IRS to Send 401(k) Plan Sponsors Questionnaire to Measure Tax Compliance

The Internal Revenue Service (“IRS”) will, starting this year, begin questioning plan sponsors regarding their compliance with the tax rules covering 401(k) plans including gathering information about their plan’s deferral rates, eligibility standards, and their compliance with nondiscrimination tests. The IRS expects to send the questionnaires beginning in March to 401(k) retirement plan sponsors in an effort to assess the relative level of tax compliance and to determine what type of compliance issues need to be addressed.

While the IRS has not indicated how many 401(k) retirement plan sponsors will be receiving the questionnaire, it is expected that several thousand plan questionnaires will be issued in order to sample a reasonable cross-section of the plans sponsored across the country.

The issuance of a questionnaire with respect to 401(k) plans is a first for the IRS, which typically gathers compliance information through routine audits of the annual Form 5500 filing for the plans and its voluntary compliance program, the Employee Plans Compliance Resolution System (“EPCRS”). After the information is obtained from plan sponsors, the IRS is expected to issue a report on its findings and to develop strategies to deal with any noncompliance trends reflected in the data. Other reviews conducted by the IRS have shown significant noncompliance in 401(k) plans resulting from a lack of internal controls at the plan sponsor (for example, not having a process for verifying that payroll data provided to the plan’s third-party administrator is accurate).

401(k) plan sponsors responding to the questionnaire that suspect they may have failed to comply with some of the tax rules covering their plan should consider utilizing the IRS’ EPCRS as noted above. The program, generally, allows a plan sponsor to correct noncompliance issues related to their plan by disclosing the errors to the IRS and paying a set filing fee. By correcting compliance issues through the voluntary program, plan sponsors can avoid having the same issue raised by the IRS during an audit of the plan, which typically results in larger penalties.


Questions? For more information, contact EisnerAmper partner Peter Alwardt.

This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter. 

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