to facilitate the impermissible avoidance of tax. Upon receiving a response from the appropriate

IRS personnel, (i) if the IRS determines that a failure is related to the abusive tax avoidance transaction, the IRS reserves the right to conclude that neither Audit CAP nor SCP is available for that

failure, or (ii) if the IRS determines that satisfactory corrective actions have not been taken with

regard to the transaction, the IRS reserves the right to conclude that neither Audit CAP nor SCP

is available to the plan.

(2) Abusive tax avoidance transaction defined. For purposes of section 4.12(1) (except to the

extent otherwise provided in section 4.12(1)(c)), an abusive tax avoidance transaction means any

listed transaction under §1.6011‑4(b)(2) and any other transaction identified as an abusive transaction on the IRS website entitled “EP Abusive Tax Transactions.”

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PART III.

DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY

SECTION 5. DEFINITIONS

The following definitions apply for purposes of this revenue procedure:

.01 Definitions for Qualified Plans. The definitions in this section 5.01 apply to Qualified Plans.

(1) Qualified Plan. The term “Qualified Plan” means a plan intended to satisfy the requirements

of § 401(a) or 403(a).

(2) Qualification Failure. The term “Qualification Failure” means any failure that adversely affects the qualification of a plan. There are four types of Qualification Failures: (a) Plan Document

Failures; (b) Operational Failures; (c) Demographic Failures; and (d) Employer Eligibility Failures.

(a) Plan Document Failure. (i) In general. The term “Plan Document Failure” means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a)

or 403(a). A Plan Document Failure includes any Qualification Failure that is a violation of the

requirements of § 401(a) or 403(a) and that is not an Operational Failure, Demographic Failure,

or Employer Eligibility Failure. This term includes a Nonamender Failure, a failure to adopt Good

Faith Amendments, and a failure to adopt Interim Amendments. A Plan Document Failure does

not include a failure to adopt a discretionary plan amendment by the plan amendment deadline

set forth in section 8.02 of Rev. Proc. 2016‑37, 2016‑29 I.R.B. 136, as modified by Rev. Proc.

2017‑41, 2017‑29 I.R.B. 92, and Rev. Proc. 2020‑40, 2020‑38 I.R.B. 575 (or section 5.05(2)

of Rev. Proc. 2007‑44, 2007‑28 I.R.B. 54, as applicable). Pursuant to section 4.01(1)(b), a Plan

Document Failure consisting of the initial failure to adopt a Qualified Plan may not be corrected

under SCP.

(ii) Specific definitions relating to Plan Document Failures:

(A) “Good Faith Amendment” includes the EGTRRA good faith amendments described in Notice

2001‑42, 2001‑2 C.B. 70, the amendment required for the plan to comply with the final regulations under § 401(a)(9) (see Rev. Proc. 2002‑29, 2002‑1 C.B. 1176, as modified by Rev. Proc.

2003‑10, 2003‑1 C.B. 259), the amendment updating the mortality table to reflect the guidance

in Rev. Rul. 2001‑62, 2001‑2 C.B. 632, and the amendment updating the definition of compensation, for purposes of § 415(c)(3), to include “deemed § 125 compensation” pursuant to Rev. Rul.

2002‑27, 2002‑1 C.B. 925. For rules relating to a failure to adopt a Good Faith Amendment, see

Rev. Proc. 2013‑12.

(B) “Interim Amendment” means an amendment with respect to a disqualifying provision that

results in the failure of the plan to satisfy the qualification requirements of the Code by reason

of a change in those requirements that is effective after December 31, 2001, or that is integral to

such disqualifying provision. See section 15.02 of Rev. Proc. 2016‑37, as modified, for Interim

Amendment requirements for Pre-approved Plans. For Interim Amendments required to be adopted in individually designed plans before January 1, 2017 (or before February 1, 2017, for Cycle A

plans), see section 5.04 of Rev. Proc. 2007‑44.

(C) “Nonamender Failure” means a failure to adopt an amendment that corrects a disqualifying

provision described in §1.401(b)‑1(b) within the applicable remedial amendment period. In gener-

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al, a disqualifying provision includes a provision in the plan document that violates a qualification

requirement of the Code or the absence of a provision that causes the plan to fail to satisfy a qualification requirement of the Code. A disqualifying provision also includes any provision designated

by the Commissioner as a disqualifying provision under §1.401(b)‑1(b)(3). See sections 5 and

15 of Rev. Proc. 2016‑37, as modified. For an individually designed plan, a Nonamender Failure

includes the failure to timely amend for provisions that appear on the Required Amendments List,

as described in Rev. Proc. 2016‑37, as modified. For purposes of VCP, the initial failure to adopt

a Qualified Plan is not considered a Nonamender Failure.

(b) Operational Failure. The term “Operational Failure” means a Qualification Failure (other than

an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions. A

failure to follow the terms of the plan providing for the satisfaction of the requirements of § 401(k)

and (m) is considered to be an Operational Failure. A plan does not have an Operational Failure

to the extent the plan is permitted to be amended retroactively to reflect the plan’s operations (for

example, pursuant to § 401(b)). In the situation where a Plan Sponsor timely adopted an amendment and the plan was not operated in accordance with the terms of such amendment, the plan is

considered to have an Operational Failure.

(c) Demographic Failure. The term “Demographic Failure” means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see §1.401(a)(4)‑11(g)).

(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means the adoption of a

plan intended to include a qualified cash or deferred arrangement under § 401(k) by an employer

that fails to satisfy the employer eligibility requirements to establish a § 401(k) plan. An Employer

Eligibility Failure is not a Plan Document, Operational, or Demographic Failure.

(3) Excess Amount; Excess Allocations; Overpayment. (a) Excess Amount. The term “Excess

Amount” means a Qualification Failure due to a contribution, allocation, or similar credit that is

made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed, allocated, or credited on behalf of the participant or beneficiary under

the terms of the plan or that exceeds a limitation on contributions or allocations provided in the

Code or regulations. Excess Amounts include: (i) an elective deferral or after-tax employee contribution that is in excess of the maximum contribution under the plan; (ii) an elective deferral

or after-tax employee contribution made in excess of the limitation under § 415; (iii) an elective

deferral in excess of the limitation of § 402(g); (iv) an excess contribution or excess aggregate

contribution under § 401(k) or (m); (v) an elective deferral or after-tax employee contribution

that is made with respect to compensation in excess of the limitation of § 401(a)(17); and (vi)

any other employer contribution that exceeds a limitation under § 401(m) (but only with respect

to the forfeiture of nonvested matching contributions that are excess aggregate contributions),

411(a)(3)(G), or 415, or that is made with respect to compensation in excess of the limitation

under § 401(a)(17). However, an Excess Amount does not include a contribution, allocation, or

other credit that is made pursuant to a correction method provided under this revenue procedure

for a different Qualification Failure. Excess Amounts are limited to contributions, allocations, or

annual additions under a defined contribution plan, after-tax employee contributions to a defined

benefit plan, and contributions or allocations that are to be made to a separate account (with actual

Earnings) under a defined benefit plan. See generally section 6.06 for the treatment and correction

of certain Excess Amounts.

(b) Excess Allocation. The term “Excess Allocation” means an Excess Amount for which the

Code or regulations do not provide any corrective mechanism. Excess Allocations include Excess

Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi) (except with respect to § 401(m) or

411(a)(3)(G) violations). Excess Allocations must be corrected in accordance with section 6.06(2).

(c) Overpayment. The term “Overpayment” means a Qualification Failure due to a payment being

made to a participant or beneficiary (“Overpayment recipient”) that exceeds the amount payable

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to the Overpayment recipient under the terms of the plan or that exceeds a limitation provided in

the Code or regulations. Overpayments include both payments from a defined benefit plan and

payments from a defined contribution plan that are either not made from the Overpayment recipient’s account under the plan or not permitted to be paid under the Code, the regulations, or the

terms of the plan. However, an Overpayment does not include a payment that is made pursuant to

a correction method provided under this revenue procedure for a different Qualification Failure.

Overpayments must be corrected in accordance with section 6.06(3) for defined benefit plans and

section 6.06(4) for defined contribution plans.

(4) Favorable Letter. With respect to a Qualified Plan, the term “Favorable Letter” is defined in

the following manner.

(a) Favorable Letter for individually designed Qualified Plans. In the case of an individually

designed Qualified Plan, the term “Favorable Letter” means a determination letter issued with

respect to the plan.

(b) Favorable Letter for Pre-approved Plans. In the case of a Pre-approved Plan, the term “Favorable Letter” means a favorable opinion or advisory letter issued with respect to the most recently

expired six-year remedial amendment cycle under Rev. Proc. 2016‑37, as modified. In the case of

a terminated Pre-approved Plan, the plan is treated as having a favorable opinion letter or advisory

letter if the plan is terminated prior to the expiration of the plan’s current remedial amendment cycle determined under the provisions of Rev. Proc. 2016‑37, as modified, and the plan was amended to reflect the qualification requirements that applied as of the date of termination.

(5) Maximum Payment Amount. The term “Maximum Payment Amount” means a monetary

amount that is approximately equal to the tax the IRS could collect upon plan disqualification and

is the sum for the open taxable years of the:

(a) tax on the trust (Form 1041, U.S. Income Tax Return for Estates and Trusts) (and any interest

or penalties applicable to the trust return);

(b) additional income tax resulting from the loss of employer deductions for plan contributions

(and any interest or penalties applicable to the Plan Sponsor’s return);

(c) additional income tax resulting from income inclusion for participants in the plan (Form 1040,

U.S. Individual Income Tax Return), including the tax on plan distributions that have been rolled

over to other qualified trusts (as defined in § 402(c)(8)(A)) or eligible retirement plans (as defined

in § 402(c)(8)(B)) and any interest or penalties applicable to the participants’ returns;

(d) in the case of any participant loan that did not comply with the requirements of § 72(p)(2),

the tax the IRS could collect as a result of the loan not being excluded from gross income under

§ 72(p)(2); and

(e) any other tax that results from a Qualification Failure that would apply but for correction under

this revenue procedure.

(6) Plan Sponsor. The term “Plan Sponsor” means the employer that establishes or maintains a

Qualified Plan for its employees.

(7) Transferred Assets. The term “Transferred Assets” means plan assets that were received, in

connection with a corporate merger, acquisition, or other similar employer transaction, by the plan

in a transfer (including a merger or consolidation of plan assets) under § 414(l) from a plan sponsored by an employer that was not a member of the same controlled group as the Plan Sponsor

immediately prior to the corporate merger, acquisition, or other similar employer transaction. If a

transfer of plan assets related to the same employer transaction is accomplished through several

transfers, then the date of the transfer is the date of the first transfer.

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(8) Pre-approved Plan. For purposes of this revenue procedure, the term “Pre-approved Plan”

means:

(a) a master plan, a prototype plan, or a volume submitter plan as described in Rev. Proc. 2015‑36,

2015‑27 I.R.B. 20, sections 4.01, 4.02 and 13.01, respectively; and

(b) a pre-approved plan described in section 4.07 of Rev. Proc. 2017‑41, 2017‑29 I.R.B. 92.

.02 Definitions for § 403(b) Plans. The definitions in this section 5.02 apply to § 403(b) Plans. For

§ 403(b) Plans, the definitions under Rev. Proc. 2008‑50 apply to failures that occurred in taxable

years beginning before January 1, 2009.

(1) Section 403(b) Plan. The term “§ 403(b) Plan” means a plan or program intended to satisfy the

requirements of § 403(b).

(2) Section 403(b) Failure. The term “§ 403(b) Failure” means a failure that adversely affects

the exclusion from income provided by § 403(b). There are four types of § 403(b) Failures: (a)

Plan Document Failures; (b) Operational Failures; (c) Demographic Failures; and (d) Employer

Eligibility Failures.

(a) Plan Document Failure. The term “Plan Document Failure” means a plan provision (or the

absence of a plan provision) that, on its face, violates the requirements of § 403(b). Thus, for

example, the failure of a plan to be adopted in written form or to be amended to reflect a new requirement within the plan’s applicable remedial amendment period is a Plan Document Failure. If

a plan has not been timely or properly amended during an applicable remedial amendment period

with respect to provisions required to maintain the status of the plan under § 403(b), the plan has

a Plan Document Failure. For purposes of this revenue procedure, a Plan Document Failure includes any § 403(b) Failure that adversely affects the status of the plan under § 403(b) and that is

not an Operational Failure, Demographic Failure, or Employer Eligibility Failure. Pursuant to section 4.01(1)(b), a Plan Document Failure consisting of the failure to adopt a written § 403(b) Plan

timely in accordance with §1.403(b)‑3(b)(3) and Notice 2009‑3 may not be corrected under SCP.

(b) Operational Failure. The term “Operational Failure” means a § 403(b) Failure (other than an

Employer Eligibility Failure) that arises solely from the failure to follow plan provisions. A failure to follow the terms of the plan providing for the satisfaction of the requirements of §§ 403(b)

(12)(ii) (relating to the availability of elective deferral contributions) and 401(m) (as applied to

§ 403(b) Plans pursuant to § 403(b)(12)(A)(i)) is an Operational Failure. A plan does not have an

Operational Failure to the extent the plan is permitted to be amended retroactively to reflect the

plan’s operations.

(c) Demographic Failure. The term “Demographic Failure” means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) (as applied to § 403(b) Plans pursuant to § 403(b)(12)

(A)(i)) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a

Demographic Failure generally requires a corrective amendment to the plan adding more benefits

or increasing existing benefits (see §1.401(a)(4)‑11(g)).

(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means the adoption of

a plan intended to satisfy the requirements of § 403(b) by a Plan Sponsor that is not a tax-exempt

organization described in § 501(c)(3) or a public educational organization described in § 170(b)

(1)(A)(ii). An Employer Eligibility Failure is not a Plan Document, Operational, or Demographic

Failure.

(3) Excess Amount. The term “Excess Amount” means a contribution or other credit that is made

on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to

be contributed or credited on behalf of the participant or beneficiary under the terms of the plan

or that exceeds a limitation on contributions provided in the Code or regulations. The term “Excess Amount” includes any amount in excess of the amount permitted under the requirements of

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§ 402(g), 401(m), or 415. A contribution in excess of the limitation of § 415(c) is not an Excess

Amount (or a § 403(b) Failure) if that excess is maintained in a separate account in accordance

with the rules in the regulations under §§ 403(b) and 415. Such separate account is considered to

be a § 403(c) annuity contract (or, if applicable, an amount to which § 61, 83, or 402(b) applies).

A contribution in excess of the limitation of § 415(c) that is not maintained in a separate account

in accordance with the rules set forth in regulations under §§ 403(b) and 415 is an Excess Amount.

Thus, the correction principles in section 6.06 apply.

(4) Overpayment. The term “Overpayment” means a § 403(b) Failure due to a payment being

made to a participant or beneficiary (“Overpayment recipient”) that exceeds the amount payable

to the Overpayment recipient under the terms of the plan or that exceeds a limitation provided in

the Code or regulations. Overpayments include payments made from the Overpayment recipient’s

§ 403(b) custodial account or annuity contract under the plan that are not permitted to be paid under the Code, the regulations, or the terms of the plan. However, an Overpayment does not include

a payment that is made pursuant to a correction method provided under this revenue procedure for

a different § 403(b) Failure. Overpayments must be corrected in accordance with section 6.06(4).

(5) Favorable Letter. The term “Favorable Letter” means a Favorable Letter as described in section 6.10(2).

(6) Maximum Payment Amount. The term “Maximum Payment Amount” means a monetary

amount that is approximately equal to the tax the IRS could collect as a result of the § 403(b)

Failure and is the sum for the open taxable years of the:

(a) additional income tax resulting from income inclusion for employees or other participants

(Form 1040), including the tax on distributions that have been rolled over to other qualified trusts

(as defined in § 402(c)(8)(A)) or eligible retirement plans (as defined in § 402(c)(8)(B)) and any

interest or penalties applicable to the participants’ returns; and

(b) any other tax that results from a § 403(b) Failure that would apply but for correction under this

revenue procedure.

(7) Plan Sponsor. The term “Plan Sponsor” means the employer that offers a § 403(b) Plan to its

employees.

(8) Section 403(b) Pre-approved Plan. The term “§ 403(b) Pre-approved Plan” means a plan described in section 3.17 of Rev. Proc. 2013‑22, 2013‑18 I.R.B. 985.

.03 Definitions for Orphan Plans.

(1) Orphan Plan. With respect to VCP and Audit CAP, the term “Orphan Plan” means any Qualified Plan, § 403(b) Plan, or other plan with respect to which an “Eligible Party” (defined in section

5.03(2)) has determined that the Plan Sponsor (a) no longer exists, (b) cannot be located, or (c) is

unable to maintain the plan. However, the term “Orphan Plan” does not include any plan subject

to Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) that is terminated

pursuant to 29 CFR 2578.1 of the Department of Labor regulations governing the termination of

abandoned individual account plans.

(2) Eligible Party. The term “Eligible Party” means:

(a) A court appointed representative with authority to terminate the plan and dispose of the plan’s

assets;

(b) In the case of an Orphan Plan under investigation by the Department of Labor, a person or

entity determined by the Department of Labor to have accepted responsibility for terminating the

plan and distributing the plan’s assets; or

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(c) In the case of a Qualified Plan to which Title I of ERISA has never applied, a surviving spouse

who is the sole beneficiary of a plan that provided benefits to a participant who was (i) the sole

owner of the business that sponsored the plan and (ii) the only participant in the plan.

.04 Earnings. The term “Earnings” refers to the adjustment of a principal amount to reflect subsequent investment gains and losses, unless otherwise provided in a specific section of this revenue

procedure.

.05 IRA. The term “IRA” means an individual retirement account (as defined in § 408(a)) or an

individual retirement annuity (as defined in § 408(b)).

.06 SEP. The term “SEP” means a plan intended to satisfy the requirements of § 408(k). For purposes of this revenue procedure, the term SEP also includes a salary reduction SEP (“SARSEP”)

described in § 408(k)(6), if applicable.

.07 SIMPLE IRA Plan. The term “SIMPLE IRA Plan” means a plan intended to satisfy the requirements of § 408(p).

.08 Under Examination. (1) The term “Under Examination” means: (a) a plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series or other Employee Plans

examination); (b) a Plan Sponsor that is under an Exempt Organizations examination (that is, an

examination of a Form 990 series or other Exempt Organizations examination); or (c) a plan that

is under investigation by the Criminal Investigation Division of the IRS.

(2) A plan that is under an Employee Plans examination includes any plan for which the Plan

Sponsor, or an authorized representative, has received verbal or written notification from Employee Plans of an impending Employee Plans examination, or of an impending referral for an

Employee Plans examination, and also includes any plan that has been under an Employee Plans

examination and is in Appeals or in litigation for issues raised in an Employee Plans examination.

A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the

nondiscrimination requirements of § 401(a)(4), the minimum coverage requirements of § 410(b),

or the requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In addition, a

plan is considered to be Under Examination with respect to a failure of a qualification requirement

(other than those described in the preceding sentence) if the plan is aggregated with another plan

for purposes of satisfying that qualification requirement (for example, § 401(a)(30), 415, or 416)

and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan

A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this

case, Plan A is considered to be Under Examination with respect to the § 415 failure. However,

if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of

§ 411, Plan A is not considered to be Under Examination with respect to the § 417 or 411 failure.

For purposes of this revenue procedure, the term aggregation does not include consideration of

benefits provided by various plans for purposes of the average benefits test set forth in § 410(b)(2).

(3) An Employee Plans examination also includes a case in which a Plan Sponsor has submitted

any Form 5300 (Application for Determination for Employee Benefit Plan), Form 5307 (Application for Determination for Adopters of Modified Volume Submitter Plans), or Form 5310 (Application for Determination for Terminating Plan) and the Employee Plans agent notifies the Plan

Sponsor, or an authorized representative, of possible failures, whether or not the Plan Sponsor

is officially notified of an “examination.” This would include a case where, for example, a Plan

Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent

notifies the Plan Sponsor that there are partial termination concerns. In addition, if, during the

review process, the agent requests additional information that indicates the existence of a failure

not previously identified by the Plan Sponsor, the plan is considered to be under an Employee

Plans examination. If, in such a case, the determination letter request under review is subsequently

withdrawn, the plan is nevertheless considered to be under an Employee Plans examination for

purposes of eligibility under SCP and VCP with respect to those issues raised by the agent reviewing the determination letter application. The fact that a Plan Sponsor voluntarily submits a deter-

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mination letter application does not constitute a voluntary identification of a failure to the IRS. In

order to be eligible for VCP, the Plan Sponsor (or the authorized representative) must identify each

failure, in writing, to the reviewing agent before the agent recognizes the existence of the failure or

addresses the failure in communications with the Plan Sponsor (or the authorized representative).

(4) A Plan Sponsor that is under an Exempt Organizations examination includes any Plan Sponsor

that has received (or whose authorized representative has received) verbal or written notification

from Exempt Organizations of an impending Exempt Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any Plan Sponsor that has

been under an Exempt Organizations examination and is now in Appeals or in litigation for issues

raised in an Exempt Organizations examination.

SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY

.01 Correction principles; rules of general applicability. The general correction principles in section 6.02 and rules of general applicability in sections 6.03 through 6.13 apply for purposes of this

revenue procedure.

.02 Correction principles. Generally, a failure is not corrected unless full correction is made with

respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable

year is closed). Even if correction is made for a closed taxable year, the tax liability associated

with that year will not be redetermined because of the correction. Correction is determined taking

into account the terms of the plan at the time of the failure. Correction should be accomplished

taking into account the following principles:

(1) Restoration of benefits. The correction method should restore the plan to the position it would

have been in had the failure not occurred, including restoration of current and former participants

and beneficiaries to the benefits and rights they would have had if the failure had not occurred.

(2) Reasonable and appropriate correction. The correction should be reasonable and appropriate

for the failure. Depending on the nature of the failure, there may be more than one reasonable

and appropriate correction for the failure. For Qualified Plans and § 403(b) Plans, any correction

method permitted under Appendix A or Appendix B is deemed to be a reasonable and appropriate

method of correcting the related failure. Any correction method permitted under Appendix A or

Appendix B applicable to a SEP, or a SIMPLE IRA Plan is similarly deemed to be a reasonable

and appropriate method of correcting the related failure. If a plan has a different but analogous

failure to one set forth in Appendix A or B (such as the failure to provide a matching contribution

by a governmental plan that is not subject to § 401(m)), then the analogous correction method

under Appendix A or B is generally available to correct the failure. Whether any other particular

correction method is reasonable and appropriate is determined taking into account the applicable

facts and circumstances and the following principles:

(a) The correction method should, to the extent possible, resemble one already provided for in the

Code, regulations, or other guidance of general applicability. For example, for Qualified Plans and

§ 403(b) Plans, the correction method set forth in §1.402(g)‑1(e)(2) would be the typical means of

correcting a failure under § 402(g).

(b) The correction method should keep plan assets in the plan, except to the extent the Code, regulations, or other guidance of general applicability provide for correction by distribution to participants or beneficiaries or return of assets to the employer. For example, if an excess allocation (not

in excess of the § 415 limits) made under a Qualified Plan was made for a participant under a plan

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(other than a § 401(k) plan), the excess should be reallocated to other participants or, depending

on the facts and circumstances, used to reduce future employer contributions.

(c) The correction method for failures relating to nondiscrimination should provide benefits for

nonhighly compensated employees. For example, for Qualified Plans, the correction method set

forth in §1.401(a)(4)‑11(g) (rather than methods making use of the special testing provisions set

forth in §1.401(a)(4)‑8 or §1.401(a)(4)‑9) would be the typical means of correcting a failure to

satisfy nondiscrimination requirements. Similarly, the correction of a failure to satisfy the requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before December 31, 2001,

the multiple use test of § 401(m)(9) (relating to nondiscrimination), solely by distributing excess

amounts to highly compensated employees would not be the typical means of correcting such a

failure.

(d) The correction method should not violate another applicable specific requirement of § 401(a)

or 403(b) (for example, § 401(a)(4), 411(d)(6), or 403(b)(12), as applicable), 408(k) for SEPs, or

408(p) for SIMPLE IRA Plans, or a parallel requirement in Part 2 of Subtitle B of Title I of ERISA

(for plans that are subject to Part 2 of Subtitle B of Title I of ERISA). If an additional failure is

nevertheless created as a result of the use of a correction method in this revenue procedure, then

that failure also must be corrected in conjunction with the use of that correction method and in

accordance with the requirements of this revenue procedure.

(e) If a correction method is one that another government agency has authorized with respect to

a violation of legal requirements within its interpretive authority and that correction relates to a

violation for which there is a failure to which this revenue procedure applies, then the IRS may

take the correction method of the other governmental agency into account for purposes of this

revenue procedure. For example:

(i) If the plan is subject to ERISA, for a failure that results from the employer having ceased to

exist, the employer no longer maintaining the plan, or similar reasons, the permitted correction

is to terminate the plan and distribute plan assets to participants and beneficiaries in accordance

with standards and procedures substantially similar to those set forth in 29 CFR 2578.1 of the

Department of Labor regulations (relating to abandoned plans). This correction must satisfy four

conditions. First, the correction must comply with standards and procedures substantially similar

to those set forth in 29 CFR 2578.1. Second, the qualified termination administrator, based on

plan records located and updated in accordance with the Department of Labor regulations, must

have reasonably determined whether, and to what extent, the survivor annuity requirements of

§§ 401(a)(11) and 417 apply to any benefit payable under the plan and must take reasonable steps

to comply with those requirements (if applicable). Third, each participant and beneficiary must

have been provided a nonforfeitable right to his or her accrued benefits as of the date of deemed

termination under the Department of Labor regulations, subject to Earnings between that date and

the date of distribution. Fourth, participants and beneficiaries must receive notification of their

rights under § 402(f). In addition, notwithstanding correction under this revenue procedure, the

IRS reserves the right to pursue appropriate remedies under the Code against any party who is

responsible for the plan, such as the Plan Sponsor, plan administrator, or owner of the business,

even in its capacity as a participant or beneficiary under the plan. See also Appendix A, section

.09(1), for parallel rules for plans that are not subject to ERISA.

(ii) In the case of a violation of the fiduciary standards imposed by Part 4 of Subtitle B of Title I of

ERISA, correction under the Voluntary Fiduciary Correction Program (VFCP) established by the

Department of Labor for a fiduciary violation for which there is a similar failure under this revenue procedure would generally be taken into account as correction under this revenue procedure.

(See also section 7.3(b) of the Department of Labor’s VFCP under which correction of a defaulted

participant loan that provides for repayment in accordance with § 72(p)(2) requires only submission of the correction under VCP and inclusion of the VCP compliance statement (with proof of

any required corrective payment).)

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(3) Consistency requirement. Generally, if more than one correction method is available to correct

a type of failure for a plan year (or if there are alternative ways to apply a correction method),

the correction method (or one of the alternative ways to apply the correction method) should be

applied consistently in correcting all failures of that type for that plan year. Similarly, Earnings adjustment methods generally should be applied consistently with respect to corrective contributions

or allocations for a particular type of failure for a plan year. In the case of a group submission, the

consistency requirement applies on a plan-by-plan basis.

(4) Principles regarding corrective allocations and corrective distributions. The following principles apply where an appropriate correction method includes the use of corrective allocations or

corrective distributions:

(a) Corrective allocations under a defined contribution plan should be based upon the terms of the

plan and other applicable information at the time of the failure (including the compensation that

would have been used under the plan for the period with respect to which a corrective allocation

is being made) and should be adjusted for Earnings and forfeitures that would have been allocated

to the participant’s account if the failure had not occurred. However, a corrective allocation is not

required to be adjusted for losses. Accordingly, corrective allocations must include gains and may

be adjusted for losses. For additional information, see Appendix B, section 3, Earnings Adjustment Methods and Examples.

(b) A corrective allocation to a participant’s account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant

for the limitation year in which the correction is made, but is considered an annual addition for

the limitation year to which the corrective allocation relates. However, the normal rules of § 404,

regarding deductions, apply.

(c) Corrective allocations should come only from employer nonelective contributions (including

forfeitures if the plan permits their use to reduce employer contributions). For purpose of correcting a failed ADP, actual contribution percentage (“ACP”), or multiple use test, any amounts used

to fund qualified nonelective contributions (“QNECs”) must satisfy the definition of QNEC in

§1.401(k)‑6.

(d) In the case of a defined benefit plan, a corrective distribution for an individual should be increased to take into account the delayed payment, in accordance with the plan’s provisions for

actuarial equivalence (after considering the applicable requirements of §§ 417(e)(3) and 415(b)

or any other applicable provision) that were in effect on the date that the distribution should have

been made. A corrective distribution is not subject to the requirements of § 417(e)(3) if it is made

to make up for missed payments with respect to a benefit that is not subject to the requirements

of § 417(e)(3).

(e)(i) In the case of a single employer defined benefit plan, a payment of benefits that fails to

satisfy the requirements of § 436(b), (c), or (e) can be corrected by the Plan Sponsor (including

another person acting on behalf of the Plan Sponsor) making a contribution to the plan equal to the

following amount (with interest up to the date of the contribution): (A) in the case of a failure to

satisfy § 436(b) with respect to an unpredictable contingent event benefit, the amount described in

§ 436(b)(2) with respect to that benefit; (B) in the case of a failure to satisfy § 436(c) with respect

to an amendment, the amount described in § 436(c)(2) with respect to that amendment; and (C)

in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with respect to that

failure. See also section 6.06(3) for correction of an Overpayment (including a payment of benefits that exceeds the limitations imposed by § 436(d) or 436(b), (c), or (e)).

(ii) A corrective distribution or a corrective amendment (where a correction is accomplished

through a plan amendment) is not subject to the requirements of § 436, but, if the plan is subject to

a restriction pursuant to § 436 at the time of the correction, generally the Plan Sponsor must make

a contribution to the plan at the time of the correction in the following amount: (A) if a corrective

distribution is made in a single-sum payment or other prohibited payment (as defined in § 436(d)

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(5)) at a time when the plan is subject to a restriction pursuant to § 436(d), the Plan Sponsor must

generally contribute to the plan the amount of that corrective distribution (but only half of the corrective distribution must be contributed if the payment is made at a time when the plan is subject

to a restriction pursuant to § 436(d)(3)); and (B) if a corrective amendment is made at a time when

the plan is subject to a restriction pursuant to § 436(c), the Plan Sponsor must generally contribute

to the plan an amount equal to the increase in the funding target of the plan (as defined in § 430)

attributable to that amendment. No contribution is required to be made under this paragraph (e)

(ii) if the corrective distribution is made in a form that is not a prohibited payment (for example,

if the correction is made by actuarially increasing future payments that are made in a form that is

not a prohibited payment).

(iii) Any contribution made by the Plan Sponsor pursuant to this paragraph (e) is treated in the

same manner as a “section 436 contribution” (as defined in §1.436‑1(j)(7)). Thus, the contribution is treated as separate from a minimum required contribution under § 430 and is disregarded

in determining the amount added to a prefunding balance under § 430(f)(6). See §1.436‑1(f)(2)

generally for rules relating to § 436 contributions.

(f) In the case of a defined contribution plan, a corrective contribution or distribution should be adjusted for Earnings from the date of the failure (determined without regard to any Code provision

which permits a corrective contribution or distribution to be made at a later date).

(5) Special exceptions to full correction. In general, a failure must be fully corrected. Although the

mere fact that correction is inconvenient or burdensome is not enough to relieve a Plan Sponsor

of the need to make full correction, full correction may not be required in certain situations if it

is unreasonable or not feasible. Even in these situations, the correction method adopted must be

one that does not have significant adverse effects on participants and beneficiaries or the plan, and

that does not discriminate significantly in favor of highly compensated employees. The exceptions

described below specify those situations in which full correction is not required.

(a) Reasonable estimates. If either (i) it is possible to make a precise calculation but the probable

difference between the approximate and the precise restoration of a participant’s benefits is insignificant and the administrative cost of determining precise restoration would significantly exceed

the probable difference or (ii) it is not possible to make a precise calculation (for example, where

it is impossible to provide plan data), reasonable estimates may be used in calculating appropriate

correction. If it is not feasible to make a reasonable estimate of what the actual investment results

would have been, a reasonable interest rate may be used. For this purpose, the interest rate used

by the Department of Labor’s VFCP Online Calculator is deemed to be a reasonable interest

rate. The calculator can be found at https://www.dol.gov/agencies/ebsa/employers-and-advisers/

plan-administration-and-compliance/correction-programs/vfcp.

(b) Delivery of small benefits. If the total corrective distribution due a participant or beneficiary is

$75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable

direct costs of processing and delivering the distribution to the participant or beneficiary would

exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a current or former

participant, without regard to the amount of the corrective contributions.

(c) Recovery of small Overpayments. Generally, if the total amount of an Overpayment to an

Overpayment recipient is $250 or less, the Plan Sponsor is not required to seek the return of the

Overpayment from the Overpayment recipient. Also, the Plan Sponsor is not required to notify the

Overpayment recipient that an Overpayment of $250 or less is ineligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is ineligible for tax-free rollover).

(d) Locating lost participants. (i) Reasonable actions must be taken to find all current and former

participants and beneficiaries to whom additional benefits are due, but who have not been located

after a mailing to the last known address. In general, such actions include, but are not limited to,

a mailing to the individual’s last known address using certified mail, and, if that is unsuccessful,

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an additional search method, such as the use of a commercial locator service, a credit reporting

agency, or internet search tools. Depending on the facts and circumstances, the use of more than

one of these additional search methods may be appropriate. A Plan Sponsor will not be considered

to have failed to correct a failure due to the inability to locate an individual if reasonable actions

to locate the individual have been undertaken in accordance with this paragraph; provided that, if

the individual is later located, the additional benefits are provided to the individual at that time.

(ii) The IRS Letter Forwarding Program was modified to provide that the IRS would no longer

forward letters from individuals, companies or organizations that control assets that may be due

taxpayers. See Rev. Proc. 2012‑35, 2012‑37 I.R.B. 341. Therefore, the IRS Letter Forwarding

Program is not available as a means to search for participants and beneficiaries to whom benefits

under the plan are due.

(e) Small Excess Amounts. Generally, if the total amount of an Excess Amount with respect to the

benefit of a participant or beneficiary is $250 or less, the Plan Sponsor is not required to distribute

or forfeit such Excess Amount. However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including any investment gains, is

not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is

not eligible for tax-free rollover). See section 6.06(1) for such notice requirements.

(f) Orphan Plans. The IRS retains the discretion to determine under VCP and Audit CAP whether

full correction will be required with respect to a terminating Orphan Plan.

(6) Correction principle for plan loan failures. In the case of a plan loan failure corrected in accordance with section 6.07(3)(b), (c), or (d), the participant is generally responsible for paying the

corrective payment. However, with respect to the failure listed in section 6.07(3)(d), the employer

should pay a portion of the correction payment on behalf of the participant equal to the interest

that accumulates as a result of such failure, generally determined at a rate equal to the greater of

the plan loan interest rate or the rate of return under the plan.

(7) Correction for exclusion of employees with respect to elective deferrals or after-tax employee

contributions. If a Qualified Plan or § 403(b) Plan has an Operational Failure that consists of

excluding an employee that should have been eligible to make an elective deferral or an after-tax

employee contribution, the employer should contribute to the plan on behalf of the excluded employee an amount that makes up for the value of the lost opportunity for the employee to have a

portion of his or her compensation contributed to the plan accumulated with earnings tax deferred

in the future. This correction principle applies solely to this limited circumstance. It does not, for

example, extend to the correction of a failure to satisfy a nondiscrimination test, such as, the ADP

test pursuant to § 401(k)(3) and the ACP test pursuant to § 401(m)(2). Specific methods and examples to correct this failure are provided in Appendix A, section .05, and Appendix B, section 2.02.

Similarly, the methods and examples provided for correcting this failure do not extend to other

failures. Thus, the correction methods and the examples in Appendix A, section .05 and Appendix

B, section 2.02, cannot, for example, be used to correct ADP/ACP failures.

(8) Correction by plan amendment in VCP, Audit CAP, and SCP. For the availability of correction

by plan amendment, see section 4.05.

(9) Reporting. Any corrective distributions from the plan should be properly reported.

.03 Correction of an Employer Eligibility Failure. (1) The permitted correction of an Employer

Eligibility Failure is the cessation of all contributions (including elective deferrals and after-tax

employee contributions). For VCP submissions, the cessation must occur no later than the date

the submission under VCP is filed. The assets in such a plan are to remain in the trust, annuity

contract, or custodial account and are to be distributed no earlier than the occurrence of one of the

applicable distribution events, for example, for § 403(b) Plans, an event described in § 403(b)(7)

(to the extent the assets are held in custodial accounts) or § 403(b)(11) (for those assets invested in

annuity contracts that would be subject to § 403(b)(11) restrictions if the employer were eligible).

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(2) Cessation of contributions is not required if continuation of contributions would not be an Employer Eligibility Failure (for example, with respect to a tax-exempt employer that may maintain a

§ 401(k) plan after 1996). In the case of a § 403(b) Failure that is an Employer Eligibility Failure,

correction may include treating contributions as not being excluded under § 403(b) (and thus the

contributions would be treated as having been contributed, for example, to an annuity contract to

which § 403(c) applies).

(3) A plan that is corrected through VCP or Audit CAP is treated as subject to all of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a § 403(b) Plan, 408(k) for

a SEP, and 408(p) for a SIMPLE IRA Plan (including Code provisions relating to rollovers).

Therefore, the Plan Sponsor must also correct all other failures in accordance with this revenue

procedure.

(4) If correction is accomplished under VCP or Audit CAP in accordance with the requirements

of this section 6.03, then any rollovers made from the plan pursuant to a distributable event are

deemed to have been made from an eligible retirement plan (as defined in § 402(c)(8)(B)) for the

purpose of determining whether the amounts qualify as an eligible rollover distribution under

§ 402(c) or 403(b)(8) (including the determination of excess contributions that are subject to the

§ 4973 excise tax).

.04 Correction of a failure to obtain spousal consent. (1) In general. Failures to obtain spousal

consent described in this section 6.04 may be corrected under VCP, SCP, or Audit CAP. Normally,

the correction method for a failure to obtain spousal consent for a distribution that is subject to the

spousal consent rules under §§ 401(a)(11) and 417 is similar to the correction method described

in Appendix A, section .07. The Plan Sponsor must notify the affected participant and spouse (the

spouse to whom the participant was married at the time of the distribution), so that the spouse can

provide spousal consent to the distribution actually made or the participant may repay the distribution and receive a qualified joint and survivor annuity.

(2) Alternative correction methods when spousal consent is not obtained. (a) In general. As alternatives to the correction method in section 6.04(1), correction for a failure to obtain spousal

consent may be made under either section 6.04(2)(b) or section 6.04(2)(c).

(b) QJSA option. In the event that spousal consent to the prior distribution is not obtained (for

example, because the spouse chooses not to consent, the spouse does not respond to the notice, or

the spouse cannot be located), the spouse is entitled to a benefit under the plan 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 the annuity starting date for the prior distribution. Such spousal benefit must be

provided if a claim is made by the spouse.

(c) Election between annuity and single-sum payment. In the event that spousal consent to the

prior distribution is not obtained, the plan may offer the spouse the choice between (i) the survivor

annuity benefit described in section 6.04(2)(b) or (ii) a single-sum payment equal to the actuarial

present value of that survivor annuity benefit (calculated using the applicable interest rate and

mortality table under § 417(e)(3)). Any such single-sum payment is treated in the same manner

as a distribution under § 402(c)(9) for purposes of rolling over the payment to an IRA or other

eligible retirement plan. In the event that the plan is subject to a restriction on the payment of single sums pursuant to § 436(d) at the time the plan offers this choice to the spouse and the spouse

elects to receive a single-sum payment, the Plan Sponsor must contribute to the plan the applicable

amount under section 6.02(4)(e)(ii)(A).

.05 Determination letter application not permitted. (1) In general. A determination letter application may not be submitted with a VCP submission.

(a) Issuance of compliance statement or closing agreement for Plan Document Failures corrected

through plan amendment under VCP or Audit CAP. The issuance of a compliance statement or

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closing agreement for Plan Document Failures corrected through plan amendment under VCP or

Audit CAP does not constitute a determination that the terms of the plan, including the corrective

plan amendment, satisfy the qualification requirements in form. See section 10.08(2)(a) and (b).

(b) Issuance of compliance statement or closing agreement for Operational Failures corrected

through plan amendment under VCP or Audit CAP. If a Plan Sponsor submits a VCP filing correcting an Operational Failure through a plan amendment or corrects such a failure under Audit

CAP, and the plan amendment is accepted as a proper correction, then the compliance statement

under VCP or closing agreement issued under Audit CAP constitutes a determination that the

Operational Failure has been corrected, but is not a determination that the terms of the plan, including the corrective plan amendment, satisfy the qualification requirements in form. See section

10.08(2)(c).

(2) Corrective amendments to Pre-approved Plans. (a) Effect of corrective amendment. Generally,

under VCP or Audit CAP, a Plan Sponsor that is an adopter of a Pre-approved Plan or a § 403(b)

Pre-approved Plan may amend its plan to correct a Qualification Failure or a § 403(b) Failure

(provided the requirements of EPCRS are satisfied and the amendment satisfies the requirements

of the Code). In some cases, the corrective amendment is not provided for among plan provision

options that were pre-approved when the opinion or advisory letter was issued with respect to the

plan. As a result, adopting such a corrective amendment would cause the Plan Sponsor to lose

reliance on the plan’s opinion or advisory letter, except in the limited circumstances provided in

section 6.05(2)(b).

(b) Exception for certain amendments. In the case of a Pre-approved Plan or a § 403(b) Pre-approved Plan, the adoption of a plan provision required to correct a failure under VCP or Audit

CAP that is not provided for in the adoption agreement will not cause the Plan Sponsor to lose

its reliance on the plan’s opinion or advisory letter, provided that: (i) the corrective amendment

would otherwise be permitted under the rules for Pre-approved Plans or § 403(b) Pre-approved

Plans, as applicable, and (ii) no other modification has been made to the plan that would cause the

plan to lose its reliance on the opinion or advisory letter. If these conditions are satisfied, the Plan

Sponsor will be allowed to continue to rely on the plan’s opinion or advisory letter. In addition, the

adoption of the corrective amendment will not cause the Pre-approved Plan to lose its eligibility

to remain within the six-year remedial amendment cycle provided for in Rev. Proc. 2016‑37, as

modified, on a continuing basis until the expiration of the next six-year remedial amendment cycle

described in section 16.01 of Rev. Proc. 2016‑37, as modified.

.06 Special rules relating to Excess Amounts. (1) Treatment of Excess Amounts. A distribution of

an Excess Amount is not eligible for the favorable tax treatment accorded to distributions from

Qualified Plans or § 403(b) Plans (such as eligibility for tax-free rollover). Thus, for example, if

such a distribution was contributed to an IRA, the contribution is not a valid rollover contribution

for purposes of determining the amount of excess contributions (within the meaning of § 4973) to

the individual’s IRA. A distribution of an Excess Amount is generally treated in the manner described in section 3 of Rev. Proc. 92‑93, 1992‑2 C.B. 505 (relating to the corrective disbursement

of elective deferrals). The distribution must be reported on Form 1099‑R, Distributions From

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the

year of distribution with respect to each participant or beneficiary receiving such a distribution.

Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small Overpayments, where an Excess Amount has been or is being distributed, the Plan Sponsor must notify the

recipient that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is

not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan,

as defined in § 402(c)(8)(B) (and, specifically, is not eligible for rollover).

(2) Correction of Excess Allocations. In general, an Excess Allocation is corrected in accordance

with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this

method, the account balance of an employee who received an Excess Allocation is reduced by the

Excess Allocation (adjusted for Earnings). If the Excess Allocation would have been allocated to

other employees in the year of the failure had the failure not occurred, then that amount (adjusted

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for Earnings) is reallocated to those employees in accordance with the plan’s allocation formula.

If the improperly allocated amount would not have been allocated to other employees absent the

failure, that amount (adjusted for Earnings) is placed in a separate account that is not allocated

on behalf of any participant or beneficiary (an unallocated account) established for the purpose of

holding Excess Allocations, adjusted for Earnings, to be used to reduce employer contributions

(other than elective deferrals) in the current year or succeeding year. While such amounts remain

in the unallocated account, the employer is not permitted to make contributions to the plan other

than elective deferrals. Excess Allocations that are attributable to elective deferrals or after-tax

employee contributions (adjusted for Earnings) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded

for purposes of §§ 402(g) and 415, the ADP test of § 401(k)(3), and the ACP test of § 401(m)(2).

If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable

to both employer contributions and elective deferrals or after-tax employee contributions, then the

correction of the Excess Allocation is completed by first distributing the unmatched employee’s

after-tax contributions (adjusted for Earnings) and then the unmatched employee’s elective deferrals (adjusted for Earnings). If any excess remains, and is attributable to either elective deferrals

or after-tax employee contributions that are matched, the excess is apportioned first to after-tax

employee contributions with the associated matching employer contributions and then to elective

deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for Earnings) which constitutes an Excess Allocation is

then forfeited and placed in an unallocated account established for the purpose of holding Excess

Allocations to be used to reduce employer contributions in the current year and succeeding year.

Such unallocated account is adjusted for Earnings. While such amounts remain in the unallocated

account, the employer is not permitted to make contributions (other than elective deferrals) to the

plan.

(3) Correction of Overpayments (defined benefit plans). An Overpayment from a defined benefit

plan is corrected in accordance with the rules set forth in this section 6.06(3) and Appendix B,

section 2.05.

(a) In general, subject to the conditions set forth in section 4.05 (which permits correction by plan

amendment under VCP, Audit CAP, and, under limited circumstances, SCP), a Plan Sponsor may

correct an Overpayment by adopting a retroactive amendment to conform to the plan’s operation.

(b) If the Overpayment is not corrected by plan amendment, the Plan Sponsor may correct the

Overpayment in accordance with the correction methods set forth in section 6.06(3)(c) and (d) and

Appendix B, section 2.05. In those cases, the following rules apply:

(i) With regard to Overpayments involving periodic payments, future payments must be reduced

as soon as practicable either to reflect the correct amount payable to the Overpayment recipient

under the terms of the plan, or to satisfy a limitation provided in the Code or regulations;

(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small Overpayments,

the Plan Sponsor must notify the Overpayment recipient in writing that the Overpayment is not

eligible for favorable tax treatment accorded to distributions from an eligible retirement plan, as

defined in § 402(c)(8)(B) (and, specifically, is not eligible for tax-free rollover); and

(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small Overpayments,

and except as otherwise provided in this section 6.06(3) and Appendix B, section 2.05, to the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid

to the plan, the Plan Sponsor or another person must contribute the difference to the plan.

(c) An Overpayment may be corrected in accordance with the return of Overpayment correction

method (including repayment through an installment agreement) or the adjustment of future payments correction method, as described in Appendix B, section 2.05(2). Plan Sponsors may permit

an Overpayment recipient to choose the method of repayment that will apply to the correction of

the Overpayment.

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(d) If the applicable requirements are satisfied, an Overpayment may be corrected in accordance

with the funding exception correction method described in Appendix B, section 2.05(3), or the

contribution credit correction method described in Appendix B, section 2.05(4).

(i) In general, under the funding exception correction method, in the case of a plan subject to

§ 436, no corrective payments are necessary with regard to an Overpayment, provided that the

certified or presumed AFTAP determined under § 436 that is applicable to the plan at the date of

correction is equal to at least 100 percent (or, in the case of a multiemployer plan, the plan’s most

recent annual funding certification indicates that the plan is not in critical, critical and declining,

or endangered status, as defined in § 432, determined at the date of correction). As provided in

section 6.06(3)(b)(i), future benefit payments to an Overpayment recipient must be reduced to the

correct benefit payment amount. For purposes of EPCRS, no further corrective payments from

any party are required, no further reductions to future benefit payments to an Overpayment recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted, and no further corrective payments from an Overpayment recipient, or any spouse or beneficiary of an Overpayment

recipient, are permitted. See Appendix B, section 2.05(3), for additional details and eligibility

requirements regarding the funding exception correction method.

(ii) Under the contribution credit correction method, in general, the amount of Overpayments

required to be repaid to the plan is the amount of the Overpayments reduced (but not below

zero) by: (A) the cumulative increase in the plan’s minimum funding requirements attributable to

the Overpayments (including the increase attributable to the overstatement of liabilities, whether

funded through cash contributions or through the use of a funding standard carryover balance,

prefunding balance, or funding standard account credit balance) beginning with (1) the plan year

for which the Overpayments are taken into account for funding purposes, through (2) the end of

the plan year preceding the plan year for which the corrected benefit payment amount is taken

into account for funding purposes; and (B) certain additional contributions in excess of minimum

funding requirements paid to the plan after the first of the Overpayments was made. This reduction

is referred to as a “contribution credit.” As provided in section 6.06(3)(b)(i), future benefit payments to an Overpayment recipient must be reduced to the correct benefit payment amount. For

purposes of EPCRS, if the amount of the Overpayments is reduced to zero after the contribution

credit is applied, no further corrective payments from any party are required, no further reductions to future benefit payments to an Overpayment recipient, or any spouse or beneficiary of an

Overpayment recipient, are permitted, and no further corrective payments from an Overpayment

recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted. However, if

a net Overpayment remains after the application of the contribution credit, the Plan Sponsor or

another party must take further action to reimburse the plan for the remainder of the Overpayment.

See Appendix B, section 2.05(4), for additional details and eligibility requirements regarding the

contribution credit correction method.

(e) Depending on the nature of the Overpayment, other appropriate correction methods may be

used. An appropriate correction method may include using rules similar to the correction methods

described in Appendix B, section 2.05, but having the Plan Sponsor or another person contribute

the amount of the Overpayment (with appropriate interest) to the plan instead of seeking recoupment from an Overpayment recipient. Any other correction method used must satisfy the correction principles of section 6.02 and any other applicable rules in this revenue procedure.

(4) Correction of Overpayments (defined contribution plans and § 403(b) Plans). An Overpayment from a defined contribution plan or § 403(b) Plan is corrected in accordance with the rules

set forth in this section 6.06(4) and Appendix B, section 2.04.

(a) Correction by plan amendment. In general, subject to the conditions set forth in section 4.05

(which permits correction by plan amendment under VCP, Audit CAP, and, under limited circumstances, SCP), a Plan Sponsor may correct an Overpayment by amending the plan to conform to

the plan’s operation.

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(b) Rules relating to Overpayment correction methods. If the Overpayment is not corrected by

plan amendment, the Plan Sponsor may correct the Overpayment in accordance with the correction methods set forth in sections 6.06(4)(c), (d), and (e), and Appendix B, section 2.04. In those

cases, the following rules apply:

(i) With regard to Overpayments involving periodic payments, future payments must be reduced

as soon as practicable either to reflect the correct amount payable to the Overpayment recipient

under the terms of the plan, or to satisfy a limitation provided in the Code or regulations;

(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small Overpayments,

the Plan Sponsor must notify the Overpayment recipient in writing that the Overpayment was not

eligible for favorable tax treatment accorded to distributions from an eligible retirement plan, as

defined in § 402(c)(8)(B), (and, specifically, was not eligible for tax-free rollover); and

(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small Overpayments,

to the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate from

the date of distribution to the date of the correction is not repaid to the plan, the Plan Sponsor or

another person must contribute the difference to the plan. The preceding sentence does not apply

when the failure arose solely because a payment was made from the plan to an Overpayment recipient in the absence of a distributable event (but was otherwise determined in accordance with

the terms of the plan (for example, an impermissible in-service distribution)).

(c) Return of Overpayment correction method. An Overpayment may be corrected in accordance

with the return of Overpayment correction method (including repayment through an installment

agreement). Under this method, the employer takes reasonable steps to have the Overpayment

repaid to the plan by the Overpayment recipient, adjusted for Earnings at the plan’s earnings rate

from the date of the distribution to the date of the correction of the Overpayment. Plan Sponsors

may permit an Overpayment recipient to choose the method of repayment that will apply to the

correction of the Overpayment.

(d) Unallocated account. Except as provided in section 6.06(4)(e), a corrected Overpayment,

adjusted for Earnings at the plan’s earnings rate to the date of the repayment, is to be placed in an

unallocated account, as described in section 6.06(2), to be used to reduce employer contributions

(other than elective deferrals) in the current year and succeeding year(s) (or, if the amount would

have been allocated to other eligible employees who were in the plan for the year of the failure

if the failure had not occurred, then that amount is reallocated to the other eligible employees in

accordance with the plan’s allocation formula).

(e) Repayment by the Overpayment recipient. To the extent an Overpayment results solely from a

distribution of an Overpayment recipient’s benefit under the plan in the absence of a distributable

event but the Overpayment was otherwise determined in accordance with the terms of the plan,

any amount returned to the plan by the Overpayment recipient is to be allocated to his or her

account.

(f) Other appropriate correction methods. Depending on the nature of the Overpayment, other

appropriate correction methods may be used. An appropriate correction method may include using

rules similar to the correction method in section 6.06(4)(b) but having the employer or another

person contribute the amount of the Overpayment (with appropriate interest) to the plan instead

of seeking recoupment from an Overpayment recipient. Any other correction method used must

satisfy the correction principles of section 6.02 and any other applicable rules of this revenue

procedure.

.07 Correction of plan loan failures. (1) In general. Plan loan failures may be corrected under VCP,

SCP, or Audit CAP, unless otherwise specified in this section 6.07.

(2) Plan loan failures treated as deemed distributions under § 72(p). Unless correction is made in

accordance with section 6.07(3) (to the extent applicable), a deemed distribution under § 72(p)(1)

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in connection with a failure relating to a plan loan to a participant must be reported on Form 1099R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., with respect to the affected participant, and any applicable income tax withholding

amount that was required to be paid in connection with the failure (see §1.72(p)‑1, Q&A‑15) must

be paid by the employer. In this case, the deemed distribution may be reported on Form 1099-R

with respect to the affected participant for the year of correction (instead of the year of the failure).

(3) Correction methods for certain § 72(p) plan loan failures. (a) In general. The correction methods set forth in section 6.07(3)(b), (c), and (d) apply to plan loans that do not comply with one

or more requirements of § 72(p)(2); however, these correction methods are not available if the

maximum period for repayment of the loan pursuant to § 72(p)(2)(B) has expired. Further, the

IRS reserves the right to limit the use of these correction methods to situations that it considers

appropriate, for example, if the loan failure is caused by employer action. A deemed distribution

corrected under section 6.07(3)(b), (c), or (d) is not required to be reported on Form 1099-R, and

corrective payments under section 6.07(3) do not result in the affected participant having additional basis in the plan for purposes of determining the tax treatment of subsequent distributions from

the plan to the affected participant.

(b) Loans in excess of § 72(p)(2)(A). A failure of plan loan terms to satisfy § 72(p)(2)(A) may be

corrected only under VCP or Audit CAP. The failure may be corrected by a corrective payment to

the plan based on the excess of the loan amount over the maximum loan amount under § 72(p)(2)

(A). In the event that loan repayments were made in accordance with the amortization schedule for

the loan before correction, such prior repayments may be applied (i) solely to reduce the portion of

the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective

payment would equal the original loan excess plus interest thereon), (ii) to reduce the loan excess

to the extent of the interest thereon, with the remainder of the repayments applied to reduce the

portion of the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the

corrective payment would equal the original loan excess), or (iii) pro rata against the loan excess

and the maximum loan amount under § 72(p)(2)(A) (so that the corrective payment would equal

the outstanding balance remaining on the original loan excess on the date that the corrective payment is made). After the corrective payment is made, the loan may be reformed to amortize the

remaining principal balance as of the date of the corrective payment over the remaining period of

the original loan. This is permissible as long as the recalculated repayments over the remaining

loan period would not cause the loan to violate the maximum repayment term requirement under

§ 72(p)(2)(B). The maximum repayment term is determined from the date the original loan was

made. In addition, the amortized repayments determined for the remaining loan period must comply with the level amortization requirement of § 72(p)(2)(C).

(c) Plan loan terms that do not satisfy § 72(p)(2)(B) or (C). A failure of plan loan terms to satisfy

the maximum repayment term requirement of § 72(p)(2)(B) or the level amortization requirement

of § 72(p)(2)(C) may be corrected only under VCP or Audit CAP. The failure may be corrected by

a reamortization of the loan balance in accordance with § 72(p)(2)(C) over the remainder of the

maximum period that complies with § 72(p)(2)(B), as measured from the original date of the loan.

(d) Defaulted loans. A failure to repay a loan in accordance with loan terms that satisfy § 72(p)

(2) may be corrected by (i) a single-sum corrective payment equal to the amount that the affected

participant would have paid to the plan if there had been no failure to repay the plan, plus interest

accrued on the missed payments, (ii) reamortizing the outstanding balance of the loan, including

accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)

(B), as measured from the original date of the loan, or (iii) any combination of (i) or (ii).

(e) No requirement for plan provisions. This section 6.07 applies even if the plan does not require

lo

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