Avoidance Of IRS Employee Plans Monetary Sanctions

Under the IRS Closing Agreement Program ("CAP"), if an IRS auditor identifies any failures in the plan’s operational compliance with the qualification requirements of the Internal Revenue Code ("Code"), the auditor will require retroactive correction of the failures and ask the plan sponsor (i.e., the employer or the trustees in the case of a multi-employer plan) as "responsible fiduciaries" to make a non-deductible payment to the IRS (the "CAP monetary sanction"), the amount of which is generally based on the total amount of tax that would be imposed on the contributing employers, trust and participants if the plan were disqualified. In many instances this will be a substantial amount (possibly millions of dollars).