A retirement plan is considered to be qualified if it meets the requirements of IRC 401(a) in form and operation. A qualified plan is entitled to favorable tax treatment.

The EP Determination Letter Program is in place to help taxpayers understand the applicable tax laws governing retirement plans and ensure that their plans comply accordingly. This program is responsible for issuing certain letter rulings, determination letters, opinion letters, advisory letters and approval letters.

EP Determinations may enter into a closing agreement with a plan sponsor to resolve compliance failures that become apparent during a determination letter (DL) application review.

See these IRMs for other closing agreement procedures:

The IRS Commissioner may enter into and approve a written closing agreement with any person relating to the liability of such person with respect to any internal revenue tax for any taxable period ending before or after the date of such an agreement. (IRC 7121 and regulations).

Treasury Regulation section, 26 CFR 301.7121-1(a) allows the IRS to enter into a closing agreement in any case in which there appears to be an advantage permanently and conclusively closing the case, or if the taxpayer shows good and sufficient reasons for a closing agreement, and the Commissioner determines that the United States will not sustain any disadvantage by entering an agreement. (26 CFR 301.7121-1(a)).

The Commissioner delegates to the Tax Exempt and Government Entities Division (TE/GE) Commissioner, in cases under their jurisdiction to enter into and approve a written agreement with any person relating to the internal revenue tax liability of such person, or the person or estates for whom he or she acts (Delegation Order 8-3, IRM 1.2.2.9.3(12).

This authority to enter into a closing agreement is further delegated to the Director, Employee Plans and the Director, EP Rulings and Agreements (EP R&A). The authority delegated does not, however, include the authority to set aside any closing agreement, which is retained by the Commissioner. (IRM 7.2.1.8, Modification of Closing Agreements, below).

A complete list of Delegation Orders governing Employee Plans Rulings and Agreements can be found on IRS.gov at https://www.irs.gov/privacy-disclosure/delegation-orders-and-policy-statements-by-process.

This table lists commonly used terms and provides their definitions.

To determine if a case meets the requirements for a closing agreement:

If the issue is an Operational Failure, as described in Rev. Proc. 2021-30, Section 5, that involves a year for which the statute of limitations is open, refer the issue to EP Examinations using the procedures in IRM 7.11.10, EP Examination and Fraud Referral Procedures.

If the failure is an operational failure which resulted in the Employer adopting a retroactive amendment to reflect plan operation, your manager and Area Manager will need to approve the PDFW.

After you've received your manager's approval, inform the plan sponsor of your findings and the potential need for a closing agreement.

To correct the failure:

The IRS imposes a sanction for qualification failures. The non-amender sanction amounts are determined using a percentage of the VCP user fees as noted in Rev. Proc. 2021-30, Section 14.04 and Rev. Proc. 2023-4, Appendix A.10, updated annually.

Non-amender sanction amounts generally aren’t negotiable. However, consider reducing the sanction if the:

For failures other than non-amender failures, the sanction is a negotiated amount and determined based on facts and circumstances. See Rev. Proc. 2021-30, Section 14.01. Generally, the amount will not be less than the VCP user fee that applies to the plan.

Discuss the information and determine a sanction range with your manager which you must negotiate with the plan sponsor.

Once you've reached an agreement on the sanction amount, prepare the closing agreement. State the issue clearly so it leads to only one interpretation.

When you complete the closing agreement, secure email the following documents to your group manager:

The manager reviews these documents and forwards them to the Area Manager who will either approve or return them with suggested changes.

After the manager and senior manager approve the closing agreement, send the closing agreement to the plan sponsor with a Letter 1595 and Letter 937-A to the POA. Get the manager’s approval if you change any part of the closing agreement or operational compliance statement.

Mail the following documents to the taxpayer:

If the plan sponsor/POA doesn't respond to the Final Closing Agreement Cover Letter within two weeks, send a 6480-A (10-day Letter) and a copy of the original 1595 letter with your manager's approval.

Explain to the plan sponsor or POA that they must return the following documents to your address:

After discussing the case with the plan sponsor and sending the Final Closing Agreement Cover Letter packet, email the Pay.gov representative the taxpayer’s name, the taxpayer’s EIN and plan number, and the sanction amount.

Once payment, is submitted through Pay.gov, the Pay.gov contact will pull the Form 3244-A and any supporting documents and email them to the specialist.

If you received the signed closing agreements from the taxpayer and not the documents needed from Pay.gov to send the packet to Kansas City, send an email to the Pay.gov contact.

Prepare Letter 1595-D for the plan sponsor and a Letter 937-A to all POAs authorized to receive correspondence. Secure email the: Letter 1595-D, employer signed closing agreement and compliance statement to your manager. Don't include PII in the subject line.

Area Manager, EP Determinations duties: When the Area Manager receives a complete and accurate closing agreement packet, sign the closing agreement, and the 1595-D letter.

Specialist Duties: Upon receipt of a copy of the approved closing agreement from Area Manager, the Specialist will: