us-irs-announcements-irb-2003-25-pdf•Internal Revenue Bulletin 2003-25 (PDF rendition): IRS Announcements
Internal Revenue Bulletin 2003-25 (PDF rendition): IRS Announcements
us-irs-announcements-irb-2003-25-pdfInternal Revenue Bulletin 2003-25 (PDF rendition): IRS AnnouncementsGuidance
Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.
# Internal Revenue bulletin
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## HIGHLIGHTS OF THIS ISSUE
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.
## INCOME TAX
Rev. Rul. 2003-62, page 1034.
Taxability of distributions of employee's trust. This ruling pro-
vides that amounts distributed from a qualified retirement plan
that the distributee elects to have applied to pay health insur-
ance premiums under a cafeteria plan are includible in the dis-
tributee's gross income. The holding also extends to situations
where amounts distributed from the qualified retirement plan are
applied directly to reimburse medical care expenses incurred by
a participant in the qualified retirement plan.
### Rev. Rul. 2003-63, page 1037.
Interest rates; underpayments and overpayments. The rate
of interest determined under section 6621 of the Code for the
calendar quarter beginning July 1, 2003, will be 5 percent for
overpayments (4 percent in the case of a corporation), 5 per-
cent for underpayments, and 7 percent for large corporate un-
derpayments. The rate of interest paid on the portion of a cor-
porate overpayment exceeding $10,000 is 2.5 percent.
### Rev. Proc. 2003-40, page 1044.
This procedure formally establishes the Fast Track Settlement
(FTS) program to expedite case resolution and to expand the
range of dispute resolution options available to taxpayers. The
Large and Mid-Size Business Division and the Office of Appeals
will jointly administer the FTS program. FTS will also allow LMSB
personnel and LMSB taxpayers an opportunity to mediate their
disputes with an Appeals Official acting as a neutral party.
### Rev. Proc. 2003-41, page 1047.
This procedure formally establishes the Fast Track Mediation (FTM)
program to expedite case resolution and to expand the range of
dispute resolution options available to taxpayers. The Small
Business/Self-Employed Compliance Division and the Office of
Appeals will jointly administer the FTM program. FTM will also al-
low SB/SE personnel and SB/SE taxpayers an opportunity to me-
diate their disputes with an Appeals Official acting as a neutral
party.
### Announcement 2003-36, page 1093.
This announcement contains the procedures for the Tax Ex-
empt Bond Mediation Dispute Resolution Pilot Program (TEB Me-
diation). In furtherance of the Service's goal of resolving tax con-
troversies on a basis that is fair and impartial to both the
government and the taxpayers, TEB Mediation establishes new
opportunities for Issuers (as defined in Rev. Proc. 96-16, 1996-1
C.B. 630) of tax-exempt debt, with the assistance of the Office
of Appeals, to expedite the resolution of cases within the Tax Ex-
empt Bond organization.
## EMPLOYEE PLANS
### Rev. Rul. 2003-62, page 1034.
Taxability of distributions of employee's trust. This ruling pro-
vides that amounts distributed from a qualified retirement plan
that the distributee elects to have applied to pay health insur-
ance premiums under a cafeteria plan are includible in the dis-
tributee's gross income. The holding also extends to situations
where amounts distributed from the qualified retirement plan are
applied directly to reimburse medical care expenses incurred by
a participant in the qualified retirement plan.
(Continued on the next page)
Finding Lists begin on page ii.
Department of the Treasury
Internal Revenue Service
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Rev. Rul. 2003-65, page 1035.
Frozen plan; additional accruals; vesting service. This rul-
ing states that the freezing of accruals under a plan is not a plan
termination for purposes of determining whether vesting ser-
vice may be disregarded if accruals resume under the plan. Ac-
cordingly, all years of service for the plan sponsor since the plan
was established must be counted toward vesting. The result is
the same if, instead, the frozen plan is merged into a new plan
of the employer with accruals resuming under the merged plan.
Notice 2003-30, page 1044.
Weighted average interest rate update. The weighted aver-
age interest rate for June 2003 and the resulting permissible
range of interest rates used to calculate current liability for pur-
poses of the full funding limitation of section 412(c)(7) of the Code
are set forth.
Rev. Proc. 2003-44, page 1051.
Administrative programs; correction programs. This pro-
cedure updates and expands upon the Service's correction pro-
grams for retirement plans within the jurisdiction of the Com-
missioner, Tax Exempt and Government Entities Division. Rev.
Proc. 2002-47 modified and superseded.
## EXEMPT ORGANIZATIONS
Rev. Rul. 2003-64, page 1036.
Unrelated business taxable income. In computing the unre-
lated business income tax it owes under section 511(a)(2)(A) of
the Code, it is proper for a social club described in section
501(c)(7) to claim the credit under section 45B for the portion
of employer social security taxes paid with respect to employee
tips received from both members and nonmembers.
Announcement 2003-42, page 1104.
A list is provided of organizations now classified as private foun-
dations.
## ADMINISTRATIVE
Announcement 2003-41, page 1098.
This document contains corrections to Rev. Proc. 2003-30,
2003-17 I.R.B. 822, the specifications for the private printing
of paper and laser-printed substitute Form W-2, Wage and Tax
Statement, and Form W-3, Transmittal of Wage and Tax
Statements.
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## The IRS Mission
Provide America's taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax 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 rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin con-
tents are consolidated semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive 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 pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.
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 taxpay-
ers or technical advice to Service field offices, identifying de-
tails and information of a confidential nature are deleted to pre-
vent 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 re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and cir-
cumstances 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, Legisla-
tion and Related Committee Reports.
Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rul-
ings. 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, disbar-
ment and suspension lists, and announcements.
The first 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 first Bulletin of the succeeding semiannual pe-
riod, respectively.
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.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
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## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
### Section 125 .- Cafeteria Plans
(Also Section 402(a).)
Taxability of distributions of employ-
ee's trust. This ruling provides that amounts
distributed from a qualified retirement plan
that the distributee elects to have applied
to pay health insurance premiums under a
cafeteria plan are includible in the distribu-
tee's gross income. The holding also ex-
tends to situations where amounts distrib-
uted from the qualified retirement plan are
applied directly to reimburse medical care
expenses incurred by a participant in the
qualified retirement plan.
### Rev. Rul. 2003-62
#### ISSUE
Whether amounts distributed from a
qualified retirement plan that the distribu-
tee elects to have applied to pay health in-
surance premiums under a cafeteria plan are
includible in the distributee's gross in-
come under § 402(a) of the Internal Rev-
enue Code, and whether the same conclu-
sion applies if amounts distributed from the
qualified retirement plan are applied di-
rectly to reimburse medical care expenses
incurred by a participant in the qualified re-
tirement plan.
### FACTS
Employer M maintains a plan quali-
fied under § 401(a) that provides retire-
ment benefits for employees. M also main-
tains a health plan for employees, former
employees, their spouses, and dependents
that is partially paid through a cafeteria plan
under §125 for employees. Under M's
health plan, former employees may elect to
have distributions from the qualified re-
tirement plan applied to pay for the health
insurance premiums under the cafeteria plan.
### LAW AND ANALYSIS
Section 106 provides that gross income
of an employee does not include employer-
provided coverage under an accident or
health plan. Section 1.106-1 of the In-
come Tax Regulations provides that the
gross income of an employee does not in-
clude contributions which the employee's
employer makes to an accident or health
plan for compensation (through insurance
or otherwise) for personal injuries or sick-
ness to the employee or the employee's
spouse or dependents (as defined in § 152).
Under § 125, an employer may estab-
lish a cafeteria plan that permits an em-
ployee to choose among two or more ben-
efits, consisting of cash (generally, salary)
and qualified benefits, including accident
and health coverage. Pursuant to § 125, the
amount of an employee's salary reduc-
tion applied to purchase such coverage is
not included in gross income, even though
it is available to the employee and the em-
ployee could have chosen to receive cash
instead. If an employee elects to apply the
salary reduction amount to purchase acci-
dent or health coverage pursuant to § 125,
the accident or health coverage is exclud-
able from gross income under § 106 as
employer-provided accident or health cov-
erage.
Section 402(a) applies to distributions
from a retirement plan that is qualified un-
der § 401(a). Under § 402(a), except as oth-
erwise provided in § 402, any amount ac-
tually distributed to any distributee by a
qualified retirement plan is taxable to the
distributee, in the taxable year of the dis-
tributee in which distributed, under § 72 (re-
lating to annuities). There are two excep-
tions from the general rule of includability
of distributions in gross income (at § 402(c)
relating to rollovers and at § 402(e)(4) re-
lating to net unrealized appreciation in em-
ployer securities), neither of which re-
lates to cafeteria plans.
Rev. Rul. 61-164, 1961-2 C.B. 99, con-
siders the effect upon the qualification un-
der section 401(a) of an employer's profit-
sharing plan of a provision in the plan for
the purchase of major hospitalization in-
surance for the employees. The ruling con-
cludes that although the purchase of the ma-
jor hospitalization insurance does not
prevent the qualification of the plan if the
insurance is deemed to be "incidental," the
use of the funds to pay for the employ-
ees' medical insurance is a "distribution"
within the meaning of § 402.
Rev. Rul. 69-141, 1969-1 C.B. 48, con-
siders whether distributions made from a
qualified profit-sharing plan to pay an
employee-participant for medical care ex-
penses are excludable from the employee-
participant's gross income. An option in the
plan provides that in the event an employee-
participant incurs medical expenses for the
employee, the employee's spouse, or the
employee's dependents, the employee may
apply for an advance distribution from his
account in the plan, provided that the ag-
gregate distributions made pursuant to this
option do not exceed 49 percent of the
amount of funds in the account and the
funds to be distributed have been cred-
ited to the account for a period of at least
two years. The ruling states that distribu-
tions from the qualified profit-sharing plan
for medical care expenses incurred by an
employee-participant are taxable to the par-
ticipant under § 402(a).
Neither of the exceptions in § 402 to the
general rule of § 402(a) allows a partici-
pant to exclude from gross income amounts
distributed from a qualified retirement plan
and applied to the purchase of benefits un-
der the cafeteria plan. Accordingly, the gen-
eral rule of § 402(a) applies and the dis-
tribution is includible in the distributee's
gross income. The same conclusion ap-
plies if distributions from the qualified re-
tirement plan were applied directly to re-
imburse medical care expenses incurred by
a plan participant.
### HOLDING
Amounts distributed from a qualified re-
tirement plan that the distributee elects to
have applied to pay health insurance pre-
miums under a cafeteria plan are includ-
ible in the distributee's gross income. The
same conclusion applies if amounts dis-
tributed from the qualified retirement plan
are applied directly to reimburse medical
care expenses incurred by a participant in
the qualified retirement plan.
### DRAFTING INFORMATION
The principal authors of this revenue rul-
ing are Shoshanna Tanner of the Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties) and Steven Linder of the Employee
Plans, Tax Exempt and Government Enti-
ties Division. For further information re-
garding this revenue ruling as it pertains to
§ 125 (cafeteria plan) matters, please con-
tact Ms. Tanner at (202) 622-6080 (not a
toll-free number). For further information
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regarding this revenue ruling as it per-
tains to § 402 (rollover) matters, please con-
tact the Employee Plans' taxpayer assis-
tance telephone service at 1-877-829-
5500 (a toll-free number), between 8:00
a.m. and 6:30 p.m. Eastern time, Monday
through Friday or Mr. Linder at (202) 283-
9888 (not a toll-free number).
### Section 402(a) .- Taxability of Beneficiary of Employees' Trust
Guidance is provided with respect to whether
amounts distributed from a qualified retirement
plan that the distributee elects to have applied to
pay health insurance premiums under a cafeteria
plan are includible in the distributee's gross
income under § 402(a), and whether the same
conclusion applies if amounts distributed from the
qualified retirement plan are applied directly to
reimburse medical care expenses incurred by a
participant in the qualified retirement plan. See
Rev. Rul. 2003-62, page 1034.
### Section 411 .- Minimum Vesting Standards
Frozen plan; additional accruals; vest-
ing service. This ruling states that the freez-
ing of accruals under a plan is not a plan
termination for purposes of determining
whether vesting service may be disregarded
if accruals resume under the plan. Accord-
ingly, all years of service for the plan spon-
sor since the plan was established must be
counted toward vesting. The result is the
same if, instead, the frozen plan is merged
into a new plan of the employer with ac-
cruals resuming under the merged plan.
### Rev. Rul. 2003-65
#### ISSUE
If accruals under a qualified retirement
plan are frozen, so that a partial termina-
tion of the plan occurs, and accruals un-
der the plan subsequently resume, must all
years of service for the plan sponsor fol-
lowing the establishment of the plan be
taken into account for purposes of vest-
ing? Is the result different if, instead, a new
plan is established that is then merged into
the frozen plan after the partial termina-
tion?
FACTS
Employer M maintains Plan A, a de-
fined benefit plan qualified under § 401(a)
of the Internal Revenue Code, under which
benefit accruals were frozen as of Decem-
ber 31, 1996. Under Plan A's benefit for-
mula prior to January 1, 1997, a partici-
pant received a specified percentage of his
or her highest average pay multiplied by the
participant's total years of service. Plan A
provides that each participant becomes fully
vested in his or her accrued benefit after
five years of service. The freezing of ac-
cruals under Plan A caused a partial ter-
mination in 1997, so that all participants in
Plan A became fully vested in their ac-
crued benefits following the freeze. Em-
ployer M subsequently amends Plan A to
provide that, as of January 1, 2003, par-
ticipants in Plan A will begin accruing ben-
efits under a different formula. A partici-
pant's accrued benefit under Plan A, as
amended, will be the sum of the accrued
benefit under the old formula and the ac-
crued benefit under the new formula.
### LAW AND ANALYSIS
Section 411(a) describes minimum vest-
ing standards that a retirement plan must
satisfy in order for the plan to be quali-
fied under § 401(a). These standards in-
clude § 411(a)(2), which requires that quali-
fied retirement plans provide that employees
who have completed a certain number of
years of service have a nonforfeitable right
to their accrued benefit derived from em-
ployer contributions. Employees must be-
come fully vested in these benefits after no
more than five years of service under a cliff
vesting schedule or seven years of ser-
vice under a graded vesting schedule.
Section 411(a)(4) and § 1.411(a)-5(a) of
the Income Tax Regulations provide that,
in computing the period of service under
the plan for purposes of determining the
nonforfeitable percentage under § 411(a)(2),
all of an employee's years of service with
the employer or employers maintaining the
plan are taken into account subject to cer-
tain exceptions. These include an excep-
tion for years of service with an employer
during any period for which the employer
did not maintain the plan or a predeces-
sor plan. In particular, § 1.411(a)-5(b)(3)(iii)
provides that the period for which a plan
is not maintained by an employer includes
the period after the plan is terminated. For
purposes of § 1.411(a)-5, a plan is termi-
nated at the date there is a termination
of the plan within the meaning of
§ 411(d)(3)(A) and the regulations there-
under.
Section 411(d)(3)(A) requires that a de-
fined benefit plan provide that, upon its ter-
mination or partial termination, the rights
of all affected employees to benefits ac-
crued to the date of such termination or par-
tial termination, to the extent funded as of
such date, are nonforfeitable. Section
1.411(d)-2(c) provides rules for determin-
ing when a plan has undergone a termina-
tion. Section 1.411(d)-2(b) provides rules
for determining when a plan has under-
gone a partial termination. A partial termi-
nation of a plan is not a termination.
Under the facts presented, Plan A has not
been terminated but has undergone a par-
tial termination. Employer M has contin-
ued to maintain Plan A after benefit accru-
als were frozen. For vesting purposes,
§ 1.411(a)-5(b)(3)(iii) excludes service af-
ter a plan has been terminated but does not
exclude service after a partial termina-
tion. Accordingly, service with Employer M
after the establishment of Plan A and prior
to January 1, 2003, during which accru-
als under Plan A were frozen may not be
disregarded for vesting purposes with re-
spect to the future accruals under Plan A.
### HOLDING
The freezing of accruals under a quali-
fied retirement plan, so that a partial ter-
mination of the plan occurs, does not con-
stitute a plan termination for purposes of
determining whether service for the plan
sponsor after the plan was established may
be disregarded toward vesting if accruals
resume under the plan. Accordingly, all
years of service for the plan sponsor fol-
lowing the establishment of the previously
frozen plan must be taken into account for
purposes of vesting. If, instead, the accru-
als are earned under a new plan maintained
by the same employer and the new plan is
merged with the frozen plan, then this hold-
ing also applies, so that, after the merger,
service after the frozen plan was estab-
lished must be taken into account for pur-
poses of vesting in any benefit accruals un-
der the new plan.
### DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Diane S. Bloom of Employee Plans,
Tax Exempt and Government Entities Di-
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vision. For further information regarding this
revenue ruling, contact the Employee Plans
taxpayer assistance telephone service be-
tween the hours of 8:00 a.m. and 6:30 p.m.
Eastern Time, Monday through Friday, by
calling (877) 829-5500 (a toll-free num-
ber). Ms. Bloom may be reached at (202)
283-9888 (not a toll-free number).
## Section 512 .- Unrelated Business Taxable Income
26 CFR 1.512(a)-1: Definition.
Unrelated business taxable income. In
computing the unrelated business income
tax it owes under section 511(a)(2)(A) of
the Code, it is proper for a social club de-
scribed in section 501(c)(7) to claim the
credit under section 45B for the portion of
employer social security taxes paid with re-
spect to employee tips received from both
members and nonmembers.
## Rev. Rul. 2003-64
### ISSUE
In computing the unrelated business in-
come tax it owes under § 511(a)(2)(A) of
the Internal Revenue Code, is it proper for
a social club described in § 501(c)(7) to
claim the credit under § 45B for a por-
tion of employer social security taxes paid
with respect to employee tips received from
both members and nonmembers?
## FACTS
A is a social club that is exempt from
federal income tax under § 501(a) as an or-
ganization described in § 501(c)(7). A was
formed to operate a country club with a pri-
vate golf course and related amenities. A has
a clubhouse where food and beverages are
served to members and their nonmember
guests. In addition to dues, fees, and pay-
ments from members, A receives an insub-
stantial amount of income from nonmem-
bers, who use A's golf course and purchase
food and beverages at A's dining facility.
Such nonmember income is treated as gross
income from an unrelated trade or busi-
ness under § 512(a)(3).
Employees who serve food and bever-
ages in A's clubhouse are paid by the hour
and also customarily receive tips from both
members and nonmembers. The tips are re-
ported to A as the employer by the em-
ployees and are reported on A's employ-
ment tax returns. A also pays social security
tax on the reported tips.
A files Form 990-T, Exempt Organiza-
tion Business Income Tax Return, report-
ing nonmember income as gross income
from an unrelated trade or business. In com-
puting liability for unrelated business in-
come tax, A claims the credit under § 45B
for employer social security taxes paid with
respect to tips paid to its employees who
serve food and beverages. A calculates the
credit based on all tips received by its em-
ployees.
### LAW
Section 501(c)(7), in part, provides for
the exemption from federal income tax of
clubs organized for pleasure, recreation, and
other nonprofitable purposes, substantially
all the activities of which are for such pur-
poses and no part of the net earnings of
which inures to the benefit of any private
shareholder.
Section 511(a), in part, provides for the
imposition of tax on the unrelated busi-
ness taxable income (as defined in § 512)
of social clubs described in § 501(c)(7).
Section 512(a)(3)(A) provides, in part,
that in the case of social clubs described in
§ 501(c)(7), the term "unrelated business
taxable income" means the gross income
(excluding any exempt function income),
less the deductions allowed by Chapter 1
that are directly connected with the pro-
duction of the gross income (excluding ex-
empt function income), both computed with
certain modifications provided in § 512(b).
Section 512(a)(3)(B) defines the term
"exempt function income" as the gross in-
come from dues, fees, charges, or similar
amounts paid by members of the organi-
zation as consideration for providing such
members or their dependents or guests
goods, facilities, or services in further-
ance of the purposes constituting the ba-
sis for the exemption of the organization to
which such income is paid.
Section 45B provides for a credit for a
portion of employer social security taxes
paid with respect to employee tips.
Section 45B(a) provides that for pur-
poses of the general business credit under
§ 38, the employer social security credit is
an amount equal to the excess employer so-
cial security tax paid or incurred by the tax-
payer.
Section 45B(b)(1) defines the term "ex-
cess employer social security tax" as any
tax paid by an employer under § 3111 with
respect to tips received by an employee dur-
ing any month, to the extent such tips -
(A) are deemed to have been paid by the
employer to the employee pursuant to
§ 3121(q) (without regard to whether such
tips are reported under § 6053), and (B) ex-
ceed the amount by which wages (exclud-
ing tips) paid by the employer to the em-
ployee during such month are less than the
total amount that would be payable (with
respect to such employment) at the mini-
mum wage rate applicable to such indi-
vidual under § 6(a)(1) of the Fair Labor
Standards Act of 1938 (determined with-
out regard to § 3(m) of such Act).
Section 45B(b)(2) provides that in ap-
plying § 45B(b)(1), there shall be taken into
account only tips received from custom-
ers in connection with the providing, de-
livering, or serving of food or beverages for
consumption if the tipping of employees de-
livering or serving food or beverages by
customers is customary.
## ANALYSIS
To compute its unrelated business tax-
able income under § 512(a)(3), a social club
described in § 501(c)(7) must first ascer-
tain its gross income. Exempt function in-
come is excluded. Gross income is then re-
duced by allowable deductions that are
directly connected with the production of
the social club's gross income (with the ex-
clusion of exempt function income) to ar-
rive at unrelated business taxable income.
In calculating the amount of tax due, a so-
cial club may claim allowable credits, such
as the general business credit under § 38.
The general business credit is the sum of
several other credits, including the em-
ployer social security credit under section
45B, which provides for a credit for em-
ployer social security taxes paid with re-
spect to employee tips.
The § 45B credit has the effect of lim-
iting the employer's social security tax li-
ability to the amount that would be due if
an employee were to receive only the mini-
mum wage, no matter how much the em-
ployee actually earns. The employee's earn-
ings record and individual income tax
liability are not affected by the credit.
Here, A has paid social security taxes on
all tips earned by its employees, includ-
ing tips paid by both members and non-
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members. These tips meet the requirements
under § 45B(b)(2) because the tips were re-
ceived in connection with food and bev-
erage service at A, and tipping of employ-
ees is customary at A. Section 45B does not
prohibit social clubs described in § 501(c)(7)
from claiming the credit, nor does it limit
the credit to social security taxes paid in
connection with a social club's unrelated
trade or business. Therefore, A may calcu-
late the § 45B credit on the basis of all tips
received by its employees, not only the tips
received by employees from nonmembers.
### HOLDING
In computing the unrelated business in-
come tax it owes under § 511(a)(2)(A), it
is proper for a social club described in
§ 501(c)(7) to claim the credit under § 45B
for the portion of employer social secu-
rity taxes paid with respect to employee tips
received from both members and nonmem-
bers.
## DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Charles Barrett of the Tax Exempt
and Government Entities Division, Ex-
empt Organizations. For further informa-
tion regarding this revenue ruling, con-
tact Mr. Barrett at (202) 283-8944 (not a
toll-free number).
### Section 6621 .- Determin- ation of Interest Rate
26 CFR 301.6621-1: Interest rate.
Interest rates; underpayments and
overpayments. The rate of interest deter-
mined under section 6621 of the Code for
the calendar quarter beginning July 1, 2003,
will be 5 percent for overpayments (4 per-
cent in the case of a corporation), 5 per-
cent for underpayments, and 7 percent for
large corporate underpayments. The rate of
interest paid on the portion of a corporate
overpayment exceeding $10,000 will be 2.5
percent.
## Rev. Rul. 2003-63
Section 6621 of the Internal Revenue
Code establishes the rates for interest on tax
overpayments and tax underpayments. Un-
der section 6621(a)(1), the overpayment rate
beginning July 1, 2003, is the sum of the
federal short-term rate plus 3 percentage
points (2 percentage points in the case of
a corporation), except the rate for the por-
tion of a corporate overpayment of tax ex-
ceeding $10,000 for a taxable period is the
sum of the federal short-term rate plus 0.5
of a percentage point for interest compu-
tations made after December 31, 1994. Un-
der section 6621(a)(2), the underpayment
rate is the sum of the federal short-term rate
plus 3 percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under section 6601
on any large corporate underpayment, the
underpayment rate under section 6621(a)(2)
is determined by substituting “5 percent-
age points" for "3 percentage points." See
section 6621(c) and section 301.6621-3 of
the Regulations on Procedure and Admin-
istration for the definition of a large cor-
porate underpayment and for the rules for
determining the applicable date. Section
6621(c) and section 301.6621-3 are gen-
erally effective for periods after Decem-
ber 31, 1990.
Section 6621(b)(1) provides that the Sec-
retary will determine the federal short-
term rate for the first month in each cal-
endar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
section 6621(b)(1) for any month applies
during the first calendar quarter begin-
ning after such month.
Section 6621(b)(3) provides that the fed-
eral short-term rate for any month is the
federal short-term rate determined during
such month by the Secretary in accordance
with § 1274(d), rounded to the nearest full
percent (or, if a multiple of 1/2 of 1 per-
cent, the rate is increased to the next high-
est full percent).
Notice 88-59, 1988-1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under section
6621, the Internal Revenue Service will use
the federal short-term rate based on daily
compounding because that rate is most con-
sistent with section 6621 which, pursuant
to section 6622, is subject to daily com-
pounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily com-
pounding determined during the month of
April 2003 is 2 percent. Accordingly, an
overpayment rate of 5 percent (4 percent
in the case of a corporation) and an under-
payment rate of 5 percent are established
for the calendar quarter beginning July 1,
2003. The overpayment rate for the por-
tion of a corporate overpayment exceed-
ing $10,000 for the calendar quarter be-
ginning July 1, 2003, is 2.5 percent. The
underpayment rate for large corporate un-
derpayments for the calendar quarter be-
ginning July 1, 2003, is 7 percent. These
rates apply to amounts bearing interest dur-
ing that calendar quarter.
Interest factors for daily compound in-
terest for annual rates of 2.5 percent, 4 per-
cent, 5 percent, and 7 percent are pub-
lished in Tables 10, 13, 15, and 19 of Rev.
Proc. 95-17, 1995-1 C.B. 556, 564, 567,
569, and 573.
Annual interest rates to be compounded
daily pursuant to section 6622 that apply
for prior periods are set forth in the tables
accompanying this revenue ruling.
## DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Crystal Foster of the Office of As-
sociate Chief Counsel (Procedure & Ad-
ministration). For further information
regarding this revenue ruling, contact
Ms. Foster at (202) 622-4652 (not a toll-
free call).
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
# TABLE OF INTEREST RATES PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986 OVERPAYMENTS AND UNDERPAYMENTS
PERIOD
RATE
In 1995-1 C.B. DAILY RATE TABLE
Before Jul. 1, 1975
6%
Table 2, pg. 557
Jul. 1, 1975-Jan. 31, 1976
9%
Table 4, pg. 559
Feb. 1, 1976-Jan. 31, 1978
7%
Table 3, pg. 558
Feb. 1, 1978-Jan. 31, 1980
6%
Table 2, pg. 557
Feb. 1, 1980-Jan. 31, 1982
12%
Table 5, pg. 560
Feb. 1, 1982-Dec. 31, 1982
20%
Table 6, pg. 560
Jan. 1, 1983-Jun. 30, 1983
16%
Table 37, pg. 591
Jul. 1, 1983-Dec. 31, 1983
11%
Table 27, pg. 581
Jan. 1, 1984-Jun. 30, 1984
11%
Table 75, pg. 629
Jul. 1, 1984-Dec. 31, 1984
11%
Table 75, pg. 629
Jan. 1, 1985-Jun. 30, 1985
13%
Table 31, pg. 585
Jul. 1, 1985-Dec. 31, 1985
11%
Table 27, pg. 581
Jan. 1, 1986-Jun. 30, 1986
10%
Table 25, pg. 579
Jul. 1, 1986-Dec. 31, 1986
9%
Table 23, pg. 577
TABLE OF INTEREST RATES FROM JAN. 1, 1987 - DEC. 31, 1998
OVERPAYMENTS
UNDERPAYMENTS
1995-1 C.B.
1995-1 C.B.
RATE
TABLE
PG
RATE
TABLE
PG
Jan. 1, 1987-Mar. 31, 1987
8%
21
575
9%
23
577
Apr. 1, 1987-Jun. 30, 1987
8%
21
575
9%
23
577
Jul. 1, 1987-Sep. 30, 1987
8%
21
575
9%
23
577
Oct. 1, 1987-Dec. 31, 1987
9%
23
577
10%
25
579
Jan. 1, 1988-Mar. 31, 1988
10%
73
627
11%
75
629
Apr. 1, 1988-Jun. 30, 1988
9%
71
625
10%
73
627
Jul. 1, 1988-Sep. 30, 1988
9%
71
625
10%
73
627
Oct. 1, 1988-Dec. 31, 1988
10%
73
627
11%
75
629
Jan. 1, 1989-Mar. 31, 1989
10%
25
579
11%
27
581
Apr. 1, 1989-Jun. 30, 1989
11%
27
581
12%
29
583
Jul. 1, 1989-Sep. 30, 1989
11%
27
581
12%
29
583
Oct. 1, 1989-Dec. 31, 1989
10%
25
579
11%
27
581
Jan. 1, 1990-Mar. 31, 1990
10%
25
579
11%
27
581
Apr. 1, 1990-Jun. 30, 1990
10%
25
579
11%
27
581
Jul. 1, 1990-Sep. 30, 1990
10%
25
579
11%
27
581
Oct. 1, 1990-Dec. 31, 1990
10%
25
579
11%
27
581
Jan. 1, 1991-Mar. 31, 1991
10%
25
579
11%
27
581
Apr. 1, 1991-Jun. 30, 1991
9%
23
577
10%
25
579
Jul. 1, 1991-Sep. 30, 1991
9%
23
577
10%
25
579
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
# TABLE OF INTEREST RATES
TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
FROM JAN. 1, 1987 - DEC. 31, 1998-Continued
OVERPAYMENTS
UNDERPAYMENTS
1995-1 C.B.
1995-1 C.B.
RATE
TABLE
PG
RATE
TABLE
PG
Oct. 1, 1991-Dec. 31, 1991
9%
23
577
10%
25
579
Jan. 1, 1992-Mar. 31, 1992
8%
69
623
9%
71
625
Apr. 1, 1992-Jun. 30, 1992
7%
67
621
8%
69
623
Jul. 1, 1992-Sep. 30, 1992
7%
67
621
8%
69
623
Oct. 1, 1992-Dec. 31, 1992
6%
65
619
7%
67
621
Jan. 1, 1993-Mar. 31, 1993
6%
17
571
7%
19
573
Apr. 1, 1993-Jun. 30, 1993
6%
17
571
7%
19
573
Jul. 1, 1993-Sep. 30, 1993
6%
17
571
7%
19
573
Oct. 1, 1993-Dec. 31, 1993
6%
17
571
7%
19
573
Jan. 1, 1994-Mar. 31, 1994
6%
17
571
7%
19
573
Apr. 1, 1994-Jun. 30, 1994
6%
17
571
7%
19
573
Jul. 1, 1994-Sep. 30, 1994
7%
19
573
8%
21
575
Oct. 1, 1994-Dec. 31, 1994
8%
21
575
9%
23
577
Jan. 1, 1995-Mar. 31, 1995
8%
21
575
9%
23
577
Apr. 1, 1995-Jun. 30, 1995
9%
23
577
10%
25
579
Jul. 1, 1995-Sep. 30, 1995
8%
21
575
9%
23
577
Oct. 1, 1995-Dec. 31, 1995
8%
21
575
9%
23
577
Jan. 1, 1996-Mar. 31, 1996
8%
69
623
9%
71
625
Apr. 1, 1996-Jun. 30, 1996
7%
67
621
8%
69
623
Jul. 1, 1996-Sep. 30, 1996
8%
69
623
9%
71
625
Oct. 1, 1996-Dec. 31, 1996
8%
69
623
9%
71
625
Jan. 1, 1997-Mar. 31, 1997
8%
21
575
9%
23
577
Apr. 1, 1997-Jun. 30, 1997
8%
21
575
9%
23
577
Jul. 1, 1997-Sep. 30, 1997
8%
21
575
9%
23
577
Oct. 1, 1997-Dec. 31, 1997
8%
21
575
9%
23
577
Jan. 1, 1998-Mar. 31, 1998
8%
21
575
9%
23
577
Apr. 1, 1998-Jun. 30, 1998
7%
19
573
8%
21
575
Jul. 1, 1998-Sep. 30, 1998
7%
19
573
8%
21
575
Oct. 1, 1998-Dec. 31, 1998
7%
19
573
8%
21
575
1995-1 C.B.
RATE
TABLE
PAGE
Jan. 1, 1999-Mar. 31, 1999
7%
19
573
Apr. 1, 1999-Jun. 30, 1999
8%
21
575
Jul. 1, 1999-Sep. 30, 1999
8%
21
575
Oct. 1, 1999-Dec. 31, 1999
8%
21
575
Jan. 1, 2000-Mar. 31, 2000
8%
69
623
Apr. 1, 2000-Jun. 30, 2000
9%
71
625
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
# TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS-Continued
1995-1 C.B.
RATE
TABLE
PAGE
Jul. 1, 2000-Sep. 30, 2000
9%
71
625
Oct. 1, 2000-Dec. 31, 2000
9%
71
625
Jan. 1, 2001-Mar. 31, 2001
9%
23
577
Apr. 1, 2001-Jun. 30, 2001
8%
21
575
Jul. 1, 2001-Sep. 30, 2001
7%
19
573
Oct. 1, 2001-Dec. 31, 2001
7%
19
573
Jan. 1, 2002-Mar. 31, 2002
6%
17
571
Apr. 1, 2002-Jun. 30, 2002
6%
17
571
Jul. 1, 2002-Sep. 30, 2002
6%
17
571
Oct. 1, 2002-Dec. 31, 2002
6%
17
571
Jan. 1, 2003-Mar. 31, 2003
5%
15
569
Apr. 1, 2003-Jun. 30, 2003
5%
15
569
Jul. 1, 2003-Sep. 30, 2003
5%
15
569
TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTS
UNDERPAYMENTS
1995-1 C.B.
1995-1 C.B.
RATE
TABLE
PG
RATE
TABLE
PG
Jan. 1, 1999-Mar. 31, 1999
6%
17
571
7%
19
573
Apr. 1, 1999-Jun. 30, 1999
7%
19
573
8%
21
575
Jul. 1, 1999-Sep. 30, 1999
7%
19
573
8%
21
575
Oct. 1, 1999-Dec. 31, 1999
7%
19
573
8%
21
575
Jan. 1, 2000-Mar. 31, 2000
7%
67
621
8%
69
623
Apr. 1, 2000-Jun. 30, 2000
8%
69
623
9%
71
625
Jul. 1, 2000-Sep. 30, 2000
8%
69
623
9%
71
625
Oct. 1, 2000-Dec. 31, 2000
8%
69
623
9%
71
625
Jan. 1, 2001-Mar. 31, 2001
8%
21
575
9%
23
577
Apr. 1, 2001-Jun. 30, 2001
7%
19
573
8%
21
575
Jul. 1, 2001-Sep. 30, 2001
6%
17
571
7%
19
573
Oct. 1, 2001-Dec. 31, 2001
6%
17
571
7%
19
573
Jan. 1, 2002-Mar. 31, 2002
5%
15
569
6%
17
571
Apr. 1, 2002-Jun. 30, 2002
5%
15
569
6%
17
571
Jul. 1, 2002-Sep. 30, 2002
5%
15
569
6%
17
571
Oct. 1, 2002-Dec. 31, 2002
5%
15
569
6%
17
571
Jan. 1, 2003-Mar. 31, 2003
4%
13
567
5%
15
569
Apr. 1, 2003-Jun. 30, 2003
4%
13
567
5%
15
569
Jul. 1, 2003-Sep. 30, 2003
4%
13
567
5%
15
569
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
# TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FROM JANUARY 1, 1991 - PRESENT
1995-1 C.B. RATE TABLE PG
Jan. 1, 1991-Mar. 31, 1991
13%
31
585
Apr. 1, 1991-Jun. 30, 1991
12%
29
583
Jul. 1, 1991-Sep. 30, 1991
12%
29
583
Oct. 1, 1991-Dec. 31, 1991
12%
29
583
Jan. 1, 1992-Mar. 31, 1992
11%
75
629
Apr. 1, 1992-Jun. 30, 1992
10%
73
627
Jul. 1, 1992-Sep. 30, 1992
10%
73
627
Oct. 1, 1992-Dec. 31, 1992
9%
71
625
Jan. 1, 1993-Mar. 31, 1993
9%
23
577
Apr. 1, 1993-Jun. 30, 1993
9%
23
577
Jul. 1, 1993-Sep. 30, 1993
9%
23
577
Oct. 1, 1993-Dec. 31, 1993
9%
23
577
Jan. 1, 1994-Mar. 31, 1994
9%
23
577
Apr. 1, 1994-Jun. 30, 1994
9%
23
577
Jul. 1, 1994-Sep. 30, 1994
10%
25
579
Oct. 1, 1994-Dec. 31, 1994
11%
27
581
Jan. 1, 1995-Mar. 31, 1995
11%
27
581
Apr. 1, 1995-Jun. 30, 1995
12%
29
583
Jul. 1, 1995-Sep. 30, 1995
11%
27
581
Oct. 1, 1995-Dec. 31, 1995
11%
27
581
Jan. 1, 1996-Mar. 31, 1996
11%
75
629
Apr. 1, 1996-Jun. 30, 1996
10%
73
627
Jul. 1, 1996-Sep. 30, 1996
11%
75
629
Oct. 1, 1996-Dec. 31, 1996
11%
75
629
Jan. 1, 1997-Mar. 31, 1997
11%
27
581
Apr. 1, 1997-Jun. 30, 1997
11%
27
581
Jul. 1, 1997-Sep. 30, 1997
11%
27
581
Oct. 1, 1997-Dec. 31, 1997
11%
27
581
Jan. 1, 1998-Mar. 31, 1998
11%
27
581
Apr. 1, 1998-Jun. 30, 1998
10%
25
579
Jul. 1, 1998-Sep. 30, 1998
10%
25
579
Oct. 1, 1998-Dec. 31, 1998
10%
25
579
Jan. 1, 1999-Mar. 31, 1999
9%
23
577
Apr. 1, 1999-Jun. 30, 1999
10%
25
579
Jul. 1, 1999-Sep. 30, 1999
10%
25
579
Oct. 1, 1999-Dec. 31, 1999
10%
25
579
Jan. 1, 2000-Mar. 31, 2000
10%
73
627
Apr. 1, 2000-Jun. 30, 2000
11%
75
629
Jul. 1, 2000-Sep. 30, 2000
11%
75
629
Oct. 1, 2000-Dec. 31, 2000
11%
75
629
Jan. 1, 2001-Mar. 31, 2001
11%
27
581
Apr. 1, 2001-Jun. 30, 2001
10%
25
579
Jul. 1, 2001-Sep. 30, 2001
9%
23
577
Oct. 1, 2001-Dec. 31, 2001
9%
23
577
Jan. 1, 2002-Mar. 31, 2002
8%
21
575
Apr. 1, 2002-Jun. 30, 2002
8%
21
575
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
# TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FROM JANUARY 1, 1991 - PRESENT-Continued
1995-1 C.B.
TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000 FROM JANUARY 1, 1995 - PRESENT
RATE
TABLE
PG
Jul. 1, 2002-Sep. 30, 2002 8%
21
575
Oct. 1, 2002-Dec. 30, 2002 8%
21
575
Jan. 1, 2003-Mar. 31, 2003 7%
19
573
Apr. 1, 2003-Jun. 30, 2003 7%
19
573
Jul. 1, 2003-Sep. 30, 2003 7%
19
573
1995-1 C.B.
RATE
TABLE
PG
Jan. 1, 1995-Mar. 31, 1995
6.5%
18
572
Apr. 1, 1995-Jun. 30, 1995
7.5%
20
574
Jul. 1, 1995-Sep. 30, 1995
6.5%
18
572
Oct. 1, 1995-Dec. 31, 1995
6.5%
18
572
Jan. 1, 1996-Mar. 31, 1996
6.5%
66
620
Apr. 1, 1996-Jun. 30, 1996
5.5%
64
618
Jul. 1, 1996-Sep. 30, 1996
6.5%
66
620
Oct. 1, 1996-Dec. 31, 1996
6.5%
66
620
Jan. 1, 1997-Mar. 31, 1997
6.5%
18
572
Apr. 1, 1997-Jun. 30, 1997
6.5%
18
572
Jul. 1, 1997-Sep. 30, 1997
6.5%
18
572
Oct. 1, 1997-Dec. 31, 1997
6.5%
18
572
Jan. 1, 1998-Mar. 31, 1998
6.5%
18
572
Apr. 1, 1998-Jun. 30, 1998
5.5%
16
570
Jul. 1, 1998-Sep. 30, 1998
5.5%
16
570
Oct. 1, 1998-Dec. 31, 1998
5.5%
16
570
Jan. 1, 1999-Mar. 31, 1999
4.5%
14
568
Apr. 1, 1999-Jun. 30, 1999
5.5%
16
570
Jul. 1, 1999-Sep. 30, 1999
5.5%
16
570
Oct. 1, 1999-Dec. 31, 1999
5.5%
16
570
Jan. 1, 2000-Mar. 31, 2000
5.5%
64
618
Apr. 1, 2000-Jun. 30, 2000
6.5%
66
620
Jul. 1, 2000-Sep. 30, 2000
6.5%
66
620
Oct. 1, 2000-Dec. 31, 2000
6.5%
66
620
Jan. 1, 2001-Mar. 31, 2001
6.5%
18
572
Apr. 1, 2001-Jun. 30, 2001
5.5%
16
570
Jul. 1, 2001-Sep. 30, 2001
4.5%
14
568
Oct. 1, 2001-Dec. 31, 2001
4.5%
14
568
Jan. 1, 2002-Mar. 31, 2002
3.5%
12
566
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
## TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000 FROM JANUARY 1, 1995 - PRESENT-Continued
1995-1 C.B.
RATE
TABLE
PG
Apr. 1, 2002-Jun. 30, 2002
3.5%
12
566
Jul. 1, 2002-Sep. 30, 2002
3.5%
12
566
Oct. 1, 2002-Dec. 31, 2002
3.5%
12
566
Jan. 1, 2003-Mar. 31, 2003
2.5%
10
564
Apr. 1, 2003-Jun. 30, 2003
2.5%
10
564
Jul. 1, 2003-Sep. 30, 2003
2.5%
10
564
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
# Part III. Administrative, Procedural, and Miscellaneous
## Weighted Average Interest Rate Update
### Notice 2003-30
Sections 412(b)(5)(B) and 412(l)(7)(C)(i)
of the Internal Revenue Code provide that
the interest rates used to calculate current
liability for purposes of determining the full
funding limitation under § 412(c)(7) and the
required contribution under § 412(l) must
be within a permissible range around 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, pro-
vides guidelines for determining the
weighted average interest rate and the re-
sulting permissible range of interest rates
used to calculate current liability for the pur-
pose of the full funding limitation of
§ 412(c)(7) of the Code.
Section 417(e)(3)(A)(ii)(II) defines the
applicable interest rate, which must be used
for purposes of determining the minimum
present value of a participant's benefit un-
der § 417(e)(1) and (2), as the annual rate
of interest on 30-year Treasury securities for
the month before the date of distribution or
such other time as the Secretary may by
regulations prescribe. Section 1.417(e)-
1(d)(3) of the Income Tax Regulations pro-
vides that the applicable interest rate for a
month is the annual interest rate on 30-
year Treasury securities as specified by the
Commissioner for that month in revenue
rulings, notices or other guidance pub-
lished in the Internal Revenue Bulletin.
The rate of interest on 30-year Trea-
sury Securities for May 2003 is 4.53 per-
cent. Pursuant to Notice 2002-26, 2002-15
I.R.B. 743, the Service has determined this
rate as the monthly average of the daily de-
termination of yield on the 30-year Trea-
sury bond maturing in February 2031.
Section 405 of the Job Creation and
Worker Assistance Act of 2002 amended
§ 412(l)(7)(C) of the Code to provide that
for plan years beginning in 2002 and 2003
the permissible range is extended to 120
percent.
The following rates were determined for
the plan years beginning in the month
shown below.
Month
Year
Weighted Average
90% to 110% Permissible Range
90% to 120% Permissible Range
June
2003
5.39
4.85 to 5.93
4.85 to 6.46
## Drafting Information
The principal authors of this notice are
Paul Stern and Tony Montanaro of the Em-
ployee Plans, Tax Exempt and Govern-
ment Entities Division. For further infor-
mation regarding this notice, please contact
the Employee Plans' taxpayer assistance
telephone service at 1-877-829-5500 (a
toll-free number), between the hours of 8:00
a.m. and 6:30 p.m. Eastern time, Monday
through Friday. Mr. Stern may be reached
at 1-202-283-9703. Mr. Montanaro may be
reached at 1-202-283-9714. The telephone
numbers in the preceding two sentences are
not toll-free.
## Rev. Proc. 2003-40 LMSB/Appeals Fast Track Settlement Procedure
### SECTION 1. PURPOSE
This revenue procedure formally estab-
lishes the Fast Track Settlement (FTS) pro-
gram to expedite case resolution and to ex-
pand the range of dispute resolution options
available to taxpayers. The Large and Mid-
Size Business Division and the Office of
Appeals will jointly administer the FTS pro-
gram. FTS will allow LMSB personnel and
LMSB taxpayers an opportunity to medi-
ate their disputes with an Appeals Offi-
cial acting as a neutral party. In addition,
in certain circumstances, other Service Op-
erating Divisions and taxpayers may par-
ticipate in the FTS program.
### SECTION 2. OVERVIEW
.01 In furtherance of the Service's goal
of resolving tax controversies on a basis that
is fair and impartial to both the govern-
ment and the taxpayer, the Service imple-
mented an LMSB Fast Track Dispute Reso-
lution Pilot Program in Notice 2001-67,
2001-2 C.B. 544. The pilot program dem-
onstrated that the Service can success-
fully use dispute resolution techniques
within LMSB to promote issue resolution
at earlier stages and decrease the overall
time from return filing to ultimate issue
resolution. The FTS program, which the
Service has structured to promote resolu-
tion within 120 days of acceptance into the
program, builds on the success of the pi-
lot program.
.02 FTS is optional for the taxpayer. FTS
does not eliminate or replace existing dis-
pute resolution options, including the tax-
payer's opportunity to request a hearing be-
fore Appeals or a conference with a
manager. The FTS Appeals Official, serv-
ing as a neutral participant in the FTS pro-
cess, will assist LMSB and the taxpayer to
understand the nature of the dispute and to
reach a mutually satisfactory resolution con-
sistent with applicable law. The FTS Ap-
peals Official also may recommend a settle-
ment based on the FTS Appeals Official's
analysis of the issues. See Section 2.03. The
taxpayer may withdraw from the FTS pro-
cess at any time by notifying in writing the
LMSB Team Manager and the FTS Ap-
peals Official of the withdrawal. The FTS
Appeals Official or the LMSB Team Man-
ager also may terminate the LMSB Fast
Track process, by notifying the taxpayer in
writing, if either one determines that mean-
ingful progress toward resolution of the is-
sues has stopped. If any issues remain un-
resolved at the conclusion of the FTS
process, the taxpayer retains all of its oth-
erwise applicable appeal rights.
.03 Any recommended settlement by the
FTS Appeals Official of an issue in FTS
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shall be subject to the procedures that would
be applicable if the issue were being con-
sidered by Appeals, including procedures
in the Internal Revenue Manual and exist-
ing published guidance. FTS therefore cre-
ates no special authority for settlement by
the FTS Appeals Official. For example, if
the FTS issue is coordinated in either the
Technical Advisor Program or the Appeals
Technical Guidance program, the proposed
settlement of that issue is subject to estab-
lished procedures, including submission of
the proposed settlement to the Appeals Co-
ordinator for review and concurrence
### SECTION 3. CASE ELIGIBILITY AND EXCLUSIONS
.01 The parties should initiate FTS only
after the Service issues the Form 5701 (No-
tice of Proposed Adjustment) and the tax-
payer provides a written response, but be-
fore the date on which the Service issues
the first letter of proposed deficiency which
allows the taxpayer an opportunity for ad-
ministrative review in the Office of Ap-
peals (30-day letter). Notwithstanding the
issuance of a Form 5701 and the receipt of
a written response from the taxpayer, the
Appeals and LMSB Fast Track Program
Managers (collectively, Fast Track Pro-
gram Managers) shall accept an issue into
the FTS program only if they are satis-
fied that the issue is sufficiently devel-
oped to permit resolution within the frame-
work of the FTS program.
.02 FTS is generally available for all
cases within LMSB Compliance jurisdic-
tion. In addition, the Fast Track Program
Managers and the Compliance manager
from a Service Operating Division other
than LMSB may agree to include a tax-
payer or issue not under LMSB jurisdic-
tion in the FTS program, depending on the
circumstances and operational needs of the
case. For example, SBSE Examination Spe-
cialization and Abusive Schemes cases may
be accepted in the FTS program upon
agreement of the Fast Track Program Man-
agers and the SBSE manager. The tax-
payer must also agree to the inclusion into
the FTS program. FTS is not well suited for
all cases, however, so the respective man-
agers and the taxpayers must evaluate their
individual circumstances to determine if the
FTS program meets their needs, e.g.,
whether the number of issues is manage-
able within a 120 day time frame. For non-
LMSB cases or issues accepted into the
FTS program, the appropriate Compliance
manager in the non-LMSB Operating Di-
vision will carry out the responsibilities of
the LMSB Team Manager under this rev-
enue procedure. An issue that is excluded
from a similar alternate dispute resolu-
tion program in another Operating Divi-
sion, such as the SBSE - Appeals Fast
Track Mediation Procedure, usually also will
be excluded from the FTS program.
.03 The following issues are not eli-
gible for inclusion into the FTS program:
1\) issues in a taxpayer's case desig-
nated for litigation;
2\) issues in a taxpayer's case under con-
sideration for designation for litigation;
3\) issues for which the taxpayer has sub-
mitted a request for competent authority as-
sistance;
4\) issues for which the taxpayer has re-
quested the simultaneous Appeals/
Competent Authority procedure described
in section 8 of Rev. Proc. 2002-52,
2002-31 I.R.B. 242, or the corresponding
provision of any successor guidance;
5\) issues outside LMSB jurisdiction, ex-
cept as permitted under section 3.02;
6\) "whipsaw" issues, i.e., issues for
which resolution with respect to one party
might result in inconsistent treatment in the
absence of the participation of another party;
7\) issues for which mediation would not
be consistent with sound tax administra-
tion, e.g., issues governed by closing agree-
ments, by res judicata, or by controlling
precedent; and
8\) issues that have been identified in a
Chief Counsel Notice, or equivalent pub-
lication, as excluded from the Fast Track
Settlement process.
If an issue is determined not to be eli-
gible for the FTS program, all issues in the
case shall not be eligible for the FTS pro-
gram.
### SECTION 4. APPLICATION PROCESS
.01 Either the taxpayer or the LMSB
Team Manager may suggest participation
in the FTS program. If the other party
agrees, the parties may contact the LMSB
or Appeals Fast Track Program Managers
who will assist the parties in determining
whether the issue is appropriate for the FTS
program. If the parties determine that the
issue is appropriate for FTS, the parties
must apply to the program by completing
and executing a LMSB Fast Track Agree-
ment form. The parties must include the No-
tice of Proposed Adjustment (Form 5701)
and the written response from the taxpayer
with the LMSB Fast Track Agreement to
complete the package. Taxpayers do not
need to submit a formal protest for FTS.
The LMSB Team Manager will coordi-
nate preparation and submission of the ap-
plication package.
.02 All applications to the FTS pro-
gram require the approval of the Fast Track
Program Managers before acceptance into
FTS. If the Fast Track Program Manag-
ers approve the application, the FTS Ap-
peals Official (see section 5.01 below), will
notify the taxpayer and the LMSB Team
Manager. If the Fast Track Program Man-
agers do not approve the application, the
Appeals Fast Track Program Manager will
notify the LMSB Team Manager within ten
days of receipt of the application. The
LMSB Team Manager will, in turn, no-
tify the taxpayer. The decision not to ap-
prove an application for the FTS program
is final and not subject to administrative ap-
peal or judicial review.
.03 The parties and the FTS Appeals Of-
ficial will agree to and document a pro-
jected completion date on the LMSB Fast
Track Agreement form. The goal of the FTS
program is to complete the entire FTS pro-
cess in approximately 120 days. The LMSB
Team Manager and the taxpayer will also
identify a preferred conference site.
### SECTION 5. SETTLEMENT PROCESS
.01 FTS employs various alternative dis-
pute resolution techniques to promote agree-
ment. An FTS Appeals Official will serve
as a neutral party. The FTS Appeals Offi-
cial will not perform in a traditional Ap-
peals role, but will use dispute resolution
techniques to facilitate settlement between
the parties. An Appeals Team Case Leader,
trained in mediation or, in limited cases, an
Appeals Officer, trained in mediation, in
conjunction with an Appeals Team Man-
ager, will serve as the neutral FTS Ap-
peals Official.
.02 During FTS, the taxpayer and LMSB
representatives, including at least one rep-
resentative with decision-making author-
ity, from both LMSB and the taxpayer, will
meet with the FTS Appeals Official. The
taxpayer and LMSB representatives should
include individuals with the information and
expertise necessary to assist the parties and
the FTS Appeals Official during the settle-
ment process. The FTS Appeals Official
may ask the parties to limit the number of
participants to facilitate the process. Any
person engaged in practice before the Ser-
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vice, as defined in Publication 216, Con-
ference and Practice Requirements, must
have a power of attorney from the tax-
payer (Form 2848, Power of Attorney and
Declaration of Representative).
.03 The FTS Appeals Official will hold
the FTS session at the date and location
agreed to by both parties. Prior to the FTS
session, the FTS Appeals Official will ad-
vise the participants of the procedures and
establish ground rules. The FTS Appeals
Official may modify the rules and proce-
dures during the session to adapt to changes
in circumstances. The FTS session may in-
clude joint sessions with all parties, sepa-
rate meetings, or both as determined ap-
propriate in the sole judgment of the FTS
Appeals Official.
.04 The FTS Appeals Official will use
a FTS Session Report to assist in plan-
ning the FTS session and to report on de-
velopments during the session. The FTS
Session Report will include a list of all is-
sues approved for the FTS program, a de-
scription of the issues, the amounts in dis-
pute, conference dates, a plan of action for
the FTS session, and other information use-
ful to the process as determined by the par-
ties and the FTS Appeals Official. The FTS
Appeals Official also will prepare and up-
date an Agenda, which guides the commu-
nication, sets the order of issue discus-
sion, poses questions to clarify the issue and
guides the meetings. During the session, the
FTS Appeals Official will provide deci-
sion makers from both parties with cop-
ies of the Agenda and the FTS Session Re-
port.
.05 Generally, the FTS Appeals Offi-
cial will consider only those issues out-
lined in the FTS Session Report, except by
mutual agreement of the parties. If the tax-
payer presents information during the ses-
sion that the taxpayer had not previously
presented during the audit, the FTS Ap-
peals Official will adjust the targeted
completion date to give the appropriate Ser-
vice officials time to evaluate the
information/documentation.
.06 During the session, the FTS Ap-
peals Official may propose settlement terms
for any or all issues. If the taxpayer ac-
cepts the FTS Appeals Official's settle-
ment proposal, but the LMSB Team Man-
ager rejects it, the LMSB Territory Manager
must review the rejection and either con-
cur in writing, or accept the settlement pro-
posal on behalf of LMSB. If the LMSB
Territory Manager concurs with the Team
Manager's rejection of the settlement pro-
posal, and an acceptable alternative settle-
ment cannot be reached, the issue will be
closed out of the FTS program as unagreed.
.07 If the parties resolve any of the dis-
puted issues at the conclusion of the ses-
sion, the parties and the FTS Appeals Of-
ficial shall sign the FTS Session Report
acknowledging acceptance of the terms of
settlement for purposes of preparing com-
putations. The signature of the parties on
the FTS Session Report does not consti-
tute a final settlement, nor does it waive re-
strictions on assessment, terminate con-
sents to extend periods of limitation, start
the running of any periods of limitation, or
constitute agreement to close the case.
.08 If applicable, the Service will re-
port a proposed settlement reached as a re-
sult of FTS to the Joint Committee on Taxa-
tion in accordance with section 6405. The
taxpayer acknowledges that the Service may
reconsider a proposed settlement, as re-
flected in a signed FTS Session Report,
upon receipt of comments on the proposed
settlement from the Joint Committee on
Taxation. If the taxpayer declines to agree
with any changes by the Service upon re-
consideration, LMSB will close the case un-
agreed and the taxpayer will retain all the
usual rights to request Appeals consider-
ation of any unagreed issues.
.09 If the parties fail to resolve any is-
sue in FTS, the taxpayer retains the op-
tion of requesting that the issue be heard
through the traditional Appeals process.
.10 Communications made during an
FTS session are confidential. Employees of
the Service involved with the FTS pro-
cess must adhere to the confidentiality and
disclosure provisions of the Internal Rev-
enue Code, including sections 6103, 7213,
and 7431. By signing the LMSB Fast Track
Agreement, the taxpayer consents, pursu-
ant to section 6103(c), to the disclosure of
the taxpayer's returns and return informa-
tion pertaining to the issues considered in
the FTS process to those persons named on
the Agreement as participants in the pro-
cess. Employees of the Service, the tax-
payer and persons invited to participate by
the Service or the taxpayer shall not vol-
untarily disclose information regarding any
communication made during the FTS ses-
sion, except as provided by statute, such as
in sections 6103 and 7214(a)(8) and 5
U.S.C. § 574.
.11 The prohibition against ex parte com-
munications between Appeals Officers and
other Service employees provided by sec-
tion 1001(a) of the Internal Revenue Ser-
vice Restructuring and Reform Act of 1998
does not apply to the communications aris-
ing in FTS because Appeals personnel, in
facilitating an agreement between the tax-
payer and LMSB, are not acting in their tra-
ditional Appeals settlement role.
### SECTION 6. POST-SESSION PROCEDURE
.01 Unless specific conditions warrant al-
tering the agreement, e.g., a subsequent au-
thoritative decision that materially alters the
basis for the agreement, the basis of settle-
ment shall not be modified after the FTS
Session Report is signed. Nor may either
party raise a new issue for FTS consider-
ation after the FTS Session Report is signed
unless both parties and the FTS Appeals Of-
ficial agree. New issues not accepted for
consideration under FTS may still be raised
and considered outside the FTS program.
.02 After the parties and the FTS Ap-
peals Official sign the FTS Session Re-
port acknowledging a basis of settlement,
the FTS Appeals Official will draft the ap-
propriate settlement document to reflect the
agreed upon treatment of the issue. The FTS
Appeals Official may use delegated settle-
ment authority to enter into and approve any
Fast Track settlement agreement (e.g., spe-
cific matter closing agreement or Form 870-
AD). Alternatively, LMSB and the tax-
payer may resolve an issue using LMSB
resolution authority and LMSB will in-
clude the issue as an agreed issue in the
Revenue Agent's Report. LMSB will then
close the case using established case clos-
ing procedures.
.03 If one or more issues remain un-
settled at the end of FTS, the FTS Ap-
peals Official will send a letter to both the
taxpayer and LMSB, stating who partici-
pated in the program, listing any unre-
solved issues, and explaining the taxpay-
er's rights to appeal unresolved issues.
# SECTION 7. GENERAL PROVISIONS
.01 A resolution reached by the parties
through FTS will not bind the parties for
taxable years not covered by the FTS Ses-
sion Report. Except as provided in the Fast
Track settlement agreement or Delega-
2003-25 I.R.B.
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tion Order 236, any such resolution shall
not be used as precedent.
.02 With respect to FTS cases that are
returned for traditional Appeals consider-
ation, ex parte restrictions will not be im-
posed on intra-Appeals communications.
Appeals management will take appropri-
ate measures to ensure these cases are
handled fairly and impartially.
## SECTION 8. EFFECTIVE DATE
This revenue procedure is effective June
3, 2003.
## SECTION 9. CONTACTS
A taxpayer who wants to submit a case
to the FTS program, or that has questions
about the program and its suitability for the
taxpayer's case, may contact the LMSB
Team Manager for the tax year currently
under examination. For further informa-
tion, taxpayers may contact J.W. Wyatt at
(314) 612-4639 (not a toll-free number) or
by email at j.w.wyatt@irs.gov or James Fike
at (202) 283-8353 (not a toll-free num-
ber) or by email at james.o.fike@irs.gov.
Taxpayers may also consider other avail-
able alternate dispute resolution programs,
including SBSE - Appeals Fast Track
Mediation.
## Rev. Proc. 2003-41
## SB/SE - Appeals Fast Track Mediation Procedure
### SECTION 1. PURPOSE
This revenue procedure formally estab-
lishes the Fast Track Mediation (FTM) pro-
gram to expedite case resolution and to ex-
pand the range of dispute resolution options
available to taxpayers. The Small Business/
Self-Employed Compliance Division and the
Office of Appeals will jointly administer the
FTM program. FTM will allow SB/SE per-
sonnel and SB/SE taxpayers an opportu-
nity to mediate their disputes with an Ap-
peals Official acting as a neutral party.
### SECTION 2. OVERVIEW
.01 In furtherance of the Service's goal
of resolving tax controversies on a basis that
is fair and impartial to both the govern-
ment and the taxpayer, the Service imple-
mented a SB/SE Fast Track Mediation pro-
gram on July 1, 2000. The pilot program
demonstrated that the Service can success-
fully use dispute resolution techniques
within SB/SE to promote issue resolution
at earlier stages and decrease the overall
time from return filing to ultimate issue
resolution. The FTM program, which the
Service has structured to promote issue
resolution within an average of 30 to 40
days from the initial joint discussion be-
tween the FTM Appeals Official and the
parties, builds on the success of the pilot
program.
.02 FTM is optional for the taxpayer.
FTM does not eliminate or replace exist-
ing dispute resolution options, including the
taxpayer's opportunity to request a hear-
ing before Appeals or a conference with a
manager. The FTM Appeals Official, serv-
ing as a neutral participant, will assist
SB/SE and the taxpayer to understand the
nature of the dispute and to reach a mutu-
ally satisfactory resolution consistent with
applicable law. The FTM Appeals Offi-
cial may also recommend to the parties a
resolution on the merits based on the FTM
Appeals Official's analysis of the issues. Ei-
ther party may withdraw from the media-
tion process at any time by notifying the
other party and the FTM Appeals Official
in writing of the withdrawal. The FTM Ap-
peals Official also may terminate the me-
diation process, by notifying the taxpayer
and SB/SE in writing, if it is determined
that meaningful progress toward resolu-
tion of the issues has stopped. If any is-
sues remain unresolved at the conclusion
of FTM, the taxpayer retains all of its oth-
erwise applicable appeal rights.
## SECTION 3. CASE ELIGIBILITY AND EXCLUSIONS
.01 FTM is generally available for all
non-docketed cases and collection source
work over which SB/SE has jurisdiction, in-
cluding offer in compromise (OIC), trust
fund recovery penalty (TFRP) and collec-
tion due process (CDP) cases. FTM is gen-
erally not available for issues for which
resolution will depend on an assessment of
the hazards of litigation and which re-
quire the FTM Appeals Official to use del-
egated settlement authority.
.02 The following issues and cases are
not eligible for inclusion in the FTM
program:
(1) Issues in a taxpayer's case desig-
nated for litigation;
(2) Issues in a taxpayer's case under con-
sideration for designation for litigation;
(3) Issues for which there is an absence
of legal precedent;
(4) Issues for which there are conflicts
between circuit courts of appeal;
(5) Issues included in the Technical Ad-
visor Program or in the Appeals Techni-
cal Guidance Program;
(6) Issues for which the taxpayer has
submitted a request for competent author-
ity assistance;
(7) Issues for which the taxpayer has re-
quested the simultaneous Appeals/
Competent Authority procedure described
in section 8 of Rev. Proc. 2002-52,
2002-31 I.R.B. 242, or the corresponding
provision of any successor guidance;
(8) "Whipsaw" issues, i.e., issues for
which resolution with respect to one party
might result in inconsistent treatment in the
absence of the participation of another party;
(9) Cases worked at a Campus site in
which a penalty was proposed, except those
involving special electronic fund deposit
penalties;
(10) Cases worked at a Campus site in
which an offer-in-compromise was made;
(11) Collection Appeals Program cases;
(12) Automated Collection System cases;
(13) Frivolous issues, such as, but not
limited to, those identified in Rev. Proc.
2001-41, 2001-2 C.B. 173, or any suc-
ceeding revenue procedure;
(14) Issues for which mediation would
not be consistent with sound tax adminis-
tration, e.g., issues governed by closing
agreements, by res judicata, or by control-
ling precedent;
(15) Cases in which the taxpayer has
failed to respond to Service communica-
tions and no documentation has been pre-
viously submitted for consideration by the
examiner;
(16) Issues within the scope of Rev.
Proc. 2002-18, 2002-1 C.B. 678 (meth-
ods of accounting); and
(17) Issues that have been identified in
a Chief Counsel Notice, or equivalent pub-
lication, as excluded from the Fast Track
Mediation process.
In addition to the cases described in (9)
and (10), other cases worked at the Cam-
pus sites are generally not eligible for FTM.
.03 Fast Track Mediation should be ini-
tiated only after an issue has been fully de-
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veloped. The respective managers and tax-
payers must evaluate their individual
circumstances to determine if the FTM pro-
gram meets their needs, e.g., whether the
number of issues is manageable within a 30
to 40-day time frame.
.04 Application to the FTM process
should only be initiated if there is suffi-
cient time remaining on the period of limi-
tations for assessment and collection. Con-
sistent with current Compliance procedures,
a case should not be submitted to the FTM
program if the failure to resolve any is-
sue in the FTM process would result in
Compliance forwarding the case to Ap-
peals with less than 180 days remaining on
the statute of limitations.
## SECTION 4. APPLICATION PROCESS
.01 Either the taxpayer or the SB/SE
Team Manager may suggest participation
in the FTM program. If the parties are in-
terested in electing FTM, and need assis-
tance in determining if the issue is appro-
priate for the FTM process, they may
contact the SB/SE FTM Program Man-
ager.
.02 A request to participate in FTM may
only be initiated at the conclusion of an
examination/collection determination. Par-
ties apply to the program by completing and
executing an Agreement to Mediate, at-
tached as Exhibit 1.
.03 SB/SE will prepare a brief “Sum-
mary of Issues" and a tentative tax com-
putation to submit with the Agreement to
Mediate to the appropriate Appeals Of-
fice. The taxpayer may also submit a sum-
mary of the issues, but a formal protest is
not required. All documents submitted with
the Agreement to Mediate are available to
the other party.
.04 All applications to the FTM pro-
cess require the approval of an Appeals
Manager before acceptance into FTM. If the
Appeals Manager approves the applica-
tion, the Appeals Manager will notify the
taxpayer and the SB/SE Team Manager. If
the case is not accepted for FTM, the Ap-
peals Manager will notify the taxpayer and
the SB/SE Team Manager and return all pa-
perwork to SB/SE. The decision not to ap-
prove an application for the FTM pro-
gram is final and not subject to
administrative appeal or judicial review.
## SECTION 5. MEDIATION PROCESS
.01 During FTM, the case remains un-
der SB/SE Compliance jurisdiction.
.02 After the case is accepted into the
FTM program, an Appeals Manager will as-
sign the case to the FTM Appeals Offi-
cial, an Appeals Employee who has been
trained in mediation. The FTM Appeals Of-
ficial will serve as a neutral party. The tax-
payer does not have the option of using a
non-IRS employee as a mediator under the
SB/SE - Appeals FTM program.
.03 The FTM Appeals Official will hold
the FTM session at a date and location
agreed to by both parties, usually at the lo-
cal Appeals Office. Prior to the FTM ses-
sion, the FTM Appeals Official will ad-
vise the participants of the procedures and
establish ground rules. The FTM Appeals
Official may modify the rules and proce-
dures during the session to adapt to changes
in circumstances. The FTM session may in-
clude joint sessions with all parties, sepa-
rate meetings, or both, as determined ap-
propriate in the sole judgment of the FTM
Appeals Official.
.04 Both the taxpayer and SB/SE will be
given ample opportunity to present their re-
spective positions. The FTM Appeals Of-
ficial may also ask either party for addi-
tional information if deemed necessary for
a full understanding of the issues being me-
diated. A copy of any submission a party
gives to the FTM Appeals Official will be
provided simultaneously to the other party.
.05 The taxpayer and SB/SE represen-
tatives will meet with the FTM Appeals Of-
ficial. The taxpayer's authorized represen-
tative may also participate in the FTM
session. At least one representative with
decision-making authority for each party
must be present at the mediation sessions,
or be available for consultation, unless the
case is an OIC case over $50,000 (includ-
ing tax, penalty, and interest) for which
Counsel approval is currently required pur-
suant to section 7122(b) of the Internal Rev-
enue Code. The FTM Appeals Official may
ask the parties to limit the number of par-
ticipants to facilitate the process. Any per-
son engaged in practice before the Ser-
vice, as defined in Publication 216,
Conference and Practice Requirements,
must have a power of attorney from the tax-
payer (Form 2848, Power of Attorney and
Declaration of Representative).
.06 The FTM Appeals Official may post-
pone or terminate the session if: (a) the tax-
payer or SB/SE presents new information
or new issues during the mediation ses-
sion; (b) the taxpayer wishes to submit a
substantial amount of documentary infor-
mation; or (c) the taxpayer wishes to present
witnesses, including experts. Any such post-
ponements to allow both parties the op-
portunity to review and evaluate the new
information may result in a longer period
for completion of the FTM process. If re-
quested by either party, the FTM Appeals
Official may allow a reasonable delay in the
proceedings if the FTM Appeals Official de-
termines it is warranted. Any delays will be
communicated to, and coordinated with,
both parties.
.07 The FTM Appeals Official does not
have settlement authority and will not ren-
der a decision regarding any issue in dis-
pute. The issues submitted to the FTM pro-
cess may only be resolved if both the
taxpayer and SB/SE reach an agreement.
.08 Communications made during an
FTM session are confidential. Employees
of the Service, or persons invited by the
Service to participate in FTM, must ad-
here to the confidentiality and disclosure
provisions of the Internal Revenue Code,
including sections 6103, 7213 and 7431.
Employees of the Service, the taxpayers and
persons invited by the Service and the tax-
payer to participate in FTM shall not vol-
untarily disclose information regarding any
communication made during the FTM ses-
sion, except as provided by statute, such as
in sections 6103 and 7214(a)(8) and 5
U.S.C. § 574.
.09 By signing the Agreement to Me-
diate, attached as Exhibit 1, the taxpayer
consents, pursuant to section 6103(c), to the
disclosure of the taxpayer's returns and re-
turn information pertaining to the issues
considered in FTM to those persons named
on the Agreement as participants or ob-
servers. If the Agreement to Mediate is ex-
ecuted by a person pursuant to a power of
attorney executed by the taxpayer, that
power of attorney must express the tax-
payer's grant of authority to consent to dis-
close the taxpayer's returns and return in-
formation by the Service to third parties,
and a copy of that power of attorney must
be attached to the agreement.
.10 The prohibition against ex parte
communications between Appeals Offi-
cers and other Service employees provided
by section 1001(a) of the Internal Rev-
enue Service Restructuring and Reform Act
of 1998 does not apply to the communi-
cations arising in the FTM program be-
cause Appeals personnel, in facilitating an
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agreement between the taxpayer and
SB/SE, are not acting in their traditional Ap-
peals settlement role.
## SECTION 6. POST-SESSION PROCEDURE
.01 If the parties resolve any of the dis-
puted issues in the FTM session, SB/SE will
secure the appropriate closing documents
from the taxpayer and will close the case
through SB/SE's established case closing
procedures.
.02 If applicable, the Service will re-
port a proposed resolution reached as a re-
sult of FTM to the Joint Committee on
Taxation in accordance with section 6405.
The taxpayer acknowledges that the Ser-
vice may reconsider a proposed resolu-
tion upon receipt of comments on the pro-
posed resolution from the Joint Committee
on Taxation. If the taxpayer declines to
agree with any changes by the Service upon
reconsideration, SB/SE will close the case
unagreed and the taxpayer will retain all of
the usual rights to request Appeals consid-
eration of any unagreed issues.
.03 Under certain circumstances, the
settlement of an OIC case may require a le-
gal opinion from Counsel (7122(b) Coun-
sel) pursuant to section 7122(b). For these
OIC cases that are successfully mediated in
the FTM program, the case will be for-
warded to the 7122(b) Counsel for an opin-
ion after the FTM session and the 7122(b)
Counsel shall not be present at the FTM
session. Final processing of the OIC case
will be subject to the opinion of the 7122(b)
Counsel.
.04 If the parties fail to resolve any is-
sue in FTM, the taxpayer retains the op-
tion of requesting that the issue be heard
through the traditional Appeals process.
With respect to any unresolved issues,
SB/SE will close the case or issue unagreed
in accordance with established case clos-
ing procedures.
.05 At the conclusion of FTM, the FTM
Appeals Official will prepare a brief writ-
ten report by completing a Fast Track Me-
diator's Report on the appropriate form, and
submit a copy to each party.
.06 A resolution reached by the parties
through FTM will not bind the parties for
taxable years not covered by the agree-
ment. Except as provided in the agree-
ment, any such resolution shall not be used
as precedent.
# SECTION 7. EFFECTIVE DATE
This revenue procedure is effective June
3, 2003.
# SECTION 8. CONTACT FOR FURTHER INFORMATION
A taxpayer who wants to participate in
FTM, or who has questions about the pro-
gram and its suitability for the taxpayer's
case, may contact Jacqueline Harris at (972)
308-7330 (not a toll-free call) regarding the
tax year currently under examination.
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# Exhibit 1 Agreement to Mediate
To: Appeals Team Manager
Date:
Compliance: The person to contact in Compliance about this case is:
Name and Title:
ID/Badge Number:
Telephone Number:
Taypayer TIN
Year(s)
Source (FE/OE/CO, etc.)
MFT
Type of Tax (1040, 1120 Emp., etc) or Collection Issue (CDP, OIC etc)
Taypayer:
Name:
Address:
City, State and Zip Code:
Telephone:
☒
)
Name of Representative
Name of Firm:
Address:
City, State and Zip Code:
Telephone: (\_)\_
☒
Fax (_).
IRS and Treasury employees who participate in any way in the mediation process and any person under contract to the IRS in-
vited to participate, will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C.
sections 6103, 7213, and 7431. See also 5 U.S.C. section 574. The parties also acknowledge that IRS and all other Treasury em-
ployees involved in the mediation are bound by I.R.C. section 7214(a)(8) and must report information concerning violations of
any revenue law to the Secretary. The Mediator will have the right to ask either party for additional information if deemed nec-
essary for a full understanding of the issues being mediated. A copy of any submission a party gives to the mediator will be pro-
vided simultaneously to the other party.
The Taxpayer consents to the disclosure by the IRS of the Taxpayer's returns and return information incident to the mediation
to any participant or observer for the Taxpayer. If the mediation agreement is executed by a person pursuant to a power of at-
torney executed by the Taxpayer, that power of attorney must clearly express the Taxpayer's grant of authority to consent to dis-
close the Taxpayer's returns and return information by the IRS to third parties, and a copy of that power of attorney must be at-
tached to this agreement.
Taxpayer
Date
Representative
Date
Taxpayer
Date
Compliance
Date
Other Participants (if applicable):
Name
Position or Affiliation
Phone
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## Rev. Proc. 2003-44
### TABLE OF CONTENTS
### PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01
Purpose.
1054
.02
General principles underlying EPCRS.
1054
.03
Overview.
1054
SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS
01
Effect on programs.
1055
.02
Future enhancements.
1055
PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS; RELIANCE
.01
Effect of EPCRS on Qualified Plans.
1055
.02
Effect of EPCRS on 403(b) Plans.
1056
.03
Effect of EPCRS on SEPs and SIMPLE IRA Plans.
1056
.04
Compliance Statement.
1056
.05
Other taxes and penalties.
1056
.06
Reliance
1056
SECTION 4. PROGRAM ELIGIBILITY
.01
EPCRS Programs.
1056
.02
Effect of examination.
1056
.03
Favorable Letter requirement.
1056
.04
Established practices and procedures.
1056
.05
Correction by plan amendment.
1056
.06
Submission for a determination letter.
1057
.07
Availability of correction of Employer Eligibility Failure.
1057
.08
Egregious failures.
1057
.09
Diversion or misuse of plan assets.
1057
.10
EGTRRA nonamenders.
1057
PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY
SECTION 5. DEFINITIONS
.01
Definitions for Qualified Plans.
1057
.02
Definitions for 403(b) Plans.
1059
.03
Under Examination
1059
.04
SEP
1060
.05
SIMPLE IRA Plan.
1060
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY
.01
Correction principles; rules of general applicability.
1060
.02
Correction principles.
1060
.03
Correction of an Employer Eligibility Failure.
1061
.04
Correction of a failure to obtain spousal consent.
1061
.05
Correction by plan amendment.
1062
.06
Special rules relating to Excess Amounts.
1062
.07
Special rules relating to reporting plan loan failures.
1062
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.08
Correction under statute or regulations.
1062
.09
Matters subject to excise taxes.
1062
.10
Correction for SEPs and SIMPLE IRA Plans.
1062
.11
Confidentiality and disclosure.
1063
.12
No effect on other law.
1063
# PART IV. SELF-CORRECTION (SCP)
SECTION 7. IN GENERAL
SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES
.01
Requirements.
1063
.02
Factors.
1063
.03
Multiple failures.
1064
.04
Examples.
1064
## SECTION 9. SELF-CORRECTION OF SIGNIFICANT OPERATIONAL FAILURES
.01
Requirements.
1064
.02
Correction period.
1064
.03
Correction by plan amendment.
1064
.04
Substantial completion of correction.
1064
.05
Examples.
1065
## PART V. VOLUNTARY CORRECTION WITH SERVICE APPROVAL (VCP)
### SECTION 10. VCP PROCEDURES
.01
VCP requirements.
1065
.02
Identification of failures.
1065
.03
Availability of correction of a terminated plan.
1065
.04
Effect of VCP submission on examination.
1065
.05
No concurrent examination activity.
1065
.06
Determination letter application for plan amendments related to a VCP submission.
1065
.07
Determination letter applications not related to a VCP submission.
1065
.08
Processing of submission.
1066
.09
Compliance statement.
1066
.10
Effect of compliance statement on examination.
1067
.11
Special rules relating to Anonymous (John Doe) Submissions.
1067
.12
Special rules relating to Group Submissions.
1067
.13
Multiemployer and multiple employer plans.
1068
### SECTION 11. APPLICATION PROCEDURES FOR VCP
.01
General rules.
1068
.02
Submission requirements.
1068
.03
Required documents.
1068
.04
Date VCP fee due generally.
1069
.05
Additional fee due earlier for 403(b) Plans, SEPs and SIMPLE IRA Plans, and Group Submissions.
1069
.06
Signed submission
1069
.07
Power of attorney requirements.
1069
.08
Penalty of perjury statement.
1069
.09
Checklist.
1069
.10
Designation.
1069
.11
VCP mailing address.
1069
.12
Maintenance of copies of submissions.
1069
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SECTION 12. VCP FEES
.01
VCP fees.
1069
.02
VCP fees for Qualified Plans and 403(b) Plans.
1069
.03
VCP fee for nonamenders.
1070
.04
VCP fee for Group Submission.
1070
.05
VCP fee for SEPs and SIMPLE IRA Plans.
1070
.06
VCP fee for egregious failures.
1070
.07
Establishing the number of plan participants.
1070
PART VI. CORRECTION ON AUDIT (AUDIT CAP)
SECTION 13. DESCRIPTION OF AUDIT CAP
.01
Audit CAP requirements.
1070
.02
Payment of sanction.
1070
.03
Additional requirements.
1070
04
Failure to reach resolution
1071
.05
Effect of closing agreement.
1071
.06
Other procedural rules.
1071
SECTION 14. AUDIT CAP SANCTION
.01
Determination of sanction.
1071
.02
Factors considered.
1071
.03
Transferred Assets.
1071
PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK REDUCTION ACT
SECTION 15. EFFECT ON OTHER DOCUMENTS
.01
Revenue procedure 2002-47 modified and superseded.
1071
SECTION 16. EFFECTIVE DATE.
1071
SECTION 17. PAPERWORK REDUCTION ACT.
1071
DRAFTING INFORMATION
APPENDIX A: OPERATIONAL FAILURES AND CORRECTION METHODS
.01
General rule
1072
02
Failure to properly provide the minimum top-heavy benefit under § 416 to non-key employees.
1072
.03
Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth in
§ 401(m)(2), or the multiple use test of § 401(m)(9).
1072
.04
Failure to distribute elective deferrals in excess of the § 402(g) limit
(in contravention of § 401(a)(30)).
1072
.05
Exclusion of an eligible employee from all contributions or accruals under the plan
for one or more plan years.
1072
.06
Failure to timely pay the minimum distribution required under § 401(a)(9).
1072
.07
Failure to obtain participant and/or spousal consent for a distribution subject to the participant and spousal consent rules under §§ 401(a)(11), 411(a)(11), and 417.
1072
.08
Failure to satisfy the § 415 limits in a defined contribution plan.
1073
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<!-- PageHeader="APPENDIX B: CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS AND EXAMPLES" -->
SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION REFERENCES
.01 Purpose.
1073
.02 Assumptions for Examples.
1073
.03 Section References.
1073
SECTION 2. CORRECTION METHODS AND EXAMPLES
.01 ADP/ACP Failures.
1073
.02 Exclusion of Eligible Employees.
1075
.03 Vesting Failures.
1078
.04 § 415 Failures.
1078
.05 Correction of Other Overpayment Failures.
1080
.06 § 401(a)(17) Failures.
1080
.07 Correction by Amendment.
1081
SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES
.01 Earnings Adjustment Methods.
1082
.02 Examples.
1083
APPENDIX C: VCP CHECKLIST.
1087
APPENDIX D: I. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN
1089
II. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN FAILURE TO AMEND TIMELY FOR TAX LEGISLATION
1091
### PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM
### SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose. This revenue procedure up-
dates the comprehensive system of correc-
tion programs for sponsors of retirement
plans that are intended to satisfy the re-
quirements of § 401(a), § 403(a), § 403(b),
§ 408(k), or § 408(p) of the Internal Rev-
enue Code (the "Code"), but that have not
met these requirements for a period of time.
This system, the Employee Plans Compli-
ance Resolution System ("EPCRS"), per-
mits plan sponsors to correct these fail-
ures 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 follow-
ing general principles:
· 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 ap-
plicable plan document requirements
of the Code.
· Sponsors and other administrators
should make voluntary and timely cor-
rection of any plan failures, whether
involving discrimination in favor of
highly compensated employees, plan
operations, the terms of the plan docu-
ment, or adoption of a plan by an in-
eligible employer. Timely and effi-
cient correction protects participating
employees by providing them with
their expected retirement benefits, in-
cluding favorable tax treatment.
· Voluntary compliance is promoted by
providing for limited fees for volun-
tary corrections approved by the Ser-
vice, thereby reducing employers' un-
certainty regarding their potential tax
liability and participants' potential tax
liability.
· Fees and sanctions should be gradu-
ated 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.
· Administration of EPCRS should be
consistent and uniform.
· Sponsors should be able to rely on the
availability of EPCRS in taking cor-
rective actions to maintain the tax-
favored status of their plans.
.03 Overview. EPCRS includes the fol-
lowing basic elements:
· Self-correction (SCP). A Plan Spon-
sor that has established compliance
practices and procedures may, at any
time without paying any fee or sanc-
tion, correct insignificant Operational
Failures under a Qualified Plan or a
403(b) Plan, or a SEP or a SIMPLE
IRA Plan, provided the SEP or
SIMPLE IRA Plan is established and
maintained on a document approved
by the Service. In addition, in the case
of a Qualified Plan that is the sub-
ject of a favorable determination let-
ter from the Service or in the case of
a 403(b) Plan, the Plan Sponsor gen-
erally may correct even significant
Operational Failures without pay-
ment of any fee or sanction.
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· Voluntary correction with Service ap-
proval (VCP). A Plan Sponsor, at any
time before audit, may pay a lim-
ited fee and receive the Service's ap-
proval for correction of a Qualified
Plan, 403(b) Plan, SEP or SIMPLE
IRA Plan. Under VCP, there are spe-
cial procedures for anonymous sub-
missions and group submissions.
· Correction on audit (Audit CAP). If
a failure (other than a failure cor-
rected through SCP or VCP) is iden-
tified on audit, the Plan Sponsor may
correct the failure and pay a sanc-
tion. The sanction imposed will bear
a reasonable relationship to the na-
ture, extent, and severity of the fail-
ure, taking into account the extent to
which correction occurred before au-
dit.
### SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS
.01 Effect on programs. This revenue
procedure modifies and supersedes Rev.
Proc. 2002-47, 2002-29 I.R.B. 133, which
was the prior consolidated statement of the
correction programs under EPCRS. A num-
ber of changes have been made to sim-
plify EPCRS and increase uniformity in the
administration process and fee structure. The
modifications to Rev. Proc. 2002-47 that
are reflected in this revenue procedure
include:
· consolidating all voluntary correc-
tion procedures into a single volun-
tary correction program (VCP) (sec-
tions 4.01(2), 10)
· providing a fixed fee schedule for all
VCP submissions (section 12)
· eliminating the Voluntary Correc-
tion of Operational Failures Standard-
ized procedure (VCS) (section 10)
· providing for a single time for pay-
ment of compliance fees for most
VCP submissions (sections 11.04,
11.05)
· expanding EPCRS to SIMPLE IRA
Plans (section 4.01)
· adding correction methods and re-
porting instructions for SEPs and
SIMPLE IRA Plans (section 6.10)
· simplifying the Group Submission pro-
cedure by eliminating the POA re-
quirement and revising the Group
Submission compliance fee (sections
10.12(3)(b), 12.04)
· eliminating the requirement that VCP
compliance fees be submitted by cer-
tified or cashier's check (sections
10.06, 11.05 and 12.01)
· expanding the Anonymous and Group
Submission procedures to all submis-
sions under VCP including SEPs and
SIMPLE IRA Plans (section 10.11,
10.12)
· providing rules relating to reporting
plan loan failures (section 6.07)
· providing guidance for EGTRRA
nonamenders (section 4.10)
· expanding the definition of Overpay-
ment (section 5.01(6))
· clarifying the special exception to full
correction for imprecise or unavail-
able data (section 6.02(5)(a))
· adding a correction method for a fail-
ure to obtain spousal consent (sec-
tion 6.04)
· clarifying that the correction of fail-
ures in a terminated plan may be
made under VCP whether or not the
trust is in existence (section 10.03)
· updating the definition of Favorable
Letter (section 5.01(4))
· revising the Form 5500 information
required for VCP submissions (sec-
tion 11.03)
· extending correction methods in Ap-
pendix A and Appendix B to 403(b)
Plans, SEPs and SIMPLE IRA Plans
(Appendix A, section .01 and Appen-
dix B, section 1.01)
· expanding the correction method for
early inclusion of an otherwise eli-
gible employee to include improper
inclusion due to the application of an
incorrect entry date (Appendix B, sec-
tion .07(3))
· eliminating the factor under Audit
CAP that referred to the VCP fees to
emphasize that the Maximum Pay-
ment Amount is the basis upon which
Audit CAP sanctions are negotiated
(section 14.02)
· adding a factor under Audit CAP con-
cerning the determination letter pro-
cess (section 14.02)
· adding Appendix D - sample for-
mats to assist Plan Sponsors in pre-
paring VCP submissions
.02 Future enhancements. (1) It is ex-
pected that the EPCRS revenue procedure
will continue to be updated on a periodic
basis, including, as noted above, further im-
provements to EPCRS based on comments
previously received. In addition, the Ser-
vice and Treasury continue to invite fur-
ther comments on how to improve EPCRS.
Comments should be sent to:
Internal Revenue Service
Attention: T:EP:RA:VC
1111 Constitution Avenue, NW
Washington, D.C. 20224
(2) The Service and Treasury are con-
sidering expanding the procedures under
EPCRS and are interested in receiving com-
ments regarding, among other things,
appropriate correction procedures for
failures arising under § 457(b) plans. Sub-
missions relating to § 457(b) eligible gov-
ernmental plans will be accepted by the Ser-
vice on a provisional basis outside of
EPCRS. Submissions relating to other
§ 457(b) eligible plans may be accepted out-
side EPCRS as Employee Plans develops
experience in the § 457 area. The Service
is also interested in receiving comments re-
garding appropriate correction procedures
for failures arising under Qualified Plans,
403(b) Plans and § 457(b) plans with
§ 408(q) "deemed IRA" provisions. Sub-
missions related to Qualified Plans, 403(b)
Plans and § 457(b) eligible governmental
plans with § 408(q) "deemed IRA" provi-
sions will be accepted by the Service on a
provisional basis outside of EPCRS.
(3) The Service and Treasury are evalu-
ating the availability of the correction pro-
cedures under EPCRS for any failures re-
lated to a plan's participation in a transaction
that is a reportable transaction under Treas.
Regs. § 1.6011-4(b). Until this evalua-
tion is completed, the Service reserves its
right to treat any such failures as ineli-
gible for EPCRS or to deal with any such
failures outside EPCRS.
### PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS;
RELIANCE
.01 Effect of EPCRS on Qualified Plans.
For a Qualified Plan, if the eligibility re-
quirements of section 4 are satisfied and the
Plan Sponsor corrects a Qualification Fail-
ure in accordance with the applicable re-
quirements of SCP in section 7, VCP in sec-
tions 10 and 11, or Audit CAP in section
13, the Service will not treat the Quali-
fied Plan as failing to meet § 401(a). Thus,
for example, if the Plan Sponsor corrects
the failures in accordance with the require-
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ments of this revenue procedure, the plan
will be treated as a qualified plan for pur-
poses of applying § 3121(a)(5) (FICA taxes)
and § 3306(b)(5) (FUTA taxes).
.02 Effect of EPCRS on 403(b) Plans. (1)
Income taxes. For a 403(b) Plan, if the ap-
plicable eligibility requirements of sec-
tion 4 are satisfied and the Plan Sponsor
corrects a failure in accordance with the ap-
plicable requirements of SCP in section 7,
VCP in sections 10 and 11, or Audit CAP
in section 13, the Service will not pursue
income inclusion for affected participants,
or liability for income tax withholding, on
account of the failure. However, the cor-
rection of a failure may result in income tax
consequences to participants and benefi-
ciaries (for example, participants may be re-
quired to include in gross income distri-
butions of Excess Amounts in the year of
distribution).
(2) Excise and employment taxes. Ex-
cise taxes, FICA taxes, and FUTA taxes
(and corresponding withholding obliga-
tions), if applicable, that result from a fail-
ure are not waived merely because the fail-
ure has been corrected.
.03 Effect of EPCRS on SEPs and
SIMPLE IRA Plans. If the eligibility re-
quirements of section 4 are satisfied and the
Plan Sponsor, as defined in section 5.01(7),
corrects a failure to satisfy the require-
ments of § 408(k) for a SEP or § 408(p)
for a SIMPLE IRA Plan in accordance with
the applicable requirements of SCP in sec-
tion 7 (but only if the failure is an insig-
nificant Operational Failure), VCP in sec-
tions 10 and 11, or Audit CAP in section
13, the Service will not treat the SEP or
SIMPLE IRA Plan as failing to meet
§ 408(k) or § 408(p), as applicable. Thus,
for example, if the Plan Sponsor corrects
the failures in accordance with the require-
ments of this revenue procedure, the SEP
will be treated as satisfying § 408(k) and
the SIMPLE IRA Plan will be treated as
satisfying § 408(p), for purposes of apply-
ing § 3121(a)(5) (FICA taxes) and
§ 3306(b)(5) (FUTA taxes).
.04 Compliance Statement. If a Plan
Sponsor or Eligible Organization receives
a compliance statement under VCP, the
compliance statement is binding upon the
Service and the Plan Sponsor or Eligible
Organization as provided in section 10.09.
.05 Other taxes and penalties. See sec-
tion 6.09 for rules relating to other taxes and
penalties.
.06 Reliance. Taxpayers may rely on this
revenue procedure, including the relief de-
scribed in sections 3.01, 3.02, and 3.03.
### SECTION 4. PROGRAM ELIGIBILITY
.01 EPCRS Programs. (1) SCP. SCP is
available only for Operational Failures.
Qualified Plans and 403(b) Plans are eli-
gible for SCP with respect to significant and
insignificant Operational Failures. SEPs and
SIMPLE IRA Plans are eligible for SCP
with respect to insignificant Operational
Failures only.
(2) VCP. Qualified Plans, 403(b) Plans,
SEPs and SIMPLE IRA Plans are eligible
for VCP. VCP provides general procedures
for correction of all Qualification Failures:
Operational, Plan Document, Demographic,
and Employer Eligibility.
(3) Audit CAP. Audit CAP is available
for Qualified Plans, 403(b) Plans, SEPs and
SIMPLE IRA Plans for correction of all
failures found on examination that have not
been corrected in accordance with SCP or
VCP.
(4) Eligibility for other arrangements.
The Service may extend EPCRS to other
arrangements.
.02 Effect of examination. If the plan or
Plan Sponsor is Under Examination, VCP
is not available. However, while the plan
or Plan Sponsor is Under Examination, in-
significant Operational Failures can be cor-
rected under SCP and, if correction has been
substantially completed before the plan or
Plan Sponsor is Under Examination, sig-
nificant Operational Failures can be cor-
rected under SCP.
.03 Favorable Letter requirement. The
provisions of SCP relating to significant Op-
erational Failures (see section 9) are avail-
able for a Qualified Plan only if the plan
is the subject of a Favorable Letter. The pro-
visions of SCP relating to insignificant Op-
erational Failures (see section 8) are avail-
able for a SEP but only if the plan
document consists of either (i) a valid
Model Form 5305-SEP or 5305A-SEP
adopted by an employer in accordance with
the instructions on the applicable form, or
(ii) a current favorable opinion letter for a
Plan Sponsor that has adopted a proto-
type SEP which has been amended in ac-
cordance with the procedures set forth in
Rev. Proc. 2002-10, 2002-4 I.R.B. 401. The
provisions of SCP relating to insignifi-
cant Operational Failures (see section 8) are
available for a SIMPLE IRA Plan but only
if the plan document consists of either (i)
a valid Model Form 5305-SIMPLE or
5304-SIMPLE adopted by an employer in
accordance with the instructions on the ap-
plicable form, or (ii) a current favorable
opinion letter for a Plan Sponsor that has
adopted a prototype SIMPLE which has
been amended in accordance with the pro-
cedures set forth in Rev. Proc. 2002-10,
2002-4 I.R.B. 401.
.04 Established practices and proce-
dures. In order to be eligible for SCP, the
Plan Sponsor or administrator of a plan
must have established practices and pro-
cedures (formal or informal) reasonably de-
signed to promote and facilitate overall
compliance with applicable Code require-
ments. For example, the plan administra-
tor 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 con-
tribution requirements of the top-heavy rules
are satisfied. A plan document alone does
not constitute evidence of established pro-
cedures. In order for a Plan Sponsor or ad-
ministrator to use SCP, these established
procedures must have been in place and
routinely followed, and an Operational Fail-
ure must have occurred through an over-
sight or mistake in applying them or be-
cause of an inadequacy in the procedures.
In the case of a failure that relates to Trans-
ferred Assets or to a plan assumed in con-
nection with a corporate merger, acquisi-
tion, or other similar employer transaction
between the Plan Sponsor and sponsor of
the transferor plan or the prior plan spon-
sor of an assumed plan, the plan is con-
sidered to have established practices and
procedures if such practices and proce-
dures are in effect by the end of the first
plan year that begins after the corporate
merger, acquisition, or other similar trans-
action.
.05 Correction by plan amendment. (1)
Availability of correction by plan amend-
ment in VCP. A Plan Sponsor may use VCP
for a Qualified Plan to correct an Opera-
tional Failure by a plan amendment to con-
form the terms of the plan to the plan's
prior operations, provided that the amend-
ment complies with the requirements of
§ 401(a), including the requirements of
§§ 401(a)(4), 410(b), and 411(d)(6).
(2) Certain correction by plan amend-
ment permitted in SCP. A Plan Sponsor may
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use SCP for a Qualified Plan to correct an
Operational Failure by a plan amendment
to conform the terms of the plan to the
plan's prior operations only to correct Op-
erational Failures listed in section 2.07 of
Appendix B. These failures must be cor-
rected in accordance with the correction
methods set forth in section 2.07 of Ap-
pendix B. The amendment must comply
with the requirements of § 401(a), includ-
ing the requirements of §§ 401(a)(4),
410(b), and 411(d)(6). SCP is not other-
wise available for a Plan Sponsor to cor-
rect an Operational Failure by a plan
amendment. Thus, if loans were made to
participants, but the plan document did not
permit loans to be made to participants, the
failure cannot be corrected under SCP by
retroactively amending the plan to pro-
vide for the loans. However, if a Plan Spon-
sor corrects an Operational Failure in ac-
cordance with SCP, it may amend the plan
to the extent necessary to reflect the cor-
rective action. For example, if the plan
failed to satisfy the average deferral per-
centage ("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. The issuance of
a compliance statement does not consti-
tute a determination as to the effect of any
plan amendment on the qualification of the
plan.
.06 Submission for a determination let-
ter. In any case in which correction of a
Qualification Failure includes correction of
a Plan Document Failure or Demographic
Failure, or an Operational Failure by plan
amendment, as permitted under section 4.05,
other than the adoption of an amendment
designated by the Service as a model
amendment or the adoption of a proto-
type or volume submitter plan for which the
Plan Sponsor has reliance on the plan's
opinion or advisory letter as provided in
Rev. Proc. 2003-6, 2003-1 I.R.B. 191, the
amendment must be submitted to the Ser-
vice for approval using the appropriate ap-
plication form (i.e., the Form 5300 series
or, if permitted, Form 6406) to ensure that
the amendment satisfies applicable quali-
fication requirements. In the case of a plan
amendment under SCP, as permitted un-
der section 4.05(2), the determination let-
ter application must be submitted before the
end of the SCP correction period in sec-
tion 9.02.
.07 Availability of correction of Em-
ployer Eligibility Failure. SCP and Group
Submissions under VCP are not available
for a Plan Sponsor to correct an Employer
Eligibility Failure.
.08 Egregious failures. SCP is not avail-
able to correct Operational Failures that are
egregious. For example, if an employer has
consistently and improperly covered only
highly compensated employees or if a con-
tribution to a defined contribution plan for
a highly compensated individual is sev-
eral times greater than the dollar limit set
forth in § 415, the failure would be con-
sidered egregious. VCP is available to cor-
rect egregious failures; however, these fail-
ures are subject to the fees described in
section 12.06.
.09 Diversion or misuse of plan assets.
SCP, VCP, and Audit CAP are not avail-
able to correct failures relating to the di-
version or misuse of plan assets.
.10 EGTRRA nonamenders. EPCRS is
available for correction of Qualified Plans
that have failed to adopt good faith plan
amendments for the Economic Growth and
Tax Relief Reconciliation Act of 2001, Pub.
L. 107-16 (EGTRRA) within the period de-
scribed in Notice 2001-42, 2001-2 C.B. 70.
In the case of a terminated Qualified Plan,
the VCP submission must include the
EGTRRA amendment(s) and Form 5310.
The Service will process the VCP submis-
sion and, when approved, issue a compli-
ance statement and determination letter on
the terminated plan. In the case of all other
EGTRRA good faith nonamenders, a Plan
Sponsor may submit under VCP to receive
a compliance statement. The Plan Spon-
sor must adopt EGTRRA good faith amend-
ment(s) within the time period set forth in
the compliance statement. If adopted, the
plan will not be treated as failing to adopt
the EGTRRA good faith amendment(s) in
a timely manner. Because the Service's de-
termination letter program has not opened
for EGTRRA amendments, a determina-
tion letter will not be issued as part of the
VCP submission. In addition, Plan Spon-
sors may have to amend the plan further
within the EGTRRA remedial amendment
period as provided in Notice 2001-42. Fail-
ure to amend, if required, will result in a
failure requiring a subsequent VCP sub-
mission.
PART III. DEFINITIONS,
CORRECTION PRINCIPLES, AND
RULES OF GENERAL
APPLICABILITY
## SECTION 5. DEFINITIONS
The following definitions apply for pur-
poses 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 "Quali-
fied Plan" means a plan intended to sat-
isfy 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 Qualifica-
tion Failures: (a) Plan Document Failures,
(b) Operational Failures, (c) Demographic
Failures, and (d) Employer Eligibility Fail-
ures.
(a) Plan Document Failure. The term
"Plan Document Failure" means a plan pro-
vision (or the absence of a plan provi-
sion) that, on its face, violates the require-
ments of § 401(a) or § 403(a). Thus, for
example, the failure of a plan to be
amended to reflect a new qualification re-
quirement within the plan's applicable re-
medial amendment period under § 401(b)
is a Plan Document Failure. In addition, if
a plan has not been timely or properly
amended during an applicable remedial
amendment period for adopting good faith
amendments for statutory changes as pro-
vided by the Service, but the plan is op-
erated as though the good faith amend-
ments were adopted, then for purposes of
EPCRS, the plan is considered to have a
Plan Document Failure. For purposes of this
revenue procedure, a Plan Document Fail-
ure includes any Qualification Failure that
is a violation of the requirements of
§ 401(a) or § 403(a) and that is not an Op-
erational Failure, Demographic Failure, or
Employer Eligibility Failure.
(b) Operational Failure. The term "Op-
erational Failure" means a Qualification
Failure (other than an Employer Eligibil-
ity Failure) that arises solely from the fail-
ure to follow plan provisions. A failure to
follow the terms of the plan providing for
the satisfaction of the requirements of
§ 401(k) and § 401(m) is considered to be
an Operational Failure. A plan does not have
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an Operational Failure to the extent the plan
is permitted to be amended retroactively
pursuant to § 401(b) or another statutory
provision to reflect the plan's operations.
However, if within an applicable reme-
dial amendment period under § 401(b), a
plan has been properly amended for statu-
tory or regulatory changes and, on or af-
ter the later of the date the amendment is
effective or is adopted, the amended pro-
visions are not followed, then the plan is
considered to have an Operational Fail-
ure.
(c) Demographic Failure. The term "De-
mographic Failure" means a failure to sat-
isfy the requirements of § 401(a)(4),
§ 401(a)(26), or § 410(b) that is not an Op-
erational Failure or an Employer Eligibil-
ity Failure. The correction of a Demo-
graphic Failure generally requires a
corrective amendment to the plan adding
more benefits or increasing existing ben-
efits (cf., § 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 § 401(a) by an em-
ployer that fails to meet the employer eli-
gibility requirements to establish a § 401(k)
plan. An Employer Eligibility Failure is not
a Plan Document, Operational, or Demo-
graphic Failure.
(3) Excess Amount. The term "Excess
Amount" means (a) an Overpayment, (b)
an elective deferral or employee after-tax
contribution returned to satisfy § 415, (c)
an elective deferral in excess of the limi-
tation of § 402(g) that is distributed, (d) an
excess contribution or excess aggregate con-
tribution that is distributed to satisfy
§ 401(k) or § 401(m), (e) an elective de-
ferral that is distributed to satisfy the limi-
tation of § 401(a)(17), or (f) any similar
amount that is required to be distributed in
order to maintain plan qualification.
(4) Favorable Letter. The term "Favor-
able Letter" means, in the case of a Quali-
fied Plan, a current favorable determina-
tion letter for an individually designed plan
(including a volume submitter plan that is
not identical to an approved volume sub-
mitter plan), a current favorable opinion let-
ter for a Plan Sponsor that has adopted a
master or prototype plan, (standardized or
nonstandardized), or a current favorable ad-
visory letter and certification that the Plan
Sponsor has adopted a plan that is identi-
cal to an approved volume submitter plan.
A plan has a current favorable determina-
tion letter, opinion letter, or advisory let-
ter if (a), (b), (c), (d), (e), (f), or (g) be-
low is satisfied:
(a) The plan has a favorable determi-
nation letter, opinion letter, or advisory
letter/certification that considers GUST
(GUST is an acronym for the Uruguay
Round Agreements Act (GATT), the Uni-
formed Services Employment and Reem-
ployment Rights Act of 1994 (USERRA),
the Small Business Job Protection Act of
1996 (SBJPA), the Taxpayer Relief Act of
1997 (TRA '97), the Internal Revenue Ser-
vice Restructuring and Reform Act of 1998
(RRA '98), and the Community Renewal
Tax Relief Act of 2000 (CRA).)
(b) The plan has a favorable determi-
nation letter that considers GUST, exclud-
ing CRA, and the Plan Sponsor has by the
latest of (i) the end of the first plan year be-
ginning on or after January 1, 2002, (ii) the
end of the plan's GUST remedial amend-
ment period, or (iii) June 30, 2003, amended
the plan to comply with CRA.
(c) The plan either has a favorable de-
termination letter, opinion letter, or notifi-
cation letter for a regional prototype plan
that considers the Tax Reform Act of 1986
("TRA '86") or was initially adopted or ef-
fective after December 7, 1994, and the
Plan Sponsor has by the later of February
28, 2002, or the last day of the first plan
year beginning on or after January 1, 2001,
either, (i) submitted an application for a de-
termination letter on GUST, or, (ii) has
adopted or certified that it intends to adopt
a master or prototype plan or volume sub-
mitter plan, that was submitted for a GUST
opinion letter or advisory letter by Decem-
ber 31, 2000, and does adopt a master or
prototype plan or volume submitter plan in
accordance with the procedures set forth in
Rev. Proc. 2002-73, 2002-49 I.R.B. 932.
(d) The plan has a favorable determi-
nation letter that considers the Tax Re-
form Act of 1986 ("TRA '86") or was ini-
tially adopted or effective after December
7, 1994, and the plan is a plan directly af-
fected by the September 11, 2001, terror-
ist attack on the United States, (see Rev.
Proc. 2001-55, 2001-2 C.B. 552) and the
Plan Sponsor has by June 30, 2002, sub-
mitted an application for a determination let-
ter request for GUST.
(e) The plan was timely amended for
TRA '86, the Unemployment Compensa-
tion Act of 1992 ("UCA"), and the Omni-
bus Budget and Reconciliation Act of 1993
("OBRA '93") and the Plan Sponsor has
submitted an application for a determina-
tion letter on GUST by September 3, 2002,
in accordance with the procedures set forth
in Rev. Proc. 2002-35, 2002-24 I.R.B.
1187.
(f) The plan is initially adopted or ef-
fective after February 28, 2002, and the Plan
Sponsor timely submits an application for
a determination letter or they adopt an ap-
proved master or prototype plan or vol-
ume submitter plan within the plan's re-
medial amendment period under § 401(b).
(g) The plan is terminated prior to the
expiration of the applicable GUST reme-
dial amendment period under § 401(b) and
the plan was amended to reflect the pro-
visions of GUST.
(5) Maximum Payment Amount. The
term "Maximum Payment Amount" means
a monetary amount that is approximately
equal to the tax the Service could collect
upon plan disqualification and is the sum
for the open taxable years of the:
(a) tax on the trust (Form 1041),
(b) additional income tax resulting from
the loss of employer deductions for plan
contributions (and any interest or penal-
ties applicable to the Plan Sponsor's re-
turn), and
(c) additional income tax resulting from
income inclusion for participants in the plan
(Form 1040).
(6) Overpayment. The term "Overpay-
ment" means a distribution to an employee
or beneficiary that exceeds the employ-
ee's or beneficiary's benefit under the terms
of the plan, including a distribution that re-
sults from a failure to comply with plan
terms that implement § 401(a)(17),
§ 401(m) (but only with respect to the for-
feiture of nonvested matching contribu-
tions that are excess aggregate contribu-
tions), § 411(a)(3)(G), or § 415. An
Overpayment does not include a distribu-
tion of any Excess Amount described in
section 5.01(3)(b) through (f).
(7) Plan Sponsor. The term "Plan Spon-
sor" means the employer that establishes or
maintains a qualified retirement plan for its
employees.
(8) Transferred Assets. The term "Trans-
ferred Assets" means plan assets that were
received, in connection with a corporate
merger, acquisition or other similar em-
ployer transaction, by the plan in a trans-
fer (including a merger or consolidation of
2003-25 I.R.B.
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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 prior to the corporate merger,
acquisition, or other similar employer trans-
action. If a transfer of plan assets related
to the same employer transaction is ac-
complished through several transfers, then
the date of the transfer is the date of the first
transfer.
.02 Definitions for 403(b) Plans. The
definitions in this section 5.02 apply to
403(b) Plans.
(1) 403(b) Plan. The term "403(b) Plan"
means a plan or program intended to sat-
isfy the requirements of § 403(b).
(2) 403(b) Failure. A 403(b) Failure is
any Operational, Demographic, or Em-
ployer Eligibility Failure as defined be-
low.
(a) Operational Failure. The term "Op-
erational Failure" means any of the
following:
(i) A failure to satisfy the requirements
of § 403(b)(12)(A)(ii) (relating to the avail-
ability of salary reduction contributions);
(ii) A failure to satisfy the requirements
of § 401(m) (as applied to 403(b) Plans pur-
suant to § 403(b)(12)(A)(i));
(iii) A failure to satisfy the require-
ments of § 401(a)(17) (as applied to 403(b)
Plans pursuant to § 403(b)(12)(A)(i));
(iv) A failure to satisfy the distribu-
tion restrictions of § 403(b)(7) or
§ 403(b)(11);
(v) A failure to satisfy the incidental
death benefit rules of § 403(b)(10);
(vi) A failure to pay minimum required
distributions under § 403(b)(10);
(vii) A failure to give employees the
right to elect a direct rollover under
§ 403(b)(10), including the failure to give
meaningful notice of such right;
(viii) A failure of the annuity contract
or custodial agreement to provide partici-
pants with a right to elect a direct roll-
over under §§ 403(b)(10) and 401(a)(31);
(ix) A failure to satisfy the limit on elec-
tive deferrals under § 403(b)(1)(E);
(x) A failure of the annuity contract or
custodial agreement to provide the limit on
elective deferrals under §§ 403(b)(1)(E) and
401(a)(30);
(xi) A failure involving contributions or
allocations of Excess Amounts; or
(xii) Any other failure to satisfy appli-
cable requirements under § 403(b) that (A)
results in the loss of § 403(b) status for the
plan or the loss of § 403(b) status for one
or more custodial account(s) or annuity con-
tract(s) under the plan and (B) is not a De-
mographic Failure, an Employer Eligibil-
ity Failure, or a failure related to
contributions on behalf of individuals who
are not employees of the employer.
(b) 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)).
(c) Employer Eligibility Failure. The
term "Employer Eligibility Failure" means
any of the following:
(i) The adoption of a plan intended to
satisfy the requirements of § 403(b) by an
employer that is not a tax-exempt organi-
zation described in § 501(c)(3) or a pub-
lic educational organization described in
§ 170(b)(1)(A)(ii);
(ii) A failure to satisfy the nontransfer-
ability requirement of § 401(g);
(iii) A failure to initially establish or
maintain a custodial account as required by
§ 403(b)(7); or
(iv) A failure to purchase (initially or
subsequently) either an annuity contract
from an insurance company (unless grand-
fathered under Rev. Rul. 82-102, 1982-1
C.B. 62) or a custodial account from a regu-
lated investment company utilizing a bank
or an approved non-bank trustee/custodian.
(3) Excess Amount. The term "Excess
Amount" means any contributions or allo-
cations that are in excess of the limits un-
der § 415 for the year (and for years prior
to 1/1/02, the § 403(b)(2) exclusion allow-
ance limit for the year).
(4) Plan Sponsor. The term "Plan Spon-
sor" means the employer that offers a
403(b) Plan to its employees.
(5) Total Sanction Amount. The term
"Total Sanction Amount" means a mon-
etary amount that is approximately equal to
the income tax the Service could collect as
a result of the failure.
.03 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 se-
ries or other Employee Plans examina-
tion), or (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).
(2) A plan that is under an Employee
Plans examination includes any plan for
which the Plan Sponsor, or a representa-
tive, has received verbal or written notifi-
cation from Employee Plans of an impend-
ing 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 exami-
nation and is now in Appeals or in litiga-
tion for issues raised in an Employee Plans
examination. A plan is considered to be Un-
der Examination if it is aggregated for pur-
poses of satisfying the nondiscrimination re-
quirements of § 401(a)(4), the minimum
participation requirements of § 401(a)(26),
the minimum coverage requirements
of § 410(b), or the requirements of
§ 403(b)(12), with a plan(s) that is Under
Examination. In addition, a plan is consid-
ered to be Under Examination with re-
spect to a failure of a qualification require-
ment (other than those described in the
preceding sentence) if the plan is aggre-
gated with another plan for purposes of sat-
isfying that qualification requirement (for
example, § 402(g), § 415, or § 416) and that
other plan is Under Examination. For ex-
ample, assume Plan A has a § 415 fail-
ure, Plan A is aggregated with Plan B only
for purposes of § 415, and Plan B is Un-
der Examination. In this case, Plan A is con-
sidered to be Under Examination with re-
spect to the § 415 failure. However, if Plan
A has a failure relating to the spousal con-
sent rules under § 417 or the vesting rules
of § 411, Plan A is not considered to be Un-
der Examination with respect to the § 417
or § 411 failure. For purposes of this rev-
enue procedure, the term aggregation does
not include consideration of benefits pro-
vided 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 series form and
the Employee Plans agent notifies the Plan
Sponsor, or a representative, of possible
Qualification Failures, whether or not the
Plan Sponsor is officially notified of an "ex-
amination." This would include a case
where, for example, a Plan Sponsor has ap-
plied for a determination letter on plan ter-
mination, and an Employee Plans agent no-
tifies the Plan Sponsor that there are partial
termination concerns. In addition, if, dur-
ing the review process, the agent requests
additional information that indicates the ex-
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istence of a Qualification Failure(s) not pre-
viously identified by the Plan Sponsor, the
plan is considered under an Employee Plans
examination. The fact that a Plan Spon-
sor voluntarily submits a determination let-
ter application does not constitute a vol-
untary identification of Qualification
Failures to the Service. In order to be eli-
gible to perfect a determination letter ap-
plication into a VCP submission, the Plan
Sponsor (or the authorized representative)
must identify each Qualification Failure, in
writing, to the reviewing agent before the
agent recognizes the existence of the Quali-
fication Failure(s) and/or addresses the
Qualification Failure(s) in communica-
tions with the Plan Sponsor (or the autho-
rized representative).
(4) A Plan Sponsor that is under an Ex-
empt Organizations examination includes
any Plan Sponsor that has received (or
whose representative has received) verbal
or written notification from Exempt Orga-
nizations of an impending Exempt Orga-
nizations examination or of an impending
referral for an Exempt Organizations ex-
amination and also includes any Plan Spon-
sor that has been under an Exempt Orga-
nizations examination and is now in Appeals
or in litigation for issues raised in an Ex-
empt Organizations examination.
.04 SEP. The term "SEP" means a plan
intended to satisfy the requirements of
§ 408(k). For purposes of this revenue pro-
cedure, the term SEP also includes a sal-
ary reduction SEP ("SARSEP") described
in § 408(k)(6), when applicable.
.05 SIMPLE IRA Plan. The term
"SIMPLE IRA Plan" means a plan intended
to satisfy the requirements of § 408(p).
## SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY
.01 Correction principles; rules of gen-
eral applicability. The general correction
principles in section 6.02 and rules of gen-
eral applicability in sections 6.03 through
6.12 apply for purposes of this revenue pro-
cedure.
.02 Correction principles. Generally, a
failure is not corrected unless full correc-
tion is made with respect to all partici-
pants and beneficiaries, and for all tax-
able years (whether or not the taxable year
is closed). Even if correction is made for
a closed taxable year, the tax liability as-
sociated with that year will not be redeter-
mined because of the correction. In the case
of a Qualified Plan, a SEP or a SIMPLE
IRA Plan with an Operational Failure, cor-
rection is determined taking into account the
terms of the plan at the time of the fail-
ure. Correction should be accomplished tak-
ing into account the following principles:
(1) Restoration of benefits. The correc-
tion method should restore the plan to the
position it would have been in had the fail-
ure not occurred, including restoration of
current and former participants and ben-
eficiaries to the benefits and rights they
would have had if the failure had not oc-
curred.
(2) Reasonable and appropriate correc-
tion. The correction should be reasonable
and appropriate for the failure. Depend-
ing on the nature of the failure, there may
be more than one reasonable and appro-
priate correction for the failure. For Quali-
fied Plans, any correction method permit-
ted under Appendix A or Appendix B is
deemed to be a reasonable and appropri-
ate method of correcting the related Quali-
fication Failure. Any correction method per-
mitted under Appendix A or Appendix B
applicable to a 403(b) Plan, a SEP, or a
SIMPLE IRA Plan is deemed to be a rea-
sonable and appropriate method of correct-
ing the related failure. Whether any other
particular correction method is reason-
able and appropriate is determined taking
into account the applicable facts and cir-
cumstances and the following principles:
(a) The correction method should, to the
extent possible, resemble one already pro-
vided for in the Code, regulations there-
under, or other guidance of general appli-
cability. For example, for Qualified Plans,
the defined contribution plan correction
methods set forth in § 1.415-6(b)(6) would
be the typical means of correcting a fail-
ure under § 415. Likewise, 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 for failures re-
lating to nondiscrimination should pro-
vide 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 provi-
sions 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 nondis-
crimination requirements. Similarly, the cor-
rection of a failure to satisfy the require-
ments of § 401(k)(3), § 401(m)(2), or
§ 401(m)(9) (relating to nondiscrimina-
tion), solely by distributing excess amounts
to highly compensated employees would not
be the typical means of correcting such a
failure.
(c) The correction method should keep
plan assets in the plan, except to the ex-
tent the Code, regulations, or other guid-
ance of general applicability provide for cor-
rection by distribution to participants or
beneficiaries or return of assets to the em-
ployer or Plan Sponsor. 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 (other
than a cash or deferred arrangement), the
excess should be reallocated to other par-
ticipants or, depending on the facts and cir-
cumstances, used to reduce future employer
contributions.
(d) The correction method should not
violate another applicable specific require-
ment 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. If an ad-
ditional failure is created as a result of the
use of a correction method in this rev-
enue 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 pro-
cedure.
(3) Consistency Requirement. Gener-
ally, where more than one correction
method is available to correct a type of Op-
erational Failure for a plan year (or where
there are alternative ways to apply a cor-
rection method), the correction method (or
one of the alternative ways to apply the cor-
rection method) should be applied consis-
tently in correcting all Operational Fail-
ures of that type for that plan year.
Similarly, earnings adjustment methods gen-
erally should be applied consistently with
respect to corrective contributions or allo-
cations for a particular type of Operational
Failure for a plan year. In the case of a
Group Submission, the consistency require-
ment applies on a plan by plan basis.
(4) Principles regarding corrective al-
locations and corrective distributions. The
following principles apply where an ap-
propriate correction method includes the use
of corrective allocations or corrective
distributions:
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(a) Corrective allocations under a de-
fined contribution plan should be based
upon the terms of the plan and other ap-
plicable information at the time of the fail-
ure (including the compensation that would
have been used under the plan for the pe-
riod with respect to which a corrective al-
location is being made) and should be ad-
justed for earnings (including losses) and
forfeitures that would have been allocated
to the participant's account if the failure had
not occurred. The corrective allocation need
not be adjusted for losses. See section 3 of
Appendix B for additional information on
calculation of earnings for corrective allo-
cations.
(b) A corrective allocation to a partici-
pant's account because of a failure to make
a required allocation in a prior limitation
year will not be considered an annual ad-
dition with respect to the participant for the
limitation year in which the correction is
made, but will be considered an annual ad-
dition for the limitation year to which the
corrective allocation relates. However, the
normal rules of § 404, regarding deduc-
tions, apply.
(c) Corrective allocations should come
only from employer contributions (includ-
ing forfeitures if the plan permits their use
to reduce employer contributions).
(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, consistent with the plan's
actuarial adjustments.
(5) Special exceptions to full correc-
tion. In general, a failure must be fully cor-
rected. Although the mere fact that correc-
tion is inconvenient or burdensome is not
enough to relieve a Plan Sponsor of the
need to make full correction, full correc-
tion may not be required in certain situa-
tions because it is unreasonable or not fea-
sible. Even in these situations, the correction
method adopted must be one that does not
have significant adverse effects on partici-
pants and beneficiaries or the plan, and that
does not discriminate significantly in fa-
vor of highly compensated employees. The
exceptions described below specify those
situations in which full correction is not re-
quired.
(a) Reasonable estimates. If either, (i) it
is possible to make a precise calculation but
the probable difference between the ap-
proximate and the precise restoration of a
participant's benefits is insignificant and the
administrative cost of determining pre-
cise restoration would significantly ex-
ceed the probable difference or (ii) it is not
possible to make a precise calculation (for
example, where it is impossible to pro-
vide plan data), reasonable estimates may
be used in calculating appropriate correc-
tion.
(b) Delivery of small benefits. If the to-
tal corrective distribution due a partici-
pant or beneficiary is $50 or less, the Plan
Sponsor is not required to make the cor-
rective distribution if the reasonable di-
rect costs of processing and delivering the
distribution to the participant or benefi-
ciary would exceed the amount of the dis-
tribution.
(c) Recovery of small Overpayments.
Generally, for a submission under VCP, if
the total amount of an Overpayment made
to a participant or beneficiary is $100 or
less, the Plan Sponsor is not required to
seek the return of the Overpayment from
the participant or beneficiary, but is re-
quired to notify the participant or benefi-
ciary that the Overpayment is not eligible
for favorable tax treatment accorded to dis-
tributions from Qualified Plans (and, spe-
cifically, is not eligible for tax-free roll-
over). See section 6.06(1) for such notice
requirements.
(d) Locating lost participants. Reason-
able actions must be taken to find all cur-
rent and former participants and beneficia-
ries to whom additional benefits are due,
but who have not been located after a mail-
ing to the last known address. In general,
such actions include use of the Internal Rev-
enue Service Letter Forwarding Program
(see Rev. Proc. 94-22, 1994-1 C.B. 608)
or the Social Security Administration Em-
ployer Reporting Service. A plan will not
be considered to have failed to correct a
failure due to the inability to locate an in-
dividual if either of these programs is used;
provided that, if the individual is later lo-
cated, the additional benefits must be pro-
vided to the individual at that time.
(6) Reporting. Any distributions from the
plan should be properly reported.
.03 Correction of an Employer Eligibil-
ity Failure. (1) The permitted correction of
an Employer Eligibility Failure is the ces-
sation of all contributions (including sal-
ary reduction and after-tax contributions) be-
ginning no later than the date the application
under VCP is filed. Pursuant to VCP cor-
rection, the assets in such a plan are to re-
main in the trust, annuity contract, or cus-
todial account and are to be distributed no
earlier than the occurrence of one of the ap-
plicable distribution events, e.g., for 403(b)
Plans, the events described in § 403(b)(7)
(to the extent the assets are held in custo-
dial accounts) or § 403(b)(11) (for those as-
sets invested in annuity contracts that would
be subject to § 403(b)(11) restrictions if the
employer were eligible). A Plan that is cor-
rected through VCP will be treated as sub-
ject to all of the requirements and provi-
sions 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 roll-
overs).
(2) Cessation of contributions is not re-
quired if continuation of contributions would
not be an Employer Eligibility Failure (for
example, with respect to a tax-exempt em-
ployer that may maintain a § 401(k) plan
after 1996).
(3) Because a plan with an Employer
Eligibility Failure will be treated as sub-
ject to all of the applicable Code qualifi-
cation requirements, the Plan Sponsor must
also correct all other failures in accor-
dance with this revenue procedure.
.04 Correction of a failure to obtain
spousal consent. Normally, the correction
method under VCP for a failure to obtain
spousal consent for a distribution subject to
the spousal consent rules under
§§ 401(a)(11) and 417 is similar to the cor-
rection method described in Appendix A .07.
The Plan Sponsor must notify the affected
participant and spouse (to whom the par-
ticipant was married at the time of the dis-
tribution) so that the spouse can provide
spousal consent to the distribution actu-
ally made or the participant may repay the
distribution and receive a qualified joint and
survivor annuity. In the event that spou-
sal consent to the prior distribution can-
not be obtained because the spouse re-
fuses to consent, does not respond to the
notice provided or because the spouse can-
not be located, the spouse is entitled to a
benefit under the plan equal to the por-
tion of the qualified joint and survivor an-
nuity 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 his or her retirement. Such spousal ben-
efit must be provided if a claim is made by
the spouse.
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.05 Correction by plan amendment. In
a case in which correction of a Qualifica-
tion Failure includes correction of a Plan
Document Failure or Demographic Fail-
ure, or an Operational Failure by plan
amendment, as permitted under section 4.05,
other than the adoption of an amendment
designated by the Service as a model
amendment or the adoption of a proto-
type or volume submitter plan for which the
Plan Sponsor has reliance on the plan's
opinion or advisory letter as provided in
Rev. Proc. 2003-6, 2003-1 I.R.B. 191, the
amendment must be submitted to the Ser-
vice (see section 11.11 for the VCP mail-
ing address) for approval under the appro-
priate application form (i.e., Form 5300
series or Form 6406) to ensure that the
amendment satisfies applicable qualifica-
tion requirements.
.06 Special rules relating to Excess
Amounts. (1) Treatment of Excess Amounts
under Qualified Plans. A distribution of an
Excess Amount is not eligible for the fa-
vorable tax treatment accorded to distribu-
tions from Qualified Plans (such as eligi-
bility for rollover under § 402(c)). To the
extent that a current or prior distribution was
a distribution of an Excess Amount, dis-
tribution of that Excess Amount is not an
eligible rollover distribution. Thus, for ex-
ample, if such a distribution was contrib-
uted to an individual retirement arrange-
ment ("IRA"), the contribution is not a valid
rollover contribution for purposes of de-
termining the amount of excess contribu-
tions (within the meaning of § 4973) to the
individual's IRA. A distribution of an Ex-
cess Amount is generally treated in the man-
ner described in section 3 of Rev. Proc. 92-
93, 1992-2 C.B. 505, relating to the
corrective disbursement of elective defer-
rals. The distribution must be reported on
Forms 1099-R for the year of distribu-
tion with respect to each participant or ben-
eficiary receiving such a distribution. Where
an Excess Amount has been or is being dis-
tributed, the Plan Sponsor must notify the
recipient that (a) an Excess Amount has
been or will be distributed and (b) an Ex-
cess Amount is not eligible for favorable
tax treatment accorded to distributions from
Qualified Plans (and, specifically, is not eli-
gible for tax-free rollover).
(2) Treatment of Excess Amounts un-
der 403(b) Plans. (a) Distribution of Ex-
cess Amounts. Excess Amounts for a year,
adjusted for earnings through the date of
distribution, must be distributed to affected
participants and beneficiaries and are in-
cludible in their gross income in the year
of distribution. The distribution of Excess
Amounts is not an eligible rollover distri-
bution within the meaning of § 403(b)(8).
A distribution of Excess Amounts is gen-
erally treated in the manner described in
section 3 of Rev. Proc. 92-93 relating to the
corrective disbursement of elective defer-
rals. The distribution must be reported on
Forms 1099-R for the year of distribu-
tion with respect to each participant or ben-
eficiary receiving such a distribution. In ad-
dition, the Plan Sponsor must inform
affected participants and beneficiaries that
the distribution of Excess Amounts is not
eligible for rollover.
(b) Retention of Excess Amounts. If ei-
ther the employer or the funding agent is
unable to make a correcting distribution, Ex-
cess Amounts will be treated as corrected
(even though the Excess Amounts are re-
tained in the 403(b) Plan) if the follow-
ing requirements are satisfied. Excess
Amounts arising from a § 415 failure, ad-
justed for earnings through the date of cor-
rection, must reduce affected participants'
applicable § 415 limit for the year follow-
ing the year of correction (or for the year
of correction if the Plan Sponsor so
chooses), and subsequent years, until the ex-
cess is eliminated. See section 12.02(2).
.07 Special rules relating to reporting
plan loan failures. As part of VCP, in the
event of a failure relating to a loan to a par-
ticipant made from a Qualified Plan or a
403(b) Plan that is treated as received as a
distribution for purposes of § 72(p) (a
deemed distribution), the distribution may
be reported on Form 1099-R for the year
of correction with respect to the affected
participant.
.08 Correction under statute or regula-
tions. Generally, none of the correction pro-
grams are available to correct failures that
can be corrected under the Code and re-
lated regulations. For example, as a gen-
eral rule, a Plan Document Failure that is
a disqualifying provision for which the re-
medial amendment period under § 401(b)
has not expired can be corrected by opera-
tion of the Code through retroactive reme-
dial amendment.
.09 Matters subject to excise taxes. (1)
Except as provided in paragraph (3) of this
subsection, excise taxes and additional taxes,
to the extent applicable, are not waived
merely because the underlying failure has
been corrected or because the taxes result
from the correction. Thus, for example, the
excise tax on certain excess contributions
under § 4979 is not waived under these cor-
rection programs.
(2) Except as provided in paragraph (3)
of this section, the correction programs are
not available for events for which the Code
provides tax consequences other than plan
disqualification (such as the imposition of
an excise tax or additional income tax). For
example, funding deficiencies (failures to
make the required contributions to a plan
subject to § 412), prohibited transactions,
and failures to file the Form 5500 cannot
be corrected under the correction programs.
However, if the event is also an Opera-
tional Failure (for example, if the terms of
the plan document relating to plan loans to
participants were not followed and loans
made under the plan did not satisfy
§ 72(p)(2)), the correction programs will be
available to correct the Operational Fail-
ure, even though the excise or income taxes
generally still will apply.
(3) As part of VCP, if the failure in-
volves the failure to satisfy the minimum
required distribution requirements of
§ 401(a)(9), in appropriate cases, the Ser-
vice will waive the excise tax under § 4974
applicable to plan participants. The waiver
will be included in the compliance state-
ment. The Plan Sponsor, as part of the sub-
mission, must request the waiver and in
cases where the participant subject to the
excise tax is an owner-employee, as de-
fined in § 401(c)(3), or a 10 percent owner
of a corporation, the Plan Sponsor must also
provide an explanation supporting the re-
quest.
.10 Correction for SEPs and SIMPLE
IRA Plans. (1) Correction for SEPs and
SIMPLE IRA Plans generally. Generally, the
correction for a SEP or a SIMPLE IRA Plan
is expected to be similar to the correction
required for a Qualified Plan with a simi-
lar Qualification Failure (i.e., Plan Docu-
ment Failure, Operational Failure, Demo-
graphic Failure, and Employer Eligibility
Failure).
(2) Special correction for SEPs and
SIMPLE IRA Plans. In any case in which
correction under section 6.10(1) is not fea-
sible for a SEP or SIMPLE IRA Plan or in
any other case determined by the Service
in its discretion (including failures relat-
ing to §§ 402(g), 415, and 401(a)(17), fail-
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ures relating to deferral percentages, dis-
continuance of contributions to a SARSEP
or SIMPLE IRA Plan, and retention of Ex-
cess Amounts for cases in which there has
been no violation of a statutory limita-
tion), the Service may provide for a dif-
ferent correction. See section 12.05(2) for
a special fee that may apply in such a case.
(3) Correction of failure to satisfy de-
ferral percentage test. If the failure in-
volves a violation of the deferral percent-
age test under § 408(k)(6)(A)(iii) applicable
to a SARSEP, there are several methods to
correct the failure. This failure may be cor-
rected in one of the following ways:
(a) The Plan Sponsor may make con-
tributions that are 100% vested to all eli-
gible nonhighly compensated employees (to
the extent permitted by § 415) necessary to
raise the deferral percentage needed to pass
the test. This amount may be calculated as
either the same percentage of compensa-
tion or the same flat dollar amount (re-
gardless of the terms of the SEP).
(b) The Plan Sponsor may effect distri-
bution of excess contributions, adjusted for
earnings through the date of correction, to
highly compensated employees to correct
the failure. The Plan Sponsor must also con-
tribute to the SEP an amount equal to the
total amount distributed. This amount must
be allocated to (i) current employees who
were nonhighly compensated employees in
the year of the failure, (ii) current non-
highly compensated employees who were
nonhighly compensated employees in the
year of the failure, or (iii) employees (both
current and former) who were nonhighly
compensated employees in the year of the
failure.
(4) Treatment of undercontributions to
a SEP or a SIMPLE IRA Plan. (a) Make-up
contributions; earnings. The Plan Spon-
sor should correct undercontributions to a
SEP or a SIMPLE IRA Plan by contribut-
ing make-up amounts that are fully vested,
adjusted for earnings credited from the date
of the failure to the date of correction.
(b) Earnings adjustment methods. (i) The
earnings rate generally is based on the in-
vestment results that would have applied to
the corrective contribution if the failure had
not occurred.
(ii) Insofar as SEP and SIMPLE IRA
Plan assets are held in IRAs, there is no
earnings rate under the SEP or SIMPLE
IRA Plan as a whole. If the Plan Sponsor
is unable to determine what the actual in-
vestment results would have been, a rea-
sonable interest rate may be used.
(5) Treatment of Excess Amounts un-
der a SEP or a SIMPLE IRA Plan. (a) Dis-
tribution of Excess Amounts. For purposes
of section 6.10, an Excess Amount is an
amount contributed on behalf of an em-
ployee that is in excess of an employee's
benefit under the plan, or an elective de-
ferral in excess of the limitations of
§§ 402(g) or 408(k)(6)(A)(iii). If an Ex-
cess Amount is attributable to elective de-
ferrals, the Plan Sponsor may effect dis-
tribution of the Excess Amount, adjusted for
earnings through the date of correction, to
the affected participant. The amount dis-
tributed to the affected participant is in-
cludible in gross income in the year of dis-
tribution. The distribution is reported on
Form 1099-R for the year of distribution
with respect to each participant receiving
the distribution. In addition, the Plan Spon-
sor must inform affected participants that
the distribution of an Excess Amount is not
eligible for favorable tax treatment ac-
corded to distributions from a SEP or a
SIMPLE IRA Plan (and, specifically, is not
eligible for tax-free rollover). If the Ex-
cess Amount is attributable to employer
contributions, the Plan Sponsor may ef-
fect distribution of the employer Excess
Amount, adjusted for earnings through the
date of correction, to the Plan Sponsor. The
amount distributed to the Plan Sponsor is
not includible in the gross income of the af-
fected participant. The Plan Sponsor is not
entitled to a deduction for such employer
Excess Amount. The distribution is re-
ported on Form 1099-R issued to the par-
ticipant indicating the taxable amount as
zero.
(b) Retention of Excess Amounts. If an
Excess Amount is retained in the SEP or
SIMPLE IRA Plan under section 6.10(5),
a special fee, in addition to the VCP sub-
mission fee, will apply. See section 12.05(2)
for the special fee. The Plan Sponsor is not
entitled to a deduction for an Excess
Amount retained in the SEP or SIMPLE
IRA Plan. In the case of an Excess Amount
retained in a SEP that is attributable to a
§ 415 failure, the Excess Amount, adjusted
for earnings through the date of correc-
tion, must reduce affected participants' ap-
plicable § 415 limit for the year follow-
ing the year of correction (or for the year
of correction if the Plan Sponsor so
chooses), and subsequent years, until the ex-
cess is eliminated.
(c) De minimis Excess Amounts. If the
total Excess Amount in a SEP or SIMPLE
IRA Plan, whether attributable to elective
deferrals or employer contributions, is $100
or less, the Plan Sponsor is not required to
distribute the Excess Amount and the spe-
cial fee described in section 12.05(2) will
not apply.
.11 Confidentiality and disclosure. Be-
cause each correction program relates di-
rectly to the enforcement of the Code quali-
fication requirements, the information
received or generated by the Service un-
der the program is subject to the confiden-
tiality requirements of § 6103 and is not a
written determination within the meaning
of § 6110.
.12 No effect on other law. Correction
under these programs has no effect on the
rights of any party under any other law, in-
cluding Title I of the Employee Retire-
ment Income Security Act of 1974
("ERISA").
## PART IV. SELF-CORRECTION (SCP)
### SECTION 7. IN GENERAL
The requirements of this section 7 are
satisfied with respect to an Operational Fail-
ure if the Plan Sponsor of a Qualified Plan,
a 403(b) Plan, a SEP, or a SIMPLE IRA
Plan satisfies the requirements of section 8
(relating to insignificant Operational Fail-
ures) or, in the case of a Qualified Plan or
a 403(b) Plan, section 9 (relating to sig-
nificant Operational Failures).
### SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES
.01 Requirements. The requirements of
this section 8 are satisfied with respect to
an Operational Failure if the Operational
Failure is corrected and, given all the facts
and circumstances, the Operational Fail-
ure is insignificant. This section 8 is avail-
able for correcting an insignificant Opera-
tional Failure even if the plan or Plan
Sponsor is Under Examination and even if
the Operational Failure is discovered by an
agent on examination.
.02 Factors. The factors to be consid-
ered in determining whether or not an Op-
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erational Failure under a plan is insignifi-
cant include, but are not limited to: (1)
whether other failures occurred during the
period being examined (for this purpose, a
failure is not considered to have occurred
more than once merely because more than
one participant is affected by the failure);
(2) the percentage of plan assets and con-
tributions involved in the failure; (3) the
number of years the failure occurred; (4)
the number of participants affected rela-
tive to the total number of participants in
the plan; (5) the number of participants af-
fected as a result of the failure relative to
the number of participants who could have
been affected by the failure; (6) whether
correction was made within a reasonable
time after discovery of the failure; and (7)
the reason for the failure (for example, data
errors such as errors in the transcription of
data, the transposition of numbers, or mi-
nor arithmetic errors). No single factor is
determinative. Additionally, factors (2), (4),
and (5) should not be interpreted to ex-
clude small businesses.
.03 Multiple failures. In the case of a
plan with more than one Operational Fail-
ure in a single year, or Operational Fail-
ures that occur in more than one year, the
Operational Failures are eligible for cor-
rection under this section 8 only if all of
the Operational Failures are insignificant in
the aggregate. Operational Failures that have
been corrected under SCP in section 9 and
VCP in sections 10 and 11 are not taken
into account for purposes of determining if
Operational Failures are insignificant in the
aggregate.
.04 Examples. The following examples
illustrate the application of this section 8.
It is assumed, in each example, that the eli-
gibility requirements of section 4 relating
to SCP have been satisfied and that no Op-
erational Failures occurred other than the
Operational Failures identified below.
Example 1: In 1984, Employer X established Plan
A, a profit-sharing plan that satisfies the require-
ments of § 401(a) in form. In 1999, the benefits of
50 of the 250 participants in Plan A were limited by
§ 415(c). However, when the Service examined Plan
A in 2002, it discovered that, during the 1999 limi-
tation year, the annual additions allocated to the ac-
counts of 3 of these employees exceeded the maxi-
mum limitations under § 415(c). Employer X
contributed $3,500,000 to the plan for the plan year.
The amount of the excesses totaled $4,550. Under these
facts, because the number of participants affected by
the failure relative to the total number of partici-
pants who could have been affected by the failure, and
the monetary amount of the failure relative to the to-
tal employer contribution to the plan for the 1999 plan
year, are insignificant, the § 415(c) failure in Plan A
that occurred in 1999 would be eligible for correc-
tion under this section 8.
Example 2: The facts are the same as in Example
1, except that the failure to satisfy § 415 occurred dur-
ing each of the 1998, 1999, and 2000 limitation years.
In addition, the three participants affected by the § 415
failure were not identical each year. The fact that the
§ 415 failures occurred during more than one limi-
tation year did not cause the failures to be signifi-
cant; accordingly, the failures are still eligible for cor-
rection under this section 8.
Example 3: The facts are the same as in Example
1, except that the annual additions of 18 of the 50 em-
ployees whose benefits were limited by § 415(c) nev-
ertheless exceeded the maximum limitations under
§ 415(c) during the 1999 limitation year, and the
amount of the excesses ranged from $1,000 to $9,000,
and totaled $150,000. Under these facts, taking into
account the number of participants affected by the fail-
ure relative to the total number of participants who
could have been affected by the failure for the 1999
limitation year (and the monetary amount of the fail-
ure relative to the total employer contribution), the fail-
ure is significant. Accordingly, the § 415(c) failure in
Plan A that occurred in 1999 is ineligible for correc-
tion under this section 8 as an insignificant failure.
Example 4: Employer J maintains Plan C, a money
purchase pension plan established in 1992. The plan
document satisfies the requirements of § 401(a) of the
Code. The formula under the plan provides for an em-
ployer contribution equal to 10% of compensation, as
defined in the plan. During its examination of the plan
for the 1999 plan year, the Service discovered that the
employee responsible for entering data into the em-
ployer's computer made minor arithmetic errors in tran-
scribing the compensation data with respect to 6 of
the plan's 40 participants, resulting in excess alloca-
tions to those 6 participants' accounts. Under these
facts, the number of participants affected by the fail-
ure relative to the number of participants that could
have been affected is insignificant, and the failure is
due to minor data errors. Thus, the failure occurring
in 1999 would be insignificant and therefore eli-
gible for correction under this section 8.
Example 5: Public School maintains for its 200 em-
ployees a salary reduction 403(b) Plan (the "Plan")
that satisfies the requirements of § 403(b). The busi-
ness manager has primary responsibility for admin-
istering the Plan, in addition to other administrative
functions within Public School. During the 1998 plan
year, a former employee should have received an ad-
ditional minimum required distribution of $278 un-
der § 403(b)(10). Another participant received an im-
permissible hardship withdrawal of $2,500. Another
participant made elective deferrals of $11,000, $1,000
of which was in excess of the § 402(g) limit. Under
these facts, even though multiple failures occurred in
a single plan year, the failures will be eligible for cor-
rection under this section 8 because in the aggre-
gate the failures are insignificant.
### SECTION 9. SELF-CORRECTION OF SIGNIFICANT OPERATIONAL FAILURES
.01 Requirements. The requirements of
this section 9 are satisfied with respect to
an Operational Failure (even if signifi-
cant) if the Operational Failure is corrected
and the correction is either completed or
substantially completed (in accordance with
section 9.04) by the last day of the correc-
tion period described in section 9.02.
.02 Correction period. (1) End of cor-
rection period. The last day of the correc-
tion period for an Operational Failure is the
last day of the second plan year follow-
ing the plan year for which the failure oc-
curred. However, in the case of a failure to
satisfy the requirements of § 401(k)(3),
401(m)(2), or 401(m)(9), the correction pe-
riod does not end until the last day of the
second plan year following the plan year
that includes the last day of the additional
period for correction permitted under
§ 401(k)(8) or 401(m)(6). If a 403(b) Plan
does not have a plan year, the plan year is
deemed to be the calendar year for pur-
poses of this subsection.
(2) Extension of correction period for
Transferred Assets. In the case of an Op-
erational Failure that relates only to Trans-
ferred Assets, or to a plan assumed in con-
nection with a corporate merger, acquisition
or other similar employer transaction, the
correction period does not end until the last
day of the first plan year that begins after
the corporate merger, acquisition, or other
similar employer transaction between the
Plan Sponsor and the sponsor of the trans-
feror plan or the prior sponsor of an as-
sumed plan.
(3) Effect of examination. The correc-
tion period for an Operational Failure that
occurs for any plan year ends, in any event,
on the first date the plan or Plan Sponsor
is Under Examination for that plan year (de-
termined without regard to the second sen-
tence of section 9.02). (But see section 9.04
for special rules permitting completion of
correction after the end of the correction pe-
riod.)
.03 Correction by plan amendment. In
order to complete correction by plan amend-
ment (as permitted under section 4.05) dur-
ing the correction period, the appropriate ap-
plication (i.e., the Form 5300 series or Form
6406) must be submitted before the end of
the correction period.
.04 Substantial completion of correc-
tion. Correction of an Operational Failure
is substantially completed by the last day
of the correction period only if the require-
ments of either paragraph (1) or (2) are sat-
isfied.
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(1) The requirements of this paragraph
(1) are satisfied if:
(a) during the correction period, the Plan
Sponsor is reasonably prompt in identify-
ing the Operational Failure, formulating a
correction method, and initiating correc-
tion in a manner that demonstrates a com-
mitment to completing correction of the Op-
erational Failure as expeditiously as
practicable, and
(b) within 90 days after the last day of
the correction period, the Plan Sponsor
completes correction of the Operational
Failure.
(2) The requirements of this paragraph
(2) are satisfied if:
(a) during the correction period, correc-
tion is completed with respect to 85 per-
cent of all participants affected by the Op-
erational Failure, and
(b) thereafter, the Plan Sponsor com-
pletes correction of the Operational Fail-
ure with respect to the remaining affected
participants in a diligent manner.
.05 Examples. The following examples
illustrate the application of this section 9.
Assume that the eligibility requirements of
section 4 relating to SCP have been met.
Example 1: Employer Z established a qualified de-
fined contribution plan in 1986 and received a favor-
able determination letter for TRA '86. During 1999,
while doing a self-audit of the operation of the plan
for the 1998 plan year, the plan administrator discov-
ered that, despite the practices and procedures estab-
lished by Employer Z with respect to the plan, sev-
eral employees eligible to participate in the plan were
excluded from participation. The administrator also
found that for 1998 Operational Failures occurred be-
cause the elective deferrals of additional employees
exceeded the § 402(g) limit and Employer Z failed to
make the required top-heavy minimum contribu-
tion. During the 1999 plan year, the Plan Sponsor made
corrective contributions on behalf of the excluded em-
ployees, distributed the excess deferrals to the af-
fected participants, and made a top-heavy minimum
contribution to all participants entitled to that contri-
bution for the 1998 plan year. Each corrective con-
tribution and distribution was credited with earn-
ings at a rate appropriate for the plan from the date
the corrective contribution or distribution should have
been made to the date of correction. Under these facts,
the Plan Sponsor has corrected the Operational Fail-
ures for the 1998 plan year within the correction pe-
riod and thus satisfied the requirements of this sec-
tion 9.
Example 2: Employer A established a qualified de-
fined contribution plan, Plan A, in 1990 and received
a favorable determination letter for TRA '86. In April
2002, Employer A purchased all of the stock of Em-
ployer B, a wholly-owned subsidiary of Employer C.
Employees of Employer B participated in a quali-
fied defined contribution plan sponsored by Em-
ployer C, Plan C. Following Employer A's review of
Plan C, Employer A and Employer C agreed that Plan
A would accept a transfer of plan assets attributable
to the account balances of the employees of Em-
ployer B who had participated in Plan C. As part of
this agreement, Employer C represented to Employer
A that Plan C is tax qualified. Employers A and C also
agreed that such transfer would be in accordance with
§ 414(1) and § 1.414(1)-1 and addressed issues re-
lated to costs associated with the transfer. Follow-
ing the transaction, the employees of Employer B be-
gan participation in Plan A. Effective July 1, 2002,
Plan A accepted the transfer of plan assets from Plan
C. After the transfer, Employer A determined that all
the participants in one division of Employer B had
been incorrectly excluded from allocation of the profit
sharing contributions for the 1998 and 1999 plan years.
During 2003, Employer A made corrective contribu-
tions on behalf of the affected participants. The cor-
rective contributions were credited with earnings at
a rate appropriate for the plan from the date the cor-
rective contribution should have been made to the date
of correction and Employer A otherwise complied with
the requirements of SCP. Under these facts, Em-
ployer A has, within the correction period, corrected
the Operational Failures for the 1998 and 1999 plan
years with respect to the assets transferred to Plan A,
and thus satisfied the requirements of this section 9.
PART V. VOLUNTARY CORRECTION
PROGRAM WITH SERVICE
APPROVAL (VCP)
### SECTION 10. VCP PROCEDURES
.01 VCP requirements. The requirements
of this section 10 are satisfied with re-
spect to failures submitted in accordance
with the requirements of this section 10 if
the Plan Sponsor pays the compliance fee
required under section 12 and implements
the corrective actions and satisfies any other
conditions in the compliance statement de-
scribed in section 10.09.
.02 Identification of failures. VCP is not
based upon an examination of the plan by
the Service. Only the failures raised by the
Plan Sponsor or failures identified by the
Service in processing the application will
be addressed under the program, and only
those failures will be covered by the pro-
gram. The Service will not make any in-
vestigation or finding under VCP concern-
ing whether there are failures.
.03 Availability of correction of a ter-
minated plan. Correction of Qualification
Failures in a terminated plan may be made
under VCP, whether or not the plan trust is
still in existence.
.04 Effect of VCP submission on exami-
nation. Because VCP does not arise out of
an examination, consideration under VCP
does not preclude or impede (under
§ 7605(b) or any administrative provi-
sions adopted by the Service) a subse-
quent examination of the Plan Sponsor or
the plan by the Service with respect to the
taxable year (or years) involved with re-
spect to matters that are outside the com-
pliance statement. However, a Plan Spon-
sor's statements describing failures are made
only for purposes of VCP and will not be
regarded by the Service as an admission of
a failure for purposes of any subsequent ex-
amination. See section 5.03 for the defini-
tion of Under Examination.
.05 No concurrent examination activ-
ity. Except in unusual circumstances, a plan
that has been properly submitted under VCP
will not be examined while the submis-
sion is pending. This practice regarding con-
current examinations does not extend to
other plans of the Plan Sponsor. Thus, any
plan of the Plan Sponsor that is not pend-
ing under VCP could be subject to exami-
nation.
.06 Determination letter application for
plan amendments related to a VCP sub-
mission. In any case in which correction of
a Qualification Failure includes correc-
tion of a Plan Document Failure or Demo-
graphic Failure, or an Operational Failure
by plan amendment, as permitted under sec-
tion 4.05, other than the adoption of an
amendment designated by the Service as a
model amendment or the adoption of a pro-
totype or volume submitter plan for which
the Plan Sponsor has reliance on the plan's
opinion or advisory letter as provided in
Rev. Proc. 2003-6, 2003-1 I.R.B. 191, the
Plan Sponsor must submit a copy of the
amendment, the appropriate application
form (i.e., Form 5300 series or Form 6406),
and the appropriate user fee concurrently
and to the same address as the VCP sub-
mission. The user fee for the determina-
tion letter application and the fee for the
VCP submission must be submitted on
separate checks made payable to the U.S.
Treasury. See section 11.11 for the VCP
mailing address.
.07 Determination letter applications not
related to a VCP submission. (1) The Ser-
vice may process a determination letter ap-
plication submitted under the determina-
tion letter program (including an application
requested on Form 5310) concurrently with
a VCP submission for the same plan. How-
ever, issuance of the determination letter in
response to an application made on a Form
5310 will be suspended pending the clo-
sure of the VCP submission.
(2) A submission of a plan under the de-
termination letter program does not con-
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stitute a submission under VCP. If the Ser-
vice in connection with a determination
letter application discovers a Qualifica-
tion Failure, the agent may issue a clos-
ing agreement with respect to the failures
identified or, if appropriate, refer the case
to Employee Plans Examinations. In ei-
ther case, the fee structure in section 12, ap-
plicable to VCP, will not apply. Instead, the
fee structure in section 14 relating to Au-
dit CAP will apply. (See sections 13 and
14.) If the Plan Sponsor discovers a Quali-
fication Failure, the Plan Sponsor should
submit an application under VCP to cor-
rect the failure.
.08 Processing of submission. (1) Screen-
ing of submission. Upon receipt of a sub-
mission under VCP, the Service will re-
view whether the eligibility requirements of
section 4 and the submission requirements
of section 11 are satisfied. If the Service de-
termines that a VCP submission is seri-
ously deficient, the Service reserves the right
to return the submission, including any
compliance fee, without contacting the Plan
Sponsor.
(2) Review of submission. Once the Ser-
vice determines that the submission is com-
plete under VCP, the Service will consult
with the Plan Sponsor or the Plan Spon-
sor's representative to discuss the pro-
posed corrections and the plan's adminis-
trative procedures.
(3) Additional information required. If
additional information is required, a Ser-
vice representative will generally contact the
Plan Sponsor or the Plan Sponsor's repre-
sentative and explain what is needed to
complete the submission. The Plan Spon-
sor will have 21 calendar days from the date
of this contact to provide the requested in-
formation. If the information is not re-
ceived within 21 days, the matter will be
closed, the compliance fee will not be re-
turned, and the case may be referred to Em-
ployee Plans Examinations. Any request for
an extension of the 21-day time period must
be made in writing within the 21-day time
period and must be approved by the Ser-
vice (by the applicable group manager).
(4) Additional failures discovered af-
ter initial submission. (a) A Plan Sponsor
that discovers additional unrelated Quali-
fication or 403(b) Failures after its initial
submission may request that such failures
be added to its submission. However, the
Service retains the discretion to reject the
inclusion of such failures if the request is
not timely, for example, if the Plan Spon-
sor makes its request when processing of
the submission is substantially complete.
(b) If the Service discovers an unre-
lated Qualification or 403(b) Failure while
the request is pending, the failure gener-
ally will be added to the failures under con-
sideration. However, the Service retains the
discretion to determine that a failure is out-
side the scope of the voluntary request for
consideration because the Plan Sponsor did
not voluntarily bring it forward. In this case,
if the additional failure is significant, all as-
pects of the plan may be examined and the
rules pertaining to Audit CAP will apply.
(See sections 13 and 14.)
(5) Conference right. If the Service ini-
tially determines that it cannot issue a com-
pliance statement because the parties can-
not agree upon correction or a change in
administrative procedures, the Plan Spon-
sor (generally through the Plan Sponsor's
representative) will be contacted by the Ser-
vice representative and offered a confer-
ence with the Service. The conference can
be held either in person or by telephone and
must be held within 21 calendar days of the
date of contact. The Plan Sponsor will have
21 calendar days after the date of the con-
ference to submit additional information in
support of the submission. Any request for
an extension of the 21-day time period must
be made in writing within the 21-day time
period and must be approved by the Ser-
vice (by the applicable group manager). Ad-
ditional conferences may be held at the dis-
cretion of the Service.
(6) Failure to reach resolution. If the
Service and the Plan Sponsor cannot reach
agreement with respect to the submission,
the matter will be closed, the compliance
fee will not be returned, and the case may
be referred to Employee Plans Examina-
tions. In the case of an Anonymous Sub-
mission that fails to reach resolution un-
der EPCRS, the Service will refund 50%
of the applicable VCP fee. See section 12.02
for the VCP fee.
(7) Issuance of compliance statement. If
agreement is reached, the Service will send
to the Plan Sponsor an unsigned compli-
ance statement specifying the corrective ac-
tion required. Within 30 calendar days of
the date the compliance statement is sent,
a Plan Sponsor must sign the compliance
statement and return it and any compli-
ance fee required to be paid at the time that
the compliance statement is signed (see sec-
tion 11.05). The Service will then issue a
signed copy of the compliance statement to
the Plan Sponsor. If the Plan Sponsor does
not send the Service the signed compli-
ance statement (with the compliance fee)
within 30 calendar days, the plan may be
referred to Employee Plans Examinations
for examination consideration.
(8) Timing of correction. The Plan Spon-
sor must implement the specific correc-
tions and administrative changes set forth
in the compliance statement within 150 days
of the date of the compliance statement.
Any request for an extension of this time
period must be made prior to the expira-
tion of the correction period and in writ-
ing and must be approved by the Service.
(9) Modification of compliance state-
ment. Once the compliance statement has
been issued (based on the information pro-
vided), the Plan Sponsor cannot request a
modification of the compliance terms ex-
cept by a new request for a compliance
statement. However, if the requested modi-
fication is minor and is postmarked no later
than 30 days after the compliance state-
ment is issued, the compliance fee for the
modification will be the lesser of the origi-
nal compliance fee or $3,000.
(10) Verification. Once the compliance
statement has been issued, the Service may
require verification that the corrections have
been made and that any plan administra-
tive procedures required by the statement
have been implemented. This verification
does not constitute an examination of the
books and records of the employer or the
plan (within the meaning of § 7605(b)). If
the Service determines that the Plan Spon-
sor did not implement the corrections and
procedures within the stated time period, the
plan may be referred to Employee Plans Ex-
aminations for examination consideration.
.09 Compliance statement. (1) General
description of compliance statement. The
compliance statement issued for a VCP sub-
mission addresses the failures identified, the
terms of correction, including any revi-
sion of administrative procedures, and the
time period within which proposed correc-
tions must be implemented, including any
changes in administrative procedures. The
compliance statement also provides that the
Service will not treat the plan as failing to
satisfy the applicable requirements of the
Code on account of the failures described
in the compliance statement if the condi-
tions of the compliance statement are
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satisfied. Where current procedures are
inadequate for operating the plan in con-
formance with the applicable requirements
of the Code, the compliance statement will
be conditioned upon the implementation of
stated administrative procedures. The Ser-
vice may prescribe appropriate adminis-
trative procedures in the compliance state-
ment.
(2) Compliance statement conditioned
upon timely correction. The compliance
statement is conditioned on (i) there be-
ing no misstatement or omission of mate-
rial facts in connection with the submis-
sion and (ii) the implementation of the
specific corrections and satisfaction of any
other conditions in the compliance state-
ment.
(3) Authority delegated. Compliance
statements (including any waiver of the ex-
cise tax under § 4974) are authorized to be
signed by Area Managers reporting to the
Director, Employee Plans Examinations, and
managers within Employee Plans Rulings
and Agreements, under the Tax Exempt and
Government Entities Operating Division of
the Service.
.10 Effect of compliance statement on ex-
amination. The compliance statement is
binding upon both the Service and the Plan
Sponsor or Eligible Organization (as de-
fined in section 10.12(2)) with respect to
the specific tax matters identified therein for
the periods specified, but does not pre-
clude or impede an examination of the plan
by the Service relating to matters outside
the compliance statement, even with re-
spect to the same taxable year or years to
which the compliance statement relates.
.11 Special rules relating to Anonymous
(John Doe) Submissions. (1) The Anony-
mous Submission procedure permits sub-
mission of Qualified Plans, 403(b) Plans,
SEPs and SIMPLE IRA Plans under VCP
without initially identifying the applicable
plan(s), the Plan Sponsor(s), or the Eli-
gible Organization. The requirements of this
revenue procedure relating to VCP, includ-
ing sections 10, 11, and 12, apply to these
submissions. However, information iden-
tifying the plan or the Plan Sponsor may
be redacted (and the power of attorney
statement and the penalty of perjury state-
ment need not be included with the ini-
tial submission). In addition, if a determi-
nation letter application will be requested
as part of the submission, the determina-
tion letter application should not be sub-
mitted until the time all identifying infor-
mation is provided to the Service. For
purposes of processing the submission, the
State of the Plan Sponsor must be identi-
fied in the initial submission. Once the Ser-
vice and the plan representative reach agree-
ment with respect to the submission, the
Service will contact the plan representa-
tive in writing indicating the terms of the
agreement. The Plan Sponsor will have 21
calendar days from the date of the letter of
agreement to identify the plan and Plan
Sponsor. If the Plan Sponsor does not sub-
mit the identifying material (including the
power of attorney statement and the pen-
alty of perjury statement) within 21 calen-
dar days of the letter of agreement, the mat-
ter will be closed and the compliance fee
will not be returned.
(2) Notwithstanding section 10.05, un-
til the plan(s) and Plan Sponsor(s) are iden-
tified to the Service, a submission under this
subsection does not preclude or impede an
examination of the Plan Sponsor or its
plan(s). Thus, a plan submitted under the
Anonymous Submission procedure that
comes Under Examination prior to the date
the plan(s) and Plan Sponsor(s) identify-
ing materials are received by the Service
will no longer be eligible under VCP.
.12 Special rules relating to Group Sub-
missions. (1) General rules. An Eligible Or-
ganization may submit a VCP request for
a Qualified Plan, a 403(b) Plan, a SEP, or
a SIMPLE IRA Plan under a Group Sub-
mission for Operational and Plan Docu-
ment Failures.
(2) Eligible Organizations. For pur-
poses of a Group Submission, the term "Eli-
gible Organization" means either (a) a
Sponsor (as that term is defined in sec-
tion 4.09 of Rev. Proc. 2000-20, 2000-1
C.B. 553) of a master or prototype plan, (b)
an insurance company or other entity that
has issued annuity contracts or provides ser-
vices with respect to assets for 403(b) Plans,
or (c) an entity that provides its clients with
administrative services with respect to
Qualified Plans, 403(b) Plans, SEPs or
SIMPLE IRA Plans. An Eligible Organi-
zation is not eligible to make a Group Sub-
mission unless the submission includes a
failure resulting from a systemic error in-
volving the Eligible Organization that af-
fects at least 20 plans and that results in at
least 20 plans implementing correction. If,
at any time before the Service issues the
compliance statement, the number of plans
falls below 20, the Eligible Organization
must notify the Service that it is no longer
eligible to make a Group Submission (and
the compliance fee may be retained).
(3) Special Group Submission proce-
dures. (a) A Group Submission is subject
to the same procedures as any VCP sub-
mission in accordance with sections 10 and
11, except that the Eligible Organization is
responsible for performing the procedural
obligations imposed on the Plan Sponsor
under sections 10 and 11.
(b) The Eligible Organization must pro-
vide notice to all Plan Sponsors of the plans
included in the Group Submission. The no-
tice must be provided at least 90 days be-
fore the Eligible Organization provides the
Service with the information required in
section 10.12(3)(c). The purpose of the no-
tice is to provide each Plan Sponsor with
information relating to the Group Submis-
sion request. The notice should explain the
reason for the Group Submission and in-
form the Plan Sponsor that the Plan Spon-
sor's plan will be included in the Group
Submission unless the Plan Sponsor re-
sponds within the 90-day period to ex-
clude the Plan Sponsor's plan from the
Group Submission.
(c) When an Eligible Organization re-
ceives an unsigned compliance statement on
the proposed correction and agrees to the
terms of the compliance statement, the Eli-
gible Organization must return to the Ser-
vice within 120 calendar days not only the
signed compliance statement and any ad-
ditional compliance fee under section 12.04,
but also a list containing (i) the employ-
ers' tax identification numbers for the Plan
Sponsors of the plans to whom the com-
pliance statement may be applicable (ii) the
plans by name, plan number, type of plan,
number of plan participants, and trust's tax
identification numbers, if applicable, (iii) a
certification that each Plan Sponsor re-
ceived notice of the Group Submission and,
(iv) a certification that each Plan Sponsor
timely filed the Form 5500 return for each
plan. Only those plans for which correc-
tion is actually made within 240 calendar
days of the date of the signed compliance
statement (or within such longer period as
may be agreed to by the Service at the re-
quest of the Eligible Organization) will be
covered by that statement.
(d) Notwithstanding section 10.05, un-
til the Eligible Organization provides the
Service with the information of section
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10.12(3)(c) with respect to a Plan Spon-
sor and its plan(s), a Group Submission
does not preclude or impede an examina-
tion of a Plan Sponsor or its plan(s).
(4) Group Submissions implementation.
The Group Submission procedure is be-
ing implemented on a provisional basis, and
the Service and Treasury invite comments
on the operation of the Group Submis-
sion procedure.
.13 Multiemployer and multiple em-
ployer plans. (1) In the case of a multiem-
ployer or multiple employer plan, the plan
administrator (rather than any contribut-
ing or adopting employer) must request con-
sideration of the plan under the programs.
The request must be with respect to the
plan, rather than a portion of the plan af-
fecting any particular employer.
(2) If a VCP submission for a multiem-
ployer or multiple employer plan has fail-
ures that apply to fewer than all of the
employers under the plan, the plan admin-
istrator may choose to have the compli-
ance fee (in section 12) or sanction (in sec-
tion 14) calculated separately for each
employer based on the number of partici-
pants attributable to that employer, rather
than being attributable to the number of par-
ticipants of the entire plan. Thus, the plan
administrator may choose to apply the pro-
visions of this paragraph where the fail-
ure is attributable in whole or in part to
data, information, actions, or inactions that
are within the control of the employers
rather than the multiemployer or multiple
employer plan (such as attribution in whole
or in part to the failure of a employer to
provide the plan administrator with full and
complete information).
### SECTION 11. APPLICATION PROCEDURES FOR VCP
.01 General rules. The requirements of
this section 11 are satisfied if the request
for a compliance statement from the Ser-
vice under VCP satisfies the informational
and other requirements of this section 11.
In general, a request under VCP consists of
a letter from the Plan Sponsor (which may
be a letter from the Plan Sponsor's repre-
sentative) or Eligible Organization (or rep-
resentative) to the Service that contains a
description of the failures, a description of
the proposed methods of correction, and
other procedural items, and includes sup-
porting information and documentation as
described below.
.02 Submission requirements. The let-
ter from the Plan Sponsor or the Plan Spon-
sor's representative must contain the
following:
(1) A statement identifying the type of
plan submitted (e.g., Qualified Plan, 403(b)
Plan, SEP, or SIMPLE IRA Plan) and, if ap-
plicable, whether the submission is a Group
Submission, an Anonymous Submission or
a nonamender submission.
(2) A complete description of the fail-
ures and the years in which the failures oc-
curred, including closed years (that is, years
for which the statutory period has expired).
(3) A description of the administrative
procedures in effect at the time the fail-
ures occurred.
(4) An explanation of how and why the
failures arose.
(5) A detailed description of the method
for correcting the failures that the Plan
Sponsor has implemented or proposes to
implement. Each step of the correction
method must be described in narrative form.
The description must include the specific
information needed to support the sug-
gested correction method. This informa-
tion includes, for example, the number of
employees affected and the expected cost
of correction (both of which may be ap-
proximated if the exact number cannot be
determined at the time of the request), the
years involved, and calculations or assump-
tions the Plan Sponsor used to determine
the amounts needed for correction.
(6) A description of the methodology that
will be used to calculate earnings or actu-
arial adjustments on any corrective contri-
butions or distributions (indicating the com-
putation periods and the basis for
determining earnings or actuarial adjust-
ments, in accordance with section 6.02(4)).
(7) Specific calculations for each af-
fected employee or a representative sample
of affected employees. The sample calcu-
lations must be sufficient to demonstrate
each aspect of the correction method pro-
posed. For example, if a Plan Sponsor re-
quests a compliance statement with re-
spect to a failure to satisfy the contribution
limits of § 415(c) and proposes a correc-
tion method that involves elective contri-
butions (whether matched or unmatched)
and matching contributions, the Plan Spon-
sor must submit calculations illustrating the
correction method proposed with respect to
each type of contribution. As another ex-
ample, with respect to a failure to satisfy
the ADP test in § 401(k)(3), the Plan Spon-
sor must submit the ADP test results both
before the correction and after the correc-
tion.
(8) The method that will be used to lo-
cate and notify former employees and ben-
eficiaries, or an affirmative statement that
no former employees or beneficiaries were
affected by the failures or will be affected
by the correction.
(9) A description of the measures that
have been or will be implemented to en-
sure that the same failures will not recur.
(10) A statement that, to the best of the
Plan Sponsor's knowledge, neither the plan
nor the Plan Sponsor is Under Examina-
tion.
(11) If a submission includes a failure
that relates to Transferred Assets and the
failure occurred prior to the transfer, a de-
scription of the transaction (including the
dates of the employer change and the plan
transfer).
(12) A statement (if applicable) that the
plan is currently being considered in a de-
termination letter application that is not re-
lated to the VCP application. If the re-
quest for a determination letter is made
while a request for consideration under VCP
is pending, the Plan Sponsor must update
the VCP request to add this information.
(13) In the case of a 403(b) Plan sub-
mission, a statement that the Plan Spon-
sor has contacted all other entities involved
with the plan and has been assured of co-
operation in implementing the applicable
correction, to the extent necessary. For ex-
ample, if the plan's failure is the failure to
satisfy the requirements of § 403(b)(1)(E)
on elective deferrals, the Plan Sponsor must,
prior to making the VCP application, con-
tact the insurance company or custodian
with control over the plan's assets to as-
sure cooperation in effecting a distribu-
tion of the excess deferrals and the earn-
ings thereon. An application under VCP
must also contain a statement as to the type
of employer (e.g., a tax-exempt organiza-
tion described in § 501(c)(3)) submitting the
VCP application.
(14) A Group Submission must be signed
by the Eligible Organization or the Eli-
gible Organization's authorized represen-
tative and accompanied by a copy of the
relevant portions of the plan document(s).
.03 Required documents. A VCP sub-
mission must be accompanied by the fol-
lowing documents:
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(1) Form 5500 or similar information.
(a) Qualified Plan. In the case of a Quali-
fied Plan, a copy of the first three pages of
the most recently filed Form 5500 series re-
turn. In the case of a terminated plan, the
Form 5500 must be the one filed for the
plan year prior to the plan year for which
the Final Form 5500 return was filed.
(b) 403(b) Plan, SEP and SIMPLE IRA
Plan. In the case of a 403(b) Plan, SEP or
SIMPLE IRA Plan submission, if Form
5500 is inapplicable, the information gen-
erally included on the first three pages of
Form 5500, including the name and num-
ber of the plan, and the employer's Em-
ployer Identification Number.
(c) Anonymous Submission. In the case
of an Anonymous Submission, the em-
ployee census may be redacted and re-
placed by numbers that are rounded up.
(2) Plan document. A copy of the en-
tire plan document or the relevant por-
tions of the plan document. For example,
in a case involving improper exclusion of
eligible employees from a profit-sharing
plan with a cash or deferred arrangement,
relevant portions of the plan document in-
clude the eligibility, allocation, and cash or
deferred arrangement provisions of the ba-
sic plan document (and the adoption agree-
ment, if applicable), along with applicable
definitions in the plan. If the plan is a
403(b) Plan and a plan document is not
available, written description of the plan,
and sample salary reduction agreements if
relevant. In the case of a SEP and a
SIMPLE IRA Plan, submit the entire plan
document.
(3) Determination letter application. In
any case in which correction of a Qualifi-
cation Failure includes correction of a Plan
Document Failure or Demographic Fail-
ure, or an Operational Failure by plan
amendment, as permitted under section 4.05,
other than the adoption of an amendment
designated by the Service as a model
amendment or the adoption of a proto-
type or volume submitter plan for which the
Plan Sponsor has reliance on the plan's
opinion or advisory letter as provided in
Rev. Proc. 2003-6, 2003-1 I.R.B. 191, the
Plan Sponsor must submit a copy of the
amendment, the appropriate application
form (i.e., Form 5300 series or Form 6406),
and the appropriate user fee concurrently
and to the same address as the VCP sub-
mission. The user fee for the determina-
tion letter application and the fee for the
VCP submission must be submitted on
separate checks made payable to the U.S.
Treasury. See section 11.11 for the VCP
mailing address.
.04 Date VCP fee due generally. Ex-
cept as provided in section 11.05, the VCP
fee under section 12 must be included with
the submission. All fees must be submit-
ted by check made payable to the U.S.
Treasury.
.05 Additional fee due for 403(b) Plans,
SEPs, SIMPLE IRA Plans, and Group Sub-
missions. In the case of a 403(b) Plan, a
SEP, a SIMPLE IRA Plan, or a Group Sub-
mission, the initial fee described in sec-
tions 12.02, 12.04 or 12.05 must be in-
cluded in the submission (and any additional
fee is due at the time the compliance state-
ment is signed by the Plan Sponsor and re-
turned to the Service).
.06 Signed submission. The submis-
sion must be signed by the Plan Sponsor
or the sponsor's authorized representa-
tive.
.07 Power of attorney requirements. To
sign the submission or to appear before the
Service in connection with the submis-
sion, the Plan Sponsor's representative must
comply with the requirements of section
9.02(11) and (12) of Rev. Proc. 2003-4,
2003-1 I.R.B. 123.
.08 Penalty of perjury statement. The fol-
lowing declaration must accompany a re-
quest and any factual information or change
in the submission at a later time: "Under
penalties of perjury, I declare that I have
examined this submission, including ac-
companying documents, and, to the best
of my knowledge and belief, the facts
presented in support of this submission
are true, correct, and complete." The dec-
laration must be signed by the Plan Spon-
sor, not the Plan Sponsor's representa-
tive.
.09 Checklist. The Service will be able
to respond more quickly to a VCP request
if the request is carefully prepared and com-
plete. The checklist in Appendix C is de-
signed to assist Plan Sponsors and their rep-
resentatives in preparing a submission that
contains the information and documents re-
quired under this revenue procedure. The
checklist in Appendix C must be com-
pleted, signed, and dated by the Plan Spon-
sor or the Plan Sponsor's representative, and
should be placed on top of the submis-
sion. A photocopy of this checklist may be
used.
.10 Designation. The letter to the Ser-
vice should indicate in the upper right hand
corner of the letter the type of plan sub-
mitted under VCP, a Qualified Plan, 403(b)
Plan, SEP, or SIMPLE IRA Plan. In addi-
tion if the submission is a Group Submis-
sion, an Anonymous Submission or a non-
amender submission, the letter should so in-
dicate.
.11 VCP mailing address. All VCP sub-
missions and accompanying determina-
tion applications, if applicable, should be
mailed to:
Internal Revenue Service
Attention: T:EP:RA:VC
P.O. Box 27063
McPherson Station
Washington, D.C. 20038
.12 Maintenance of copies of submis-
sions. Plan Sponsors and their representa-
tives should maintain copies of all corre-
spondence submitted to the Service with
respect to their VCP requests.
SECTION 12. VCP FEES
.01 VCP fees. The compliance fees for
all submissions under VCP are determined
under this section 12. All fees must be sub-
mitted by check made payable to the U.S.
Treasury and, except for the additional fees
described in sections 12.02(2) and 12.05(2),
must be included with the initial submis-
sion.
.02 VCP fee for Qualified Plans and
403(b) Plans. (1) Subject to section
12.02(2), the compliance fee for a submis-
sion under VCP for Qualified Plans and
403(b) Plans (including Anonymous Sub-
missions) is determined in accordance with
the following chart. For 403(b) Plans, the
fee is determined with reference to the num-
ber of employees rather than participants.
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Number of Participants/Employees
Fee
20 or fewer
$ 750.00
21 to 50
$ 1,000.00
51 to 100
$ 2,500.00
101 to 500
$ 5,000.00
501 to 1,000
$ 8,000.00
1,001 to 5,000
$ 15,000.00
5,001 to 10,000
$ 20,000.00
Over 10,000
$ 25,000.00
(2) In the case of a 403(b) Plan, if the
VCP submission includes Excess Amounts
that are corrected pursuant to section
6.06(2)(b), a fee equal to at least ten per-
cent of the Excess Amounts, adjusted for
earnings through the date of the VCP ap-
plication, contributed or allocated in the cal-
endar year of the VCP application and in
the three calendar years prior thereto will
be imposed. If there is a failure to satisfy
both the § 403(b)(2) and § 415 limits with
respect to a single employee for a year, the
fee will take into account only the larger
Excess Amount. This fee is in addition to
the 403(b) Plan compliance fee in section
12.02(1).
.03 VCP fee for nonamenders. The com-
pliance fee for plans that have not been
amended for tax legislation changes within
the plan's remedial amendment period
(nonamenders (includes EGTRRA non-
amenders)) is determined in accordance with
the chart in section 12.02. The applicable
fee is reduced by 50% for nonamenders that
submit under VCP within a one-year pe-
riod following the expiration of the plan's
remedial amendment period for comply-
ing with tax law changes. For example, the
fee for a "GUST nonamender plan" with
700 participants submitted within the one-
year period following the expiration of the
plan's remedial amendment period for
GUST changes would be $4,000. See sec-
tion 5.01(4)(a) for the definition of GUST.
.04 VCP fee for Group Submission. The
compliance fee for a Group Submission is
based on the number of plans affected by
the failure as described in the compliance
statement. The initial fee for the first 20
plans is $10,000. An additional fee is due
equal to the product of the number of plans
in excess of 20 multiplied by $250, up to
a maximum of $50,000.
.05 VCP fee for SEPs and SIMPLE IRA
Plans. (1) The compliance fee for a SEP or
a SIMPLE IRA Plan submission (includ-
ing an Anonymous Submission) is $500.
(2) In any case in which a SEP or
SIMPLE IRA Plan correction is not simi-
lar to a correction for a similar Qualifica-
tion Failure (as provided under section
6.10(1)), the Service may impose an addi-
tional fee. If the failure involves an Ex-
cess Amount to a SEP or a SIMPLE IRA
Plan and the Plan Sponsor retains the Ex-
cess Amount in the SEP or SIMPLE IRA
Plan, a fee equal to at least ten percent of
the Excess Amount excluding earnings will
be imposed. This is in addition to the SEP
or SIMPLE IRA Plan compliance fee set
forth in section 12.05(1).
.06 VCP fee for egregious failures. Not-
withstanding the provisions of sections
12.02 and 12.05, in cases involving fail-
ures that are egregious (as described in sec-
tion 4.08), the compliance fee for Quali-
fied Plans, 403(b) Plans, SEPs and SIMPLE
IRA Plans is the greater of the fee that
would be determined under sections 12.02
and 12.05, or an amount equal to a nego-
tiated percentage of the Maximum Pay-
ment Amount (Total Sanction Amount for
a 403(b) Plan), such percentage not to ex-
ceed 40 percent.
.07 Establishing the number of plan par-
ticipants. Compliance fees under this sec-
tion 12 are determined based on the num-
ber of plan participants. For new plans and
ongoing plans, the number of plan partici-
pants is determined from the most recently
filed Form 5500 series. Thus, with respect
to the 2002 Form 5500, the Plan Sponsor
would use the number shown in item 7f (or
the equivalent item on the Form 5500 C/R
or EZ) to establish the number of plan par-
ticipants. In the case of a terminated plan,
the Form 5500 used to determine the num-
ber of plan participants must be the one
filed for the plan year prior to the plan year
for which the Final Form 5500 return was
filed. If the submission involves a plan with
Transferred Assets and no new incidents of
the failure occurred after the end of the sec-
ond plan year that begins after the corpo-
rate merger, acquisition, or other similar em-
ployer transaction, the Plan Sponsor may
calculate the number of plan participants
based on the Form 5500 information that
would have been filed by the Plan Spon-
sor for the plan year that includes the em-
ployer transaction if the Transferred As-
sets were maintained as a separate plan. In
the case of a SEP or SIMPLE IRA Plan not
required to file a Form 5500, the Plan Spon-
sor may use other reasonable information
to determine the number of plan partici-
pants.
### PART VI. CORRECTION ON AUDIT (AUDIT CAP)
### SECTION 13. DESCRIPTION OF AUDIT CAP
.01 Audit CAP requirements. If the Ser-
vice identifies a Qualification or 403(b) Fail-
ure (other than a failure that has been cor-
rected in accordance with SCP or VCP)
upon an Employee Plans or Exempt Orga-
nizations examination of a Qualified Plan,
403(b) Plan, SEP, or SIMPLE IRA Plan, the
requirements of this section 13 are satis-
fied with respect to the failure if the Plan
Sponsor corrects the failure, pays a sanc-
tion in accordance with section 14, satis-
fies any additional requirements of sec-
tion 13.03, and enters into a closing
agreement with the Service.
.02 Payment of sanction. Payment of the
sanction under section 14 generally is re-
quired at the time the closing agreement is
signed. All sanction amounts should be sub-
mitted by certified or cashier's check made
payable to the U.S. Treasury.
.03 Additional requirements. Depend-
ing on the nature of the failure, the Ser-
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vice will discuss the appropriateness of the
plan's existing administrative procedures
with the Plan Sponsor. If existing admin-
istrative procedures are inadequate for op-
erating the plan in conformance with the ap-
plicable requirements of the Code, the
closing agreement may be conditioned upon
the implementation of stated procedures. In
addition, for Qualified Plans, the Plan Spon-
sor may be required to obtain a Favor-
able Letter before the closing agreement is
signed unless the Service determines that
it is unnecessary based on the facts and cir-
cumstances (for example, because the plan
already has a Favorable Letter and no sig-
nificant amendments are adopted). If a Fa-
vorable Letter is required, the Plan Spon-
sor is required to pay the applicable user
fee for obtaining the letter.
.04 Failure to reach resolution. If the
Service and the Plan Sponsor cannot reach
an agreement with respect to the correc-
tion of the failure(s) or the amount of the
sanction, the plan will be disqualified or,
in the case of a 403(b) Plan, SEP, or
SIMPLE IRA Plan will not have reliance
on this revenue procedure.
.05 Effect of closing agreement. A clos-
ing agreement constitutes an agreement be-
tween the Service and the Plan Sponsor that
is binding with respect to the tax matters
identified therein for the periods speci-
fied.
.06 Other procedural rules. The proce-
dural rules for Audit CAP are set forth in
Internal Revenue Manual ("IRM") 7.2.2,
EPCRS.
### SECTION 14. AUDIT CAP SANCTION
.01 Determination of sanction. The sanc-
tion under Audit CAP is a negotiated per-
centage of the Maximum Payment Amount.
For 403(b) Plans, SEPs and SIMPLE IRA
Plans, the sanction is a negotiated percent-
age of the Total Sanction Amount. Sanc-
tions will not be excessive and will bear a
reasonable relationship to the nature, ex-
tent, and severity of the failures, based on
the factors below.
.02 Factors considered. Factors include:
(1) the steps taken by the Plan Sponsor to
ensure that the plan had no failures, (2) the
steps taken to identify failures that may have
occurred, (3) the extent to which correc-
tion had progressed before the examina-
tion was initiated, including full correc-
tion, (4) the number and type of employees
affected by the failure, (5) the number of
nonhighly compensated employees who
would be adversely affected if the plan were
not treated as qualified or as satisfying the
requirements of § 403(b), § 408(k), or
§ 408(p), (6) whether the failure is a fail-
ure to satisfy the requirements of
§ 401(a)(4), § 401(a)(26), or § 410(b), ei-
ther directly or through § 403(b)(12), (7)
the period over which the failure(s) oc-
curred (for example, the time that has
elapsed since the end of the applicable re-
medial amendment period under § 401(b)
for a Plan Document Failure), and (8) the
reason for the failure(s) (for example, data
errors such as errors in transcription of data,
the transposition of numbers, or minor arith-
metic errors). Factors relating only to Quali-
fied Plans also include: (1) whether the plan
is the subject of a Favorable Letter, (2)
whether the plan has both Operational and
other failures, (3) the extent to which the
plan has accepted Transferred Assets, and
the extent to which the failure(s) relate to
Transferred Assets and occurred before the
transfer, and (4) whether the failure(s) were
discovered during the determination let-
ter process. Additional factors relating only
to 403(b) Plans include: (1) whether the
plan has a combination of Operational, De-
mographic, or Employer Eligibility Fail-
ures, (2) the extent to which the failure re-
lates to Excess Amounts, and (3) whether
the failure is solely an Employer Eligibil-
ity Failure.
.03 Transferred Assets. If the examina-
tion involves a plan with Transferred As-
sets and the Service determines that no new
incidents of the failures that relate to the
Transferred Assets occur after the end of the
second plan year that begins after the cor-
porate merger, acquisition, or other simi-
lar employer transaction, the sanction un-
der Audit CAP will not exceed the sanction
that would apply if the Transferred As-
sets were maintained as a separate plan.
### PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK REDUCTION ACT
## SECTION 15. EFFECT ON OTHER DOCUMENTS
.01 Revenue procedure 2002-47 modi-
fied and superseded. Rev. Proc. 2002-47 is
modified and superseded by this revenue
procedure.
## SECTION 16. EFFECTIVE DATE
This revenue procedure is generally ef-
fective October 1, 2003; however, plan
sponsors are permitted, at their option, to
apply the provisions of this revenue pro-
cedure on or after June 5, 2003.
Specifically, unless a plan sponsor ap-
plies the provisions of this revenue proce-
dure earlier, this revenue procedure is
effective:
(1) with respect to SCP, for failures for
which correction is not complete before Oc-
tober 1, 2003;
(2) with respect to VCP, for applica-
tions submitted on or after October 1, 2003;
and
(3) with respect to Audit CAP, for ex-
aminations begun on or after October 1,
2003.
## SECTION 17. PAPERWORK REDUCTION ACT
The collection of information contained
in this revenue procedure has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. 3507)
under control number 1545-1673.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid control number.
The collection of information in this rev-
enue procedure is in sections 4.05,
6.02(5)(d), 6.05, 6.06, 10.01, 10.02, 10.05,
10.06, 10.08, 11.02-11.04, 11.06-11.12,
13.01, section 2.01-2.07 of Appendix B,
and Appendix C. This information is re-
quired to enable the Commissioner, Tax Ex-
empt and Government Entities Division of
the Internal Revenue Service to make de-
terminations regarding the issuance of vari-
ous types of closing agreements and com-
pliance statements. This information will be
used to issue closing agreements and com-
pliance statements to allow individual plans
to continue to maintain their tax qualified
and tax-deferred status. As a result, favor-
able tax treatment of the benefits of the eli-
gible employees is retained. The likely re-
spondents are individuals, state or local
governments, businesses or other for-profit
institutions, nonprofit institutions, and small
businesses or organizations.
The estimated total annual reporting
and/or recordkeeping burden is 56,272
hours.
The estimated annual burden per
respondent/recordkeeper varies from .5 to
42.5 hours, depending on individual cir-
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cumstances, with an estimated average of
13.11 hours. The estimated number of re-
spondents and/or recordkeepers is 4,292.
The estimated frequency of responses is
occasional.
Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. § 6103.
## DRAFTING INFORMATION
The principal authors of this rev-
enue procedure are Maxine Terry and
Carlton Watkins of the Tax Exempt and
Government Entities Division. For fur-
ther information concerning this revenue
procedure, please contact the Employee
Plans' taxpayer assistance telephone ser-
vice at 1-877-829-5500 between 8:30 a.m.
and 6:30 p.m., Eastern Time, Monday
through Friday (a toll-free number).
Ms. Terry and Mr. Watkins may be reached
at (202) 283-9888 (not a toll-free num-
ber).
## APPENDIX A OPERATIONAL FAILURES AND CORRECTION METHODS
.01 General rule. This appendix sets
forth Operational Failures and Correction
Methods relating to Qualified Plans. In each
case, the method described corrects the Op-
erational Failure identified in the head-
ings below. Corrective allocations and dis-
tributions should reflect earnings and
actuarial adjustments in accordance with
section 6.02(4). The correction methods in
this appendix are acceptable under SCP and
VCP. Additionally, the correction meth-
ods and the earnings adjustment methods
in Appendix B are acceptable under SCP
and VCP. To the extent a failure listed in
this appendix could occur under a 403(b)
Plan, a SEP or a SIMPLE IRA Plan, the
correction method listed for such failure
may be used to correct the failure.
.02 Failure to properly provide the mini-
mum top-heavy benefit under § 416 to non-
key employees. In a defined contribution
plan, the permitted correction method is to
properly contribute and allocate the re-
quired top-heavy minimums to the plan in
the manner provided for in the plan on be-
half of the non-key employees (and any
other employees required to receive top-
heavy allocations under the plan). In a de-
fined benefit plan, the minimum required
benefit must be accrued in the manner pro-
vided in the plan.
.03 Failure to satisfy the ADP test set
forth in § 401(k)(3), the ACP test set forth
in § 401(m)(2), or the multiple use test of
§ 401(m)(9). The permitted correction
method is to make qualified nonelective
contributions (QNCs) (as defined in
§ 1.401(k)-1(g)(13)(ii)) on behalf of the
nonhighly compensated employees to the
extent necessary to raise the actual defer-
ral percentage or actual contribution per-
centage of the nonhighly compensated em-
ployees to the percentage needed to pass the
test or tests. The contributions must be made
on behalf of all eligible nonhighly com-
pensated employees (to the extent permit-
ted under § 415) and must either be the
same flat dollar amount or the same per-
centage of compensation. QNCs contrib-
uted to satisfy the ADP test need not be
matched. Employees who would have been
eligible for a matching contribution had they
made elective contributions must be counted
as eligible employees for the ACP test, and
the plan must satisfy the ACP test. Under
this correction method, a plan may not be
treated as two separate plans, one cover-
ing otherwise excludable employees and the
other covering all other employees (as per-
mitted in § 1.410(b)-6(b)(3)) in order to re-
duce the number of employees eligible to
receive QNCs. Likewise, under this cor-
rection method, the plan may not be re-
structured into component plans (as per-
mitted in § 1.401(k)-1(h)(3)(iii) for plan
years before January 1, 1992) in order to
reduce the number of employees eligible to
receive QNCs.
.04 Failure to distribute elective defer-
rals in excess of the § 402(g) limit (in con-
travention of § 401(a)(30)). The permit-
ted correction method is to distribute the
excess deferral to the employee and to re-
port the amount as taxable in the year of
deferral and in the year distributed. In ac-
cordance with § 1.402(g)-1(e)(1)(ii), a dis-
tribution to a highly compensated employee
is included in the ADP test; a distribution
to a nonhighly compensated employee is not
included in the ADP test.
.05 Exclusion of an eligible employee
from all contributions or accruals under the
plan for one or more plan years. The per-
mitted correction method is to make a con-
tribution to the plan on behalf of the em-
ployees excluded from a defined
contribution plan or to provide benefit ac-
cruals for the employees excluded from a
defined benefit plan. If the employee should
have been eligible to make an elective con-
tribution under a cash or deferred arrange-
ment, the employer must make a QNC (as
defined in § 1.401(k)-1(g)(13)(ii)) to the
plan on behalf of the employee that is equal
to the actual deferral percentage for the em-
ployee's group (either highly compensated
or nonhighly compensated). If the em-
ployee should have been eligible to make
employee contributions or for matching con-
tributions (on either elective contributions
or employee contributions), the employer
must make a QNC to the plan on behalf of
the employee that is equal to the actual con-
tribution percentage for the employee's
group (either highly compensated or non-
highly compensated). Contributing the ac-
tual deferral or contribution percentage for
such employees eliminates the need to re-
run the ADP or ACP test to account for the
previously excluded employees. Under this
correction method, a plan may not be
treated as two separate plans, one cover-
ing otherwise excludable employees and the
other covering all other employees (as per-
mitted in § 1.410(b)-6(b)(3)) in order to re-
duce the amount of QNCs. Likewise, re-
structuring the plan into component plans
under § 1.401(k)-1(h)(3)(iii) is not permit-
ted in order to reduce the amount of QNCs.
.06 Failure to timely pay the minimum
distribution required under § 401(a)(9). In
a defined contribution plan, the permitted
correction method is to distribute the re-
quired minimum distributions. The amount
to be distributed for each year in which the
failure occurred should be determined by
dividing the adjusted account balance on the
applicable valuation date by the appli-
cable distribution period. For this purpose,
adjusted account balance means the ac-
tual account balance, determined in accor-
dance with § 1.401(a)(9)-5 Q&A-3 of the
regulations, reduced by the amount of the
total missed minimum distributions for prior
years. In a defined benefit plan, the per-
mitted correction method is to distribute the
required minimum distributions, plus an in-
terest payment representing the loss of use
of such amounts.
.07 Failure to obtain participant and/or
spousal consent for a distribution subject
to the participant and spousal consent rules
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under §§ 401(a)(11), 411(a)(11) and 417.
The permitted correction method is to give
each affected participant a choice between
providing informed consent for the distri-
bution actually made or receiving a quali-
fied joint and survivor annuity. In the event
that participant and/or spousal consent is re-
quired but cannot be obtained, the partici-
pant must receive a qualified joint and sur-
vivor annuity based on the monthly amount
that would have been provided under the
plan at his or her retirement date. This an-
nuity may be actuarially reduced to take into
account distributions already received by the
participant. However, the portion of the
qualified joint and survivor annuity pay-
able to the spouse upon the death of the par-
ticipant may not be actuarially reduced to
take into account prior distributions to the
participant. Thus, for example, if in accor-
dance with the automatic qualified joint and
survivor annuity option under a plan, a mar-
ried participant who retired would have re-
ceived a qualified joint and survivor an-
nuity of $600 per month payable for life
with $300 per month payable to the spouse
upon the participant's death but instead re-
ceived a single-sum distribution equal to the
actuarial present value of the participant's
accrued benefit under the plan, then the
$600 monthly annuity payable during the
participant's lifetime may be actuarially re-
duced to take the single-sum distribution
into account. However, the spouse must be
entitled to receive an annuity of $300 per
month payable for life beginning at the par-
ticipant's death.
.08 Failure to satisfy the § 415 limits in
a defined contribution plan. The permit-
ted correction for failure to limit annual ad-
ditions (other than elective deferrals and
employee contributions) allocated to par-
ticipants in a defined contribution plan as
required in § 415 (even if the excess did
not result from the allocation of forfei-
tures or from a reasonable error in esti-
mating compensation) is to place the ex-
cess annual additions into an unallocated
account, similar to the suspense account de-
scribed in § 1.415-6(b)(6)(iii), to be used
as an employer contribution in the suc-
ceeding year(s). While such amounts re-
main in the unallocated account, the em-
ployer is not permitted to make additional
contributions to the plan. The permitted cor-
rection for failure to limit annual addi-
tions that are elective deferrals or employee
contributions (even if the excess did not re-
sult from a reasonable error in determin-
ing the amount of elective deferrals or em-
ployee contributions that could be made
with respect to an individual under the
§ 415 limits) is to distribute the elective de-
ferrals or employee contributions using a
method similar to that described under
§ 1.415-6(b)(6)(iv). Elective deferrals and
employee contributions that are matched
may be returned, provided that the match-
ing contributions relating to such contri-
butions are forfeited (which will also re-
duce excess annual additions for the affected
individuals). The forfeited matching con-
tributions are to be placed into an unallo-
cated account to be used as an employer
contribution in succeeding periods.
## APPENDIX B
## CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS AND EXAMPLES
## SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION REFERENCES
.01 Purpose. (1) This appendix sets forth
correction methods relating to Operational
Failures under Qualified Plans. This ap-
pendix also sets forth earnings adjustment
methods. The correction methods and earn-
ings adjustment methods described in this
appendix are acceptable under SCP and
VCP.
(2) To the extent a failure listed in this
appendix could occur under a 403(b) Plan,
SEP, or a SIMPLE IRA Plan, the correc-
tion method listed for such failure may be
used to correct the failure.
.02 Assumptions for Examples. Unless
otherwise specified, for ease of presenta-
tion, the examples assume that:
(1) the plan year and the § 415 limita-
tion year are the calendar year;
(2) the employer maintains a single plan
intended to satisfy § 401(a) and has never
maintained any other plan;
(3) in a defined contribution plan, the
plan provides that forfeitures are used to re-
duce future employer contributions;
(4) the Qualification Failures are Op-
erational Failures and the eligibility and
other requirements for SCP, VCP or Au-
dit CAP, whichever applies, are satisfied;
and
(5) there are no Qualification Failures
other than the described Operational Fail-
ures, and if a corrective action would re-
sult in any additional Qualification Fail-
ure, appropriate corrective action is taken
for that additional Qualification Failure in
accordance with EPCRS.
.03 Section References. References to
section 2 and section 3 are references to the
section 2 and 3 in this appendix.
## SECTION 2. CORRECTION METHODS AND EXAMPLES
### .01 ADP/ACP Failures.
(1) Correction Methods. (a) Appendix A
Correction Method. Appendix A, section .03
sets forth a correction method for a fail-
ure to satisfy the actual deferral percent-
age ("ADP"), actual contribution percent-
age ("ACP"), or multiple use test set forth
in §§ 401(k)(3), 401(m)(2), and 401(m)(9),
respectively.
(b) One-to-One Correction Method. (i)
General. In addition to the correction
method in Appendix A, a failure to sat-
isfy the ADP, ACP, or multiple use test may
be corrected using the one-to-one correc-
tion method set forth in this section
2.01(1)(b). Under the one-to-one correc-
tion method, an excess contribution amount
is determined and assigned to highly com-
pensated employees as provided in para-
graph (1)(b)(ii) below. That excess contri-
bution amount (adjusted for earnings) is
either distributed to the highly compen-
sated employees or forfeited from the highly
compensated employees' accounts as pro-
vided in paragraph (1)(b)(iii) below. That
same dollar amount (i.e., the excess con-
tribution amount, adjusted for earnings) is
contributed to the plan and allocated to non-
highly compensated employees as pro-
vided in paragraph (1)(b)(iv) below. Un-
der this correction method, a plan may not
be treated as two separate plans, one cov-
ering otherwise excludable employees and
the other covering all other employees (as
permitted in § 1.410(b)-6(b)(3)). Like-
wise, restructuring the plan into compo-
nent plans under § 1.401(k)-1(h)(3)(iii) is
not permitted.
(ii) Determination of the Excess Con-
tribution Amount. The excess contribu-
tion amount for the year is equal to the ex-
cess of (A) the sum of the excess
contributions (as defined in § 401(k)(8)(B)),
the excess aggregate contributions (as de-
fined in § 401(m)(6)(B)), and the amount
treated as excess contributions or excess ag-
gregate contributions under the multiple use
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test pursuant to § 401(m)(9) and § 1.401
(m)-2(c) for the year, as assigned to each
highly compensated employee in accor-
dance with § 401(k)(8)(C) and (m)(6)(C),
over (B) previous corrections that com-
plied with § 401(k)(8), (m)(6), and (m)(9).
See Notice 97-2, 1997-1 C.B. 348.
(iii) Distributions and Forfeitures of the
Excess Contribution Amount. (A) The por-
tion of the excess contribution amount as-
signed to a particular highly compensated
employee under paragraph (1)(b)(ii) is ad-
justed for earnings through the date of cor-
rection. The amount assigned to a particu-
lar highly compensated employee, as
adjusted, is distributed or, to the extent the
amount was forfeitable as of the close of
the plan year of the failure, is forfeited. If
the amount is forfeited, it is used in accor-
dance with the plan provisions relating to
forfeitures that were in effect for the year
of the failure. If the amount so assigned to
a particular highly compensated employee
has been previously distributed; the amount
is an Excess Amount within the meaning
of section 5.01(3) of this revenue proce-
dure. Thus, pursuant to section 6.06 of this
revenue procedure, the employer must no-
tify the employee that the Excess Amount
was not eligible for favorable tax treat-
ment accorded to distributions from quali-
fied plans (and, specifically, was not eli-
gible for tax-free rollover).
(B) If any matching contributions (ad-
justed for earnings) are forfeited in accor-
dance with § 411(a)(3)(G), the forfeited
amount is used in accordance with the plan
provisions relating to forfeitures that were
in effect for the year of the failure.
(C) If a payment was made to an em-
ployee and that payment is a forfeitable
match described in either paragraph
(1)(b)(iii)(A) or (B), then it is an Overpay-
ment defined in section 5.01(6) of this rev-
enue procedure that must be corrected (see
sections 2.04 and 2.05 below).
(iv) Contribution and Allocation of
Equivalent Amount. (A) The employer
makes a contribution to the plan that is
equal to the aggregate amounts distrib-
uted and forfeited under paragraph
(1)(b)(iii)(A) (i.e., the excess contribution
amount adjusted for earnings, as provided
in paragraph (1)(b)(iii)(A), which does not
include any matching contributions for-
feited in accordance with § 411(a)(3)(G) as
provided in paragraph (1)(b)(iii)(B)). The
contribution must satisfy the vesting re-
quirements and distribution limitations of
§ 401(k)(2)(B) and (C).
(B)(1) This paragraph (1)(b)(iv)(B)(1)
applies to a plan that uses the current year
testing method described in Notice 98-1,
1998-1 C.B. 327. The contribution made
under paragraph (1)(b)(iv)(A) is allocated
to the account balances of those individu-
als who were either (I) the eligible em-
ployees for the year of the failure who were
not highly compensated employees for that
year or (II) the eligible employees for the
year of the failure who were not highly
compensated employees for that year and
who also are not highly compensated em-
ployees for the year of correction. Alter-
natively, the contribution is allocated to ac-
count balances of eligible employees
described in (I) or (II) of the preceding sen-
tence, except that the allocation is made
only to the account balances of those em-
ployees who are employees on a date dur-
ing the year of the correction that is no later
than the date of correction. Regardless of
which of these four options (described in
the two preceding sentences) the employer
selects, the contribution is allocated to each
such employee either as the same percent-
age of the employee's compensation for the
year of the failure or as the same dollar
amount for each employee. (See Examples
1, 2 and 3.) Under the one-to-one correc-
tion method, the amount allocated to the ac-
count balance of an employee (i.e., the em-
ployee's share of the total amount
contributed under paragraph (1)(b)(iv)(A))
is not further adjusted for earnings and is
treated as an annual addition under § 415
for the year of the failure for the employee
for whom it is allocated.
(2) This paragraph (1)(b)(iv)(B)(2) ap-
plies to a plan that uses the prior year test-
ing method described in Notice 98-1. Para-
graph (1)(b)(iv)(B)(1) is applied by
substituting "the year prior to the year of
the failure" for "the year of the failure".
(2) Examples.
### Example 1:
Employer A maintains a profit-sharing plan with
a cash or deferred arrangement that is intended to sat-
isfy § 401(k) ("401(k) plan") using the current year
testing method described in Notice 98-1. The plan does
not provide for matching contributions or employee
after-tax contributions. In 1999, it was discovered that
the ADP test for 1997 was not performed correctly.
When the ADP test was performed correctly, the test
was not satisfied for 1997. For 1997, the ADP for
highly compensated employees was 9% and the ADP
for nonhighly compensated employees was 4%. Ac-
cordingly, the ADP for highly compensated employ-
ees exceeded the ADP for nonhighly compensated em-
ployees by more than two percentage points (in
violation of § 401(k)(3)). (The ADP for nonhighly
compensated employees for 1996 also was 4%, so the
ADP test for 1997 would not have been satisfied even
if the plan had used the prior year testing method de-
scribed in Notice 98-1.) There were two highly com-
pensated employees eligible under the 401(k) plan dur-
ing 1997, Employee P and Employee Q. Employee P
made elective deferrals of $8,000, which is equal to
10% of Employee P's compensation of $80,000 for
1997. Employee Q made elective deferrals of $9,500,
which is equal to 8% of Employee Q's compensa-
tion of $118,750 for 1997.
Correction:
On June 30, 1999, Employer A uses the one-to-
one correction method to correct the failure to sat-
isfy the ADP test for 1997. Accordingly, Employer A
calculates the dollar amount of the excess contribu-
tions for the two highly compensated employees in
the manner described in § 401(k)(8)(B). The amount
of the excess contribution for Employee P is $3,200
(4% of $80,000) and the amount of the excess con-
tribution for Employee Q is $2,375 (2% of $118,750),
or a total of $5,575. In accordance with § 401(k)(8)(C),
$5,575, the excess contribution amount, is assigned
$2,037.50 to Employee P and $3,537.50 to Employee
Q. It is determined that the earnings on the assigned
amounts through June 30, 1999, are $407 and $707
for Employees P and Q, respectively. The assigned
amounts and the earnings are distributed to Employ-
ees P and Q. Therefore, Employee P receives $2,444.50
($2,037.50 + $407) and Employee Q receives
$4,244.50 ($3,537.50 + $707). In addition, on the same
date, a corrective contribution is made to the 401(k)
plan equal to $6,689 (the sum of the $2,444.50 dis-
tributed to Employee P and the $4,244.50 distrib-
uted to Employee Q). The corrective contribution is
allocated to the account balances of eligible non-
highly compensated employees for 1997, pro rata
based on their compensation for 1997 (subject to § 415
for 1997).
Example 2:
The facts are the same as in Example 1.
Correction:
The correction is the same as in Example 1, ex-
cept that the corrective contribution of $6,689 is al-
located in an equal dollar amount to the account bal-
ances of eligible nonhighly compensated employees
for 1997 who are employees on June 30, 1999, and
who are nonhighly compensated employees for 1999
(subject to § 415 for 1997).
Example 3:
The facts are the same as in Example 1, except
that for 1997 the plan also provides (1) for employee
after-tax contributions and (2) for matching contri-
butions equal to 50% of the sum of an employee's
elective deferrals and employee after-tax contribu-
tions that do not exceed 10% of the employee's com-
pensation. The plan provides that matching contribu-
tions are subject to the plan's 5-year graded vesting
schedule and that matching contributions are for-
feited and used to reduce employer contributions if
associated elective deferrals or employee after-tax con-
tributions are distributed to correct an ADP, ACP or
multiple use test failure. For 1997, nonhighly com-
pensated employees made employee after-tax contri-
butions and no highly compensated employee made
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any employee after-tax contributions. Employee Pre-
ceived a matching contribution of $4,000 (50% of
$8,000) and Employee Q received a matching con-
tribution of $4,750 (50% of $9,500). Employees P and
Q were 100% vested in 1997. It is determined that,
for 1997, the ACP for highly compensated employ-
ees was not more than 125% of the ACP for non-
highly compensated employees, so that the ACP and
multiple use tests would have been satisfied for 1997
without any corrective action.
Correction:
The same corrective actions are taken as in Ex-
ample 1. In addition, in accordance with the plan's
terms, corrective action is taken to forfeit Employee
P's and Employee Q's matching contributions asso-
ciated with their distributed excess contributions. Em-
ployee P's distributed excess contributions and asso-
ciated matching contributions are $2,037.50 and
$1,018.75, respectively. Employee Q's distributed ex-
cess contributions and associated matching contribu-
tions are $3,537.50 and $1,768.75, respectively. Thus,
$1,018.75 is forfeited from Employee P's account and
$1,768.75 is forfeited from Employee Q's account. In
addition, the earnings on the forfeited amounts are also
forfeited. It is determined that the respective earn-
ings on the forfeited amount for Employee P is $150
and for Employee Q is $204. The total amount of the
forfeitures of $3,141.50 (Employee P's $1,018.75 +
$150 and Employee Q's $1,768.75 + $204) is used
to reduce contributions for 1999 and subsequent years.
.02 Exclusion of Eligible Employees.
(1) Exclusion of Eligible Employees in
a 401(k) or (m) Plan. (a) Correction
Method. (i) Appendix A Correction Method
for Full Year Exclusion. Appendix A, sec-
tion .05 sets forth the correction method for
the exclusion of an eligible employee from
all contributions under a 401(k) or (m) plan
for one or more full plan years. (See Ex-
ample 4.) In section 2.02(1)(a)(ii) below, the
correction method for the exclusion of an
eligible employee from all contributions un-
der a 401(k) or (m) plan for a full year is
expanded to include correction for the ex-
clusion of an eligible employee from all
contributions under a 401(k) or (m) plan for
a partial plan year. This correction for a par-
tial year exclusion may be used in con-
junction with the correction for a full year
exclusion.
(ii) Expansion of Correction Method to
Partial Year Exclusion. (A) In General. The
correction method in Appendix A, sec-
tion .05 is expanded to cover an employee
who was improperly excluded from mak-
ing elective deferrals or employee after-
tax contributions for a portion of a plan year
or from receiving matching contributions
(on either elective deferrals or employee
after-tax contributions) for a portion of a
plan year. In such case, a permitted cor-
rection method for the failure is for the em-
ployer to satisfy this section 2.02(1)(a)(ii).
The employer makes a corrective contri-
bution on behalf of the excluded employee
that satisfies the vesting requirements and
distribution limitations of § 401(k)(2)(B) and
(C).
(B) Elective Deferral Failures. The ap-
propriate corrective contribution for the fail-
ure to allow employees to make elective de-
ferrals for a portion of the plan year is equal
to the ADP of the employee's group (ei-
ther highly or nonhighly compensated), de-
termined prior to correction under this sec-
tion 2.02(1)(a)(ii), multiplied by the
employee's plan compensation for the por-
tion of the year during which the employee
was improperly excluded. The corrective
contribution for the portion of the plan year
during which the employee was improp-
erly excluded from being eligible to make
elective deferrals is reduced to the extent
that (1) the sum of that contribution and any
elective deferrals actually made by the em-
ployee for that year would exceed (2) the
maximum elective deferrals permitted un-
der the plan for the employee for that plan
year (including the § 402(g) limit). The cor-
rective contribution is adjusted for earn-
ings. (See Examples 5 and 6.)
(C) Employee After-tax and Matching
Contribution Failures.
The appropriate corrective contribu-
tion for the failure to allow employees to
make employee after-tax contributions or
to receive matching contributions because
the employee was precluded from mak-
ing employee after-tax contributions or elec-
tive deferrals for a portion of the plan year
is equal to the ACP of the employee's group
(either highly or nonhighly compensated),
determined prior to correction under this
section 2.02(1)(a)(ii), multiplied by the em-
ployee's plan compensation for the por-
tion of the year during which the employee
was improperly excluded. The corrective
contribution is reduced to the extent that (1)
the sum of that contribution and the ac-
tual total employee after-tax and match-
ing contributions made by and for the em-
ployee for the plan year would exceed (2)
the sum of the maximum employee after-
tax contributions permitted under the plan
for the employee for the plan year and the
matching contributions that would have
been made if the employee had made the
maximum matchable contributions permit-
ted under the plan for the employee for that
plan year. The corrective contribution is ad-
justed for earnings.
(D) Use of Prorated Compensation. For
purposes of this paragraph (1)(a)(ii), for ad-
ministrative convenience, in lieu of using
the employee's actual plan compensation for
the portion of the year during which the em-
ployee was improperly excluded, a pro rata
portion of the employee's plan compensa-
tion that would have been taken into ac-
count for the plan year, if the employee had
not been improperly excluded, may be used.
(E) Special Rule for Brief Exclusion
from Elective Deferrals. An employer is not
required to make a corrective contribu-
tion with respect to elective deferrals, as
provided in section 2.02(1)(a)(ii)(B), (but
is required to make a corrective contribu-
tion with respect to any employee after-
tax and matching contributions, as pro-
vided in section 2.02(1)(a)(ii)(C)) for an
employee for a plan year if the employee
has been provided the opportunity to make
elective deferrals under the plan for a pe-
riod of at least the last 9 months in that plan
year and during that period the employee
had the opportunity to make elective de-
ferrals in an amount not less than the maxi-
mum amount that would have been per-
mitted if no failure had occurred. (See
Example 7.)
(b) Examples.
Example 4:
Employer B maintains a 401(k) plan. The plan pro-
vides for matching contributions for eligible employ-
ees equal to 100% of elective deferrals that do not ex-
ceed 3% of an employee's compensation. The plan
provides that employees who complete one year of ser-
vice are eligible to participate in the plan on the next
January 1 or July 1 entry date. Twelve employees (8
nonhighly compensated employees and 4 highly com-
pensated employees) who had met the one year eli-
gibility requirement after July 1, 1995, and before Janu-
ary 1, 1996, were inadvertently excluded from
participating in the plan beginning on January 1, 1996.
These employees were offered the opportunity to be-
gin participating in the plan on January 1, 1997. For
1996, the ADP for the highly compensated employ-
ees was 8% and the ADP for the nonhighly compen-
sated employees was 6%. In addition, for 1996, the
ACP for the highly compensated employees was 2.5%
and the ACP for the nonhighly compensated employ-
ees was 2%. The failure to include the 12 employ-
ees was discovered during 1998.
Correction:
Employer B uses the correction method for full
year exclusions to correct the failure to include the 12
eligible employees in the plan for the full plan year
beginning January 1, 1996. Thus, Employer B makes
a corrective contribution (that satisfies the vesting
requirements and distribution limitations of
§ 401(k)(2)(B) and (C)) for each of the excluded em-
ployees. The contribution for each of the improp-
erly excluded highly compensated employees is 10.5%
(the highly compensated employees' ADP of 8% plus
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ACP of 2.5%) of the employee's plan compensation
for the 1996 plan year (adjusted for earnings). The con-
tribution for each of the improperly excluded non-
highly compensated employees is 8% (the nonhighly
compensated employees' ADP of 6% plus ACP of 2%)
of the employee's plan compensation for the 1996 plan
year (adjusted for earnings).
### Example 5:
Employer C maintains a 401(k) plan. The plan pro-
vides for matching contributions for each payroll pe-
riod that are equal to 100% of an employee's elec-
tive deferrals that do not exceed 2% of the eligible
employee's plan compensation during the payroll pe-
riod. The plan does not provide for employee after-
tax contributions. The plan provides that employees
who complete one year of service are eligible to par-
ticipate in the plan on the next January 1 or July 1
entry date. A nonhighly compensated employee who
met the eligibility requirements and should have en-
tered the plan on January 1, 1996, was not offered the
opportunity to participate in the plan. In August of
1996, the error was discovered and Employer C of-
fered the employee an election opportunity as of Sep-
tember 1, 1996. The employee made elective defer-
rals equal to 4% of the employee's plan compensation
for each payroll period from September 1, 1996,
through December 31, 1996 (resulting in elective de-
ferrals of $500). The employee's plan compensation
for 1996 was $36,000 ($23,500 for the first eight
months and $12,500 for the last four months). Em-
ployer C made matching contributions equal to $250
for the excluded employee, which is 2% of the em-
ployee's plan compensation for each payroll period
from September 1, 1996, through December 31, 1996
($12,500). The ADP for nonhighly compensated em-
ployees for 1996 was 3% and the ACP for nonhighly
compensated employees for 1996 was 1.8%.
Correction:
Employer C uses the correction method for par-
tial year exclusions to correct the failure to include
the eligible employee in the plan. Thus, Employer C
makes a corrective contribution (that satisfies the vest-
ing requirements and distribution limitations of
§ 401(k)(2)(B) and (C)) for the excluded employee.
In determining the amount of corrective contribu-
tions (both for the elective deferral and for the match-
ing contribution), for administrative convenience, in
lieu of using actual plan compensation of $23,500 for
the period the employee was excluded, the employ-
ee's annual plan compensation is pro rated for the
eight-month period that the employee was excluded
from participating in the plan. The failure to pro-
vide the excluded employee the right to make elec-
tive deferrals is corrected by the employer making a
corrective contribution on behalf of the employee that
is equal to $720 (the 3% ADP percentage for non-
highly compensated employees multiplied by $24,000,
which is 8/12ths of the employee's 1996 plan com-
pensation of $36,000), adjusted for earnings. In ad-
dition, to correct for the failure to receive the plan's
matching contribution, a corrective contribution is made
on behalf of the employee that is equal to $432 (the
1.8% ACP for the nonhighly compensated group mul-
tiplied by $24,000, which is 8/12ths of the employ-
ee's 1996 plan compensation of $36,000), adjusted for
earnings. Employer C determines that $682, the sum
of the actual matching contribution received by the
employee for the plan year ($250) and the correc-
tive contribution to correct the matching contribu-
tion failure ($432), does not exceed $720, the maxi-
mum matching contribution available to the employee
under the plan (2% of $36,000) determined as if the
employee had made the maximum matchable contri-
butions. In addition to correcting the failure to in-
clude the eligible employee in the plan, Employer C
reruns the ADP and ACP tests for 1996 (taking into
account the corrective contribution and plan compen-
sation for 1996 for the excluded employee) and de-
termines that the tests were satisfied.
Example 6:
The facts are the same as in Example 5, except
that the plan provides for matching contributions that
are equal to 100% of an eligible employee's elec-
tive deferrals that do not exceed 2% of the employ-
ee's plan compensation for the plan year. Accord-
ingly, the actual matching contribution made by
Employer C for the excluded employee for the last four
months of 1996 is $500 (which is equal to 100% of
the $500 of elective deferrals made by the employee
for the last four months of 1996).
Correction:
The correction is the same as in Example 5, ex-
cept that the corrective contribution made for the first
8 months of 1996 to correct the failure to make match-
ing contributions is equal to $220 (adjusted for earn-
ings), instead of the $432 (adjusted for earnings) in
Example 5, because the corrective contribution is lim-
ited to the maximum matching contributions avail-
able under the plan for the employee for the plan year,
$720 (2% of $36,000), reduced by the actual match-
ing contributions made for the employee for the plan
year, $500.
### Example 7:
The facts are the same as in Example 5, except
that the error is discovered in March of 1996 and the
employee was given the opportunity to make elec-
tive deferrals beginning on April 1, 1996. The amount
of elective deferrals that the employee was given the
opportunity to make during 1996 was not less than the
maximum elective deferrals that the employee could
have made if the employee had been given the op-
portunity to make elective deferrals beginning on Janu-
ary 1, 1996. The employee made elective deferrals
equal to 4% of the employee's plan compensation for
each payroll period from April 1, 1996, through De-
cember 31, 1996, of $28,000 (resulting in elective de-
ferrals of $1,120). Employer C made a matching con-
tribution equal to $560, which is 2% of the employee's
plan compensation for each payroll period from April
1, 1996, through December 31, 1996 ($28,000). The
employee's plan compensation for 1996 was $36,000
($8,000 for the first three months and $28,000 for the
last nine months).
Correction:
Employer C uses the correction method for par-
tial year exclusions to correct the failure to include
an eligible employee in the plan. Because the em-
ployee was given an opportunity to make elective de-
ferrals to the plan for at least the last 9 months of the
plan year (and the amount of the elective deferrals that
the employee had the opportunity to make was not less
than the maximum elective deferrals that the em-
ployee could have made if the employee had been
given the opportunity to make elective deferrals be-
ginning on January 1, 1996), under the special rule
set forth in section 2.02(1)(a)(ii)(E), Employer C is
not required to make a corrective contribution for the
failure to allow the employee to make elective de-
ferrals. In determining the amount of corrective con-
tribution with respect to the failure to allow the em-
ployee to receive matching contributions, in lieu of
using actual plan compensation of $8,000 for the pe-
riod the employee was excluded, the employee's an-
nual plan compensation is pro rated for the three-
month period that the employee was excluded from
participating in the plan. Accordingly, a corrective con-
tribution is made on behalf of the employee that is
equal to $160, which is the lesser of (i) $162 (a match-
ing contribution of 1.8% of $9,000, which is 3/12ths
of the employee's 1996 plan compensation of $36,000),
and (ii) $160 (the excess of the maximum matching
contribution for the entire plan year, which is equal
to 2% of $36,000, or $720, over the matching con-
tributions made after March 31, 1996, $560). The con-
tribution is adjusted for earnings.
(2) Exclusion of Eligible Employees In
a Profit-Sharing Plan.
(a) Correction Methods. (i) Appendix A
Correction Method. Appendix A, section .05
sets forth the correction method for cor-
recting the exclusion of an eligible em-
ployee. In the case of a defined contribu-
tion plan, the correction method is to make
a contribution on behalf of the excluded em-
ployee. Section 2.02(2)(a)(ii) below clari-
fies the correction method in the case of a
profit-sharing or stock bonus plan that pro-
vides for nonelective contributions (within
the meaning of § 1.401(k)-1(g)(10)).
(ii) Clarification of Appendix A Correc-
tion Method for Profit-Sharing Plans. To
correct for the exclusion of an eligible em-
ployee from nonelective contributions in a
profit-sharing or stock bonus plan under the
Appendix A correction method, an alloca-
tion amount is determined for each ex-
cluded employee on the same basis as the
allocation amounts were determined for the
other employees under the plan's alloca-
tion formula (e.g., the same ratio of allo-
cation to compensation), taking into ac-
count all of the employee's relevant factors
(e.g., compensation) under that formula for
that year. The employer makes a correc-
tive contribution on behalf of the excluded
employee that is equal to the allocation
amount for the excluded employee. The cor-
rective contribution is adjusted for earn-
ings. If, as a result of excluding an em-
ployee, an amount was improperly allocated
to the account balance of an eligible em-
ployee who shared in the original alloca-
tion of the nonelective contribution, no re-
duction is made to the account balance of
the employee who shared in the original al-
location on account of the improper allo-
cation. (See Example 8.)
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(iii) Reallocation Correction Method. (A)
In General. Subject to the limitations set
forth in section 2.02(2)(a)(iii)(F) below, in
addition to the Appendix A correction
method, the exclusion of an eligible em-
ployee for a plan year from a profit-sharing
or stock bonus plan that provides for non-
elective contributions may be corrected us-
ing the reallocation correction method set
forth in this section 2.02(2)(a)(iii). Under
the reallocation correction method, the ac-
count balance of the excluded employee is
increased as provided in paragraph
(2)(a)(iii)(B) below, the account balances
of other employees are reduced as pro-
vided in paragraph (2)(a)(iii)(C) below, and
the increases and reductions are recon-
ciled, as necessary, as provided in para-
graph (2)(a)(iii)(D) below. (See Examples
9 and 10.)
(B) Increase in Account Balance of Ex-
cluded Employee. The account balance of
the excluded employee is increased by an
amount that is equal to the allocation the
employee would have received had the em-
ployee shared in the allocation of the non-
elective contribution. The amount is ad-
justed for earnings.
(C) Reduction in Account Balances of
Other Employees. (1) The account bal-
ance of each employee who was an eli-
gible employee who shared in the origi-
nal allocation of the nonelective contribution
is reduced by the excess, if any, of (I) the
employee's allocation of that contribu-
tion over (II) the amount that would have
been allocated to that employee had the fail-
ure not occurred. This amount is adjusted
for earnings taking into account the rules
set forth in section 2.02(2)(a)(iii)(C)(2) and
(3) below. The amount after adjustment for
earnings is limited in accordance with sec-
tion 2.02(2)(a)(iii)(C)(4) below.
(2) This paragraph (2)(a)(iii)(C)(2) ap-
plies if most of the employees with ac-
count balances that are being reduced are
nonhighly compensated employees. If there
has been an overall gain for the period from
the date of the original allocation of the con-
tribution through the date of correction, no
adjustment for earnings is required to the
amount determined under section
2.02(2)(a)(iii)(C)(1) for the employee. If the
amount for the employee is being adjusted
for earnings and the plan permits invest-
ment of account balances in more than one
investment fund, for administrative conve-
nience, the reduction to the employee's ac-
count balance may be adjusted by the low-
est earnings rate of any fund for the period
from the date of the original allocation of
the contribution through the date of cor-
rection.
(3) If an employee's account balance is
reduced and the original allocation was
made to more than one investment fund or
there was a subsequent distribution or trans-
fer from the fund receiving the original al-
location, then reasonable, consistent as-
sumptions are used to determine the
earnings adjustment.
(4) The amount determined in section
2.02(2)(a)(iii)(C)(1) for an employee af-
ter the application of section 2.02(2)
(a)(iii)(C)(2) and (3) may not exceed the ac-
count balance of the employee on the date
of correction, and the employee is permit-
ted to retain any distribution made prior to
the date of correction.
(D) Reconciliation of Increases and Re-
ductions. If the aggregate amount of the in-
creases under section 2.02(2)(a)(iii)(B) ex-
ceeds the aggregate amount of the
reductions under section 2.02(2)(a)(iii)(C),
the employer makes a corrective contribu-
tion to the plan for the amount of the ex-
cess. If the aggregate amount of the reduc-
tions under section 2.02(2)(a)(iii)(C) exceeds
the aggregate amount of the increases un-
der section 2.02(2)(a)(iii)(B), then the
amount by which each employee's account
balance is reduced under section 2.02(2)
(a)(iii)(C) is decreased on a pro rata ba-
sis.
(E) Reductions Among Multiple Invest-
ment Funds. If an employee's account bal-
ance is reduced and the employee's ac-
count balance is invested in more than one
investment fund, then the reduction may be
made from the investment funds selected
in any reasonable manner.
(F) Limitations on Use of Realloca-
tion Correction Method. If any employee
would be permitted to retain any distribu-
tion pursuant to section 2.02(2)(a)(iii)(C)(4),
then the reallocation correction method may
not be used unless most of the employees
who would be permitted to retain a distri-
bution are nonhighly compensated employ-
ees.
(b) Examples.
Example 8:
Employer D maintains a profit-sharing plan that
provides for discretionary nonelective employer con-
tributions. The plan provides that the employer's con-
tributions are allocated to account balances in the ra-
tio that each eligible employee's compensation for the
plan year bears to the compensation of all eligible em-
ployees for the plan year and, therefore, the only rel-
evant factor for determining an allocation is the em-
ployee's compensation. The plan provides for self-
directed investments among four investment funds and
daily valuations of account balances. For the 1997 plan
year, Employer D made a contribution to the plan of
a fixed dollar amount. However, five employees who
met the eligibility requirements were inadvertently ex-
cluded from participating in the plan. The contribu-
tion resulted in an allocation on behalf of each of the
eligible employees, other than the excluded employ-
ees, equal to 10% of compensation. Most of the em-
ployees who received allocations under the plan for
the year of the failure were nonhighly compensated
employees. No distributions have been made from the
plan since 1997. If the five excluded employees had
shared in the original allocation, the allocation made
on behalf of each employee would have equaled 9%
of compensation. The excluded employees began par-
ticipating in the plan in the 1998 plan year.
Correction:
Employer D uses the Appendix A correction
method to correct the failure to include the five eli-
gible employees. Thus, Employer D makes a correc-
tive contribution to the plan. The amount of the cor-
rective contribution on behalf of the five excluded
employees for the 1997 plan year is equal to 10% of
compensation of each excluded employee, the same
allocation that was made for other eligible employ-
ees, adjusted for earnings. The excluded employees
receive an allocation equal to 10% of compensation
(adjusted for earnings) even though, had the ex-
cluded employees originally shared in the allocation
for the 1997 contribution, their account balances, as
well as those of the other eligible employees, would
have received an allocation equal to only 9% of com-
pensation.
### Example 9:
The facts are the same as in Example 8.
Correction:
Employer D uses the reallocation correction
method to correct the failure to include the five eli-
gible employees. Thus, the account balances are ad-
justed to reflect what would have resulted from the
correct allocation of the employer contribution for the
1997 plan year among all eligible employees, includ-
ing the five excluded employees. The inclusion of the
excluded employees in the allocation of that contri-
bution would have resulted in each eligible employee,
including each excluded employee, receiving an al-
location equal to 9% of compensation. Accordingly,
the account balance of each excluded employee is in-
creased by 9% of the employee's 1997 compensa-
tion, adjusted for earnings. The account balance of each
of the eligible employees other than the excluded em-
ployees is reduced by 1% of the employee's 1997
compensation, adjusted for earnings. Employer D de-
termines the adjustment for earnings using the earn-
ings rate of each eligible employee's excess alloca-
tion (using reasonable, consistent assumptions).
Accordingly, for an employee who shared in the origi-
nal allocation and directed the investment of the al-
location into more than one investment fund or who
subsequently transferred a portion of a fund that had
been credited with a portion of the 1997 allocation to
another fund, reasonable, consistent assumptions are
followed to determine the adjustment for earnings. It
is determined that the total of the initially deter-
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mined reductions in account balances exceeds the to-
tal of the required increases in account balances. Ac-
cordingly, these initially determined reductions are
decreased pro rata so that the total of the actual re-
ductions in account balances equals the total of the
increases in the account balances, and Employer D
does not make any corrective contribution. The re-
ductions from the account balances are made on a pro
rata basis among all of the funds in which each em-
ployee's account balance is invested.
Example 10:
The facts are the same as in Example 8.
Correction:
The correction is the same as in Example 9, ex-
cept that, because most of the employees whose ac-
count balances are being reduced are nonhighly com-
pensated employees, for administrative convenience,
Employer D uses the earnings rate of the fund with
the lowest earnings rate for the period of the failure
to adjust the reduction to each account balance. It is
determined that the aggregate amount (adjusted for
earnings) by which the account balances of the ex-
cluded employees is increased exceeds the aggre-
gate amount (adjusted for earnings) by which the other
employees' account balances are reduced. Accord-
ingly, Employer D makes a contribution to the plan
in an amount equal to the excess. The reduction from
account balances is made on a pro rata basis among
all of the funds in which each employee's account bal-
ance is invested.
#### .03 Vesting Failures.
(1) Correction Methods. (a) Contribu-
tion Correction Method. A failure in a de-
fined contribution plan to apply the proper
vesting percentage to an employee's ac-
count balance that results in forfeiture of
too large a portion of the employee's ac-
count balance may be corrected using the
contribution correction method set forth in
this paragraph. The employer makes a cor-
rective contribution on behalf of the em-
ployee whose account balance was improp-
erly forfeited in an amount equal to the
improper forfeiture. The corrective contri-
bution is adjusted for earnings. If, as a re-
sult of the improper forfeiture, an amount
was improperly allocated to the account bal-
ance of another employee, no reduction is
made to the account balance of that em-
ployee. (See Example 11.)
(b) Reallocation Correction Method. In
addition to the contribution correction
method, in a defined contribution plan un-
der which forfeitures of account balances
are reallocated among the account bal-
ances of the other eligible employees in the
plan, a failure to apply the proper vesting
percentage to an employee's account bal-
ance which results in forfeiture of too large
a portion of the employee's account bal-
ance may be corrected under the realloca-
tion correction method set forth in this para-
graph. A corrective reallocation is made in
accordance with the reallocation correc-
tion method set forth in section
2.02(2)(a)(iii), subject to the limitations set
forth in section 2.02(2)(a)(iii)(F). In ap-
plying section 2.02(2)(a)(iii)(B), the ac-
count balance of the employee who in-
curred the improper forfeiture is increased
by an amount equal to the amount of the
improper forfeiture and the amount is ad-
justed for earnings. In applying section
2.02(2)(a)(iii)(C)(1), the account balance of
each employee who shared in the alloca-
tion of the improper forfeiture is reduced
by the amount of the improper forfeiture
that was allocated to that employee's ac-
count. The earnings adjustments for the ac-
count balances that are being reduced are
determined in accordance with sections
2.02(2)(a)(iii)(C)(2) and (3) and the reduc-
tions after adjustments for earnings are lim-
ited in accordance with section 2.02(2)
(a)(iii)(C)(4). In accordance with section
2.02(2)(a)(iii)(D), if the aggregate amount
of the increases exceeds the aggregate
amount of the reductions, the employer
makes a corrective contribution to the plan
for the amount of the excess. In accor-
dance with section 2.02(2)(a)(iii)(D), if the
aggregate amount of the reductions ex-
ceeds the aggregate amount of the increases,
then the amount by which each employ-
ee's account balance is reduced is decreased
on a pro rata basis. (See Example 12.)
(2) Examples.
Example 11:
Employer E maintains a profit-sharing plan that
provides for nonelective contributions. The plan pro-
vides for self-directed investments among four in-
vestment funds and daily valuation of account bal-
ances. The plan provides that forfeitures of account
balances are reallocated among the account balances
of other eligible employees on the basis of compen-
sation. During the 1997 plan year, Employee R ter-
minated employment with Employer E and elected and
received a single-sum distribution of the vested por-
tion of his account balance. No other distributions have
been made since 1997. However, an incorrect deter-
mination of Employee R's vested percentage was made
resulting in Employee R receiving a distribution of less
than the amount to which he was entitled under the
plan. The remaining portion of Employee R's ac-
count balance was forfeited and reallocated (and these
reallocations were not affected by the limitations of
§ 415). Most of the employees who received alloca-
tions of the improper forfeiture were nonhighly com-
pensated employees.
Correction:
Employer E uses the contribution correction
method to correct the improper forfeiture. Thus, Em-
ployer E makes a contribution on behalf of Em-
ployee R equal to the incorrectly forfeited amount (ad-
justed for earnings) and Employee R's account balance
is increased accordingly. No reduction is made from
the account balances of the employees who received
an allocation of the improper forfeiture.
Example 12:
The facts are the same as in Example 11.
Correction:
Employer E uses the reallocation correction method
to correct the improper forfeiture. Thus, Employee R's
account balance is increased by the amount that was
improperly forfeited (adjusted for earnings). The ac-
count of each employee who shared in the alloca-
tion of the improper forfeiture is reduced by the
amount of the improper forfeiture that was allo-
cated to that employee's account (adjusted for earn-
ings). Because most of the employees whose ac-
count balances are being reduced are nonhighly
compensated employees, for administrative conve-
nience, Employer E uses the earnings rate of the fund
with the lowest earnings rate for the period of the fail-
ure to adjust the reduction to each account balance.
It is determined that the amount (adjusted for earn-
ings) by which the account balance of Employee R
is increased exceeds the aggregate amount (adjusted
for earnings) by which the other employees' ac-
count balances are reduced. Accordingly, Employer E
makes a contribution to the plan in an amount equal
to the excess. The reduction from the account bal-
ances is made on a pro rata basis among all of the
funds in which each employee's account balance is
invested.
##### .04 § 415 Failures.
(1) Failures Relating to a § 415(b) Ex-
cess.
(a) Correction Methods. (i) Return of
Overpayment Correction Method. Over-
payments as a result of amounts being paid
in excess of the limits of § 415(b) may be
corrected using the return of Overpay-
ment correction method set forth in this
paragraph (1)(a)(i). The employer takes rea-
sonable steps to have the Overpayment
(with appropriate interest) returned by the
recipient to the plan and reduces future ben-
efit payments (if any) due to the employee
to reflect § 415(b). To the extent the amount
returned by the recipient is less than the
Overpayment, adjusted for earnings at the
plan's earnings rate, then the employer or
another person contributes the difference to
the plan. In addition, in accordance with
section 6.06 of this revenue procedure, the
employer must notify the recipient that the
Overpayment was not eligible for favor-
able tax treatment accorded to distribu-
tions from qualified plans (and, specifi-
cally, was not eligible for tax-free rollover).
(See Examples 15 and 16.)
(ii) Adjustment of Future Payments Cor-
rection Method. (A) In General. In addi-
tion to the return of Overpayment correc-
tion method, in the case of plan benefits that
are being distributed in the form of peri-
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odic payments, Overpayments as a result of
amounts being paid in excess of the lim-
its in § 415(b) may be corrected by using
the adjustment of future payments correc-
tion method set forth in this paragraph
(1)(a)(ii). Future payments to the recipi-
ent are reduced so that they do not ex-
ceed the § 415(b) maximum limit and an
additional reduction is made to recoup the
Overpayment (over a period not longer than
the remaining payment period) so that the
actuarial present value of the additional re-
duction is equal to the Overpayment plus
interest at the interest rate used by the plan
to determine actuarial equivalence. (See Ex-
amples 13 and 14.)
(B) Joint and Survivor Annuity Pay-
ments. If the employee is receiving pay-
ments in the form of a joint and survivor
annuity, with the employee's spouse to re-
ceive a life annuity upon the employee's
death equal to a percentage (e.g., 75%) of
the amount being paid to the employee, the
reduction of future annuity payments to re-
flect § 415(b) reduces the amount of ben-
efits payable during the lives of both the
employee and spouse, but any reduction to
recoup Overpayments made to the em-
ployee does not reduce the amount of the
spouse's survivor benefit. Thus, the spouse's
benefit will be based on the previous speci-
fied percentage (e.g., 75%) of the maxi-
mum permitted under § 415(b), instead of
the reduced annual periodic amount pay-
able to the employee.
(C) Overpayment Not Treated as an Ex-
cess Amount. An Overpayment corrected
under this adjustment of future payment cor-
rection method is not treated as an Ex-
cess Amount as defined in section 5.01(3)
of this revenue procedure.
(b) Examples.
Example 13:
Employer F maintains a defined benefit plan
funded solely through employer contributions. The plan
provides that the benefits of employees are limited to
the maximum amount permitted under § 415(b), dis-
regarding cost-of-living adjustments under § 415(d)
after benefit payments have commenced. At the be-
ginning of the 1998 plan year, Employee S retired and
started receiving an annual straight life annuity of
$140,000 from the plan. Due to an administrative er-
ror, the annual amount received by Employee S for
1998 included an Overpayment of $10,000 (because
the § 415(b)(1)(A) limit for 1998 was $130,000). This
error was discovered at the beginning of 1999.
Correction:
Employer F uses the adjustment of future pay-
ments correction method to correct the failure to sat-
isfy the limit in § 415(b). Future annuity benefit pay-
ments to Employee S are reduced so that they do not
exceed the § 415(b) maximum limit, and, in addi-
tion, Employee S's future benefit payments from the
plan are actuarially reduced to recoup the Overpay-
ment. Accordingly, Employee S's future benefit pay-
ments from the plan are reduced to $130,000 and fur-
ther reduced by $1,000 annually for life, beginning
in 1999. The annual benefit amount is reduced by
$1,000 annually for life because, for Employee S, the
actuarial present value of a benefit of $1,000 annu-
ally for life commencing in 1999 is equal to the sum
of $10,000 and interest at the rate used by the plan
to determine actuarial equivalence beginning with the
date of the first Overpayment and ending with the date
the reduced annuity payment begins. Thus, Employee
S's remaining benefit payments are reduced so that
Employee S receives $129,000 for 1999, and for each
year thereafter.
### Example 14:
The facts are the same as in Example 13.
Correction:
Employer F uses the adjustments of future pay-
ments correction method to correct the § 415(b) fail-
ure, by recouping the entire excess payment made in
1998 from Employee S's remaining benefit pay-
ments for 1999. Thus, Employee S's annual annuity
benefit for 1999 is reduced to $119,400 to reflect the
excess benefit amounts (increased by interest) that were
paid from the plan to Employee S during the 1998 plan
year. Beginning in 2000, Employee S begins to re-
ceive annual benefit payments of $130,000.
Example 15:
The facts are the same as in Example 13, except
that the benefit was paid to Employee S in the form
of a single-sum distribution in 1998, which exceeded
the maximum § 415(b) limits by $110,000.
Correction:
Employer F uses the return of Overpayment cor-
rection method to correct the § 415(b) failure. Thus,
Employer F notifies Employee S of the $110,000 Over-
payment and that the Overpayment was not eligible
for favorable tax treatment accorded to distributions
from qualified plans (and, specifically, was not eli-
gible for tax-free rollover). The notice also informs
Employee S that the Overpayment (with interest at the
rate used by the plan to calculate the single-sum pay-
ment) is owed to the plan. Employer F takes reason-
able steps to have the Overpayment (with interest at
the rate used by the plan to calculate the single-sum
payment) paid to the plan. Employee S pays the
$110,000 (plus the requested interest) to the plan. It
is determined that the plan's earnings rate for the rel-
evant period was 2 percentage points more than the
rate used by the plan to calculate the single-sum pay-
ment. Accordingly, Employer F contributes the dif-
ference to the plan.
### Example 16:
The facts are the same as in Example 15.
Correction:
Employer F uses the return of overpayment cor-
rection method to correct the § 415(b) failure. Thus,
Employer F notifies Employee S of the $110,000 Over-
payment and that the Overpayment was not eligible
for favorable tax treatment accorded to distributions
from qualified plans (and, specifically, was not eli-
gible for tax-free rollover). The notice also informs
Employee S that the Overpayment (with interest at the
rate used by the plan to calculate the single-sum pay-
ment) is owed to the plan. Employer F takes reason-
able steps to have the Overpayment (with interest at
the rate used by the plan to calculate the single-sum
payment) paid to the plan. As a result of Employer
F's recovery efforts, some, but not all, of the Over-
payment (with interest) is recovered from Employee
S. It is determined that the amount returned by Em-
ployee S to the plan is less than the Overpayment ad-
justed for earnings at the plan's earnings rate. Ac-
cordingly, Employer F contributes the difference to the
plan.
(2) Failures Relating to a § 415(c) Ex-
cess.
(a) Correction Methods. (i) Appendix A
Correction Method. Appendix A, section .08
sets forth the correction method for cor-
recting the failure to satisfy the § 415(c)
limits on annual additions.
(ii) Forfeiture Correction Method. In ad-
dition to the Appendix A correction method,
the failure to satisfy § 415(c) with respect
to a nonhighly compensated employee (A)
who in the limitation year of the failure had
annual additions consisting of both (I) ei-
ther elective deferrals or employee after-
tax contributions, or both, and (II) either
matching or nonelective contributions or
both, (B) for whom the matching and non-
elective contributions equal or exceed the
portion of the employee's annual addi-
tion that exceeds the limits under § 415(c)
("§ 415(c) excess") for the limitation year,
and (C) who has terminated with no vested
interest in the matching and nonelective
contributions (and has not been reemployed
at the time of the correction), may be cor-
rected by using the forfeiture correction
method set forth in this paragraph. The
§ 415(c) excess is deemed to consist solely
of the matching and nonelective contribu-
tions. If the employee's § 415(c) excess (ad-
justed for earnings) has previously been for-
feited, the § 415(c) failure is deemed to be
corrected. If the § 415(c) excess (adjusted
for earnings) has not been forfeited, that
amount is placed in an unallocated ac-
count, similar to the suspense account de-
scribed in § 1.415-6(b)(6)(iii), to be used
to reduce employer contributions in suc-
ceeding year(s) (or if the amount would
have been allocated to other employees who
were in the plan for the year of the fail-
ure if the failure had not occurred, then that
amount is reallocated to the other employ-
ees in accordance with the plan's alloca-
tion formula). Note that while this correc-
tion method will permit more favorable tax
treatment of elective deferrals for the em-
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ployee than the Appendix A correction
method, this correction method could be less
favorable to the employee in certain cases,
for example, if the employee is subse-
quently reemployed and becomes vested.
(See Examples 17 and 18.)
(iii) Return of Overpayment Correc-
tion Method. A failure to satisfy § 415(c)
that includes a distribution of the § 415(c)
excess attributable to nonelective contri-
butions and matching contributions may be
corrected using the return of Overpay-
ment correction method set forth in this
paragraph. The employer takes reason-
able steps to have the Overpayment (i.e.,
the distribution of the § 415(c) excess ad-
justed for earnings to the date of the dis-
tribution), plus appropriate interest from the
date of the distribution to the date of the
repayment, returned by the employee to the
plan. To the extent the amount returned by
the employee is less than the Overpay-
ment adjusted for earnings at the plan's
earnings rate, then the employer or an-
other person contributes the difference to
the plan. The Overpayment, adjusted for
earnings at the plan's earnings rate to the
date of the repayment, is to be placed in an
unallocated account, similar to the sus-
pense account described in § 1.415-
6(b)(6)(iii), to be used to reduce employer
contributions in 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). In ad-
dition, the employer must notify the em-
ployee that the Overpayment was not eli-
gible for favorable tax treatment accorded
to distributions from qualified plans (and,
specifically, was not eligible for tax-free
rollover).
(b) Examples.
Example 17:
Employer G maintains a 401(k) plan. The plan pro-
vides for nonelective employer contributions, elec-
tive deferrals, and employee after-tax contributions.
The plan provides that the nonelective contributions
vest under a 5-year cliff vesting schedule. The plan
provides that when an employee terminates employ-
ment, the employee's nonvested account balance is for-
feited five years after a distribution of the employ-
ee's vested account balance and that forfeitures are
used to reduce employer contributions. For the 1998
limitation year, the annual additions made on behalf
of two nonhighly compensated employees in the plan,
Employees T and U, exceeded the limit in § 415(c).
For the 1998 limitation year, Employee T had § 415
compensation of $60,000, and, accordingly, a
§ 415(c)(1)(B) limit of $15,000. Employee T made
elective deferrals and employee after-tax contribu-
tions. For the 1998 limitation year, Employee U had
§ 415 compensation of $40,000, and, accordingly, a
§ 415(c)(1)(B) limit of $10,000. Employee U made
elective deferrals. Also, on January 1, 1999, Em-
ployee U, who had three years of service with Em-
ployer G, terminated his employment and received his
entire vested account balance (which consisted of his
elective deferrals). The annual additions for Employ-
ees T and U consisted of:
T
U
Nonelective Contributions
$7,500
$4,500
Elective Deferrals
10,000
5,800
After-tax Contributions
500
0
Total Contributions
$18,000
$10,300
§ 415(c) Limit
$15,000
$10,000
§ 415(c) Excess
$3,000
$300
#### Correction:
Employer G uses the Appendix A correction
method to correct the § 415(c) excess with respect to
Employee T (i.e., $3,000). Thus, a distribution of plan
assets (and corresponding reduction of the account bal-
ance) consisting of $500 (adjusted for earnings) of em-
ployee after-tax contributions and $2,500 (adjusted for
earnings) of elective deferrals is made to Employee
T. Employer G uses the forfeiture correction method
to correct the § 415(c) excess with respect to Em-
ployee U. Thus, the § 415(c) excess is deemed to con-
sist solely of the nonelective contributions. Accord-
ingly, Employee U's nonvested account balance is
reduced by $300 (adjusted for earnings) which is
placed in an unallocated account, similar to the sus-
pense account described in § 1.415-6(b)(6)(iii), to be
used to reduce employer contributions in succeed-
ing year(s). After correction, it is determined that the
ADP and ACP tests for 1998 were satisfied.
Example 18:
Employer H maintains a 401(k) plan. The plan pro-
vides for nonelective employer contributions, match-
ing contributions and elective deferrals. The plan pro-
vides for matching contributions that are equal to 100%
of an employee's elective deferrals that do not ex-
ceed 8% of the employee's plan compensation for the
plan year. For the 1998 limitation year, Employee V
had § 415 compensation of $50,000, and, accord-
ingly, a § 415(c)(1)(B) limit of $12,500. During that
limitation year, the annual additions for Employee V
totaled $15,000, consisting of $5,000 in elective de-
ferrals, a $4,000 matching contribution (8% of
$50,000), and a $6,000 nonelective employer contri-
bution. Thus, the annual additions for Employee V ex-
ceeded the § 415(c) limit by $2,500.
Correction:
Employer H uses the Appendix A correction
method to correct the § 415(c) excess with respect to
Employee V (i.e., $2,500). Accordingly, $1,000 of the
unmatched elective deferrals (adjusted for earnings)
are distributed to Employee V. The remaining $1,500
excess is apportioned equally between the elective de-
ferrals and the associated matching employer contri-
butions, so Employee V's account balance is fur-
ther reduced by distributing to Employee V $750
(adjusted for earnings) of the elective deferrals and
forfeiting $750 (adjusted for earnings) of the associ-
ated employer matching contributions. The forfeited
matching contributions are placed in an unallocated
account; similar to the suspense account described in
§ 1.415-6(b)(6)(iii), to be used to reduce employer con-
tributions in succeeding year(s). After correction, it is
determined that the ADP and ACP tests for 1998 were
satisfied.
.05 Correction of Other Overpayment
Failures.
An Overpayment, other than one de-
scribed in section 2.04(1) (relating to a
§ 415(b) excess) or section 2.04(2) (relat-
ing to a § 415(c) excess), may be corrected
in accordance with this section 2.05. An
Overpayment from a defined benefit plan
is corrected in accordance with the rules in
section 2.04(1). An Overpayment from a de-
fined contribution plan is corrected in ac-
cordance with the rules in section
2.04(2)(a)(iii).
.06 § 401(a)(17) Failures.
(1) Reduction of Account Balance Cor-
rection Method. The allocation of contri-
butions or forfeitures under a defined con-
tribution plan for a plan year on the basis
of compensation in excess of the limit un-
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der § 401(a)(17) for the plan year may be
corrected using the reduction of account bal-
ance correction method set forth in this
paragraph. The account balance of an em-
ployee who received an allocation on the
basis of compensation in excess of the
§ 401(a)(17) limit is reduced by this im-
properly allocated amount (adjusted for
earnings). If the improperly allocated
amount would have been allocated to other
employees in the year of the failure if the
failure had not occurred, then that amount
(adjusted for earnings) is reallocated to those
employees in accordance with the plan's al-
location formula. If the improperly allo-
cated amount would not have been allo-
cated to other employees absent the failure,
that amount (adjusted for earnings) is placed
in an unallocated account, similar to the sus-
pense account described in § 1.4156
(b)(6)(iii), to be used to reduce employer
contributions in succeeding year(s). For ex-
ample, if a plan provides for a fixed level
of employer contributions for each eli-
gible employee, and the plan provides that
forfeitures are used to reduce future em-
ployer contributions, the improperly allo-
cated amount (adjusted for earnings) would
be used to reduce future employer contri-
butions. (See Example 19.) If a payment
was made to an employee and that pay-
ment was attributable to an improperly al-
located amount, then it is an Overpay-
ment defined in section 5.01(6) of this
revenue procedure that must be corrected
(see sections 2.04 and 2.05).
(2) Example.
Example 19:
Employer J maintains a money purchase pen-
sion plan. Under the plan, an eligible employee is en-
titled to an employer contribution of 8% of the em-
ployee's compensation up to the § 401(a)(17) limit
($160,000 for 1998). During the 1998 plan year, an
eligible employee, Employee W, inadvertently was
credited with a contribution based on compensation
above the § 401(a)(17) limit. Employee W's com-
pensation for 1998 was $220,000. Employee W re-
ceived a contribution of $17,600 for 1998 (8% of
$220,000), rather than the contribution of $12,800 (8%
of $160,000) provided by the plan for that year, re-
sulting in an improper allocation of $4,800.
Correction:
The § 401(a)(17) failure is corrected using the re-
duction of account balance method by reducing Em-
ployee W's account balance by $4,800 (adjusted for
earnings) and crediting that amount to an unallo-
cated account, similar to the suspense account de-
scribed in § 1.415-6(b)(6)(iii), to be used to reduce
employer contributions in succeeding year(s).
### .07 Correction by Amendment.
(1) § 401(a)(17) Failures. (a) Contribu-
tion Correction Method. In addition to the
reduction of account balance correction
method under section 2.06 of this Appen-
dix B, an employer may correct a
§ 401(a)(17) failure for a plan year under
a defined contribution plan under VCP and
SCP (in accordance with the requirements
of sections 8, 10 and 11 of this revenue pro-
cedure) by using the contribution correc-
tion method set forth in this paragraph. The
employer contributes an additional amount
on behalf of each of the other employees
(excluding each employee for whom there
was a § 401(a)(17) failure) who received
an allocation for the year of the failure,
amending the plan (as necessary) to pro-
vide for the additional allocation. The
amount contributed for an employee is equal
to the employee's plan compensation for the
year of the failure multiplied by a frac-
tion, the numerator of which is the improp-
erly allocated amount made on behalf of the
employee with the largest improperly al-
located amount, and the denominator of
which is the limit under § 401(a)(17) ap-
plicable to the year of the failure. The re-
sulting additional amount for each of the
other employees is adjusted for earnings.
(See Example 20.)
(b) Examples.
Example 20:
The facts are the same as in Example 19.
Correction:
Employer J corrects the failure under VCP us-
ing the contribution correction method by (1) amend-
ing the plan to increase the contribution percentage
for all eligible employees (other than Employee W)
for the 1998 plan year and (2) contributing an addi-
tional amount (adjusted for earnings) for those em-
ployees for that plan year. To determine the increase
in the plan's contribution percentage (and the addi-
tional amount contributed on behalf of each eligible
employee), the improperly allocated amount ($4,800)
is divided by the § 401(a)(17) limit for 1998
($160,000). Accordingly, the plan is amended to in-
crease the contribution percentage by 3 percentage
points ($4,800/$160,000) from 8% to 11%. In addi-
tion, each eligible employee for the 1998 plan year
(other than Employee W) receives an additional con-
tribution of 3% multiplied by that employee's plan
compensation for 1998. This additional contribution
is adjusted for earnings.
(2) Hardship Distribution Failures. (a)
Plan Amendment Correction Method. The
Operational Failure of making hardship dis-
tributions to employees under a plan that
does not provide for hardship distribu-
tions may be corrected under VCP and SCP
using the plan amendment correction
method set forth in this paragraph. The plan
is amended retroactively to provide for the
hardship distributions that were made avail-
able. This paragraph does not apply un-
less (i) the amendment satisfies § 401(a),
and (ii) the plan as amended would have
satisfied the qualification requirements of
§ 401(a) (including the requirements ap-
plicable to hardship distributions under
§ 401(k), if applicable) had the amend-
ment been adopted when hardship distri-
butions were first made available. (See Ex-
ample 21.)
(b) Example.
Example 21:
Employer K, a for-profit corporation, maintains a
401(k) plan. Although plan provisions in 1998 did not
provide for hardship distributions, beginning in 1998
hardship distributions of amounts allowed to be dis-
tributed under § 401(k) were made currently and ef-
fectively available to all employees (within the mean-
ing of § l.401(a)(4)-4). The standard used to determine
hardship satisfied the deemed hardship distribution
standards in § 1.401(k)-1(d)(2). Hardship distribu-
tions were made to a number of employees during the
1998 and 1999 plan years, creating an Operational Fail-
ure. The failure was discovered in 2000.
Correction:
Employer K corrects the failure under VCP by
adopting a plan amendment, effective January 1, 1998,
to provide a hardship distribution option that satis-
fies the rules applicable to hardship distributions in
§ 1.401(k)-1(d)(2). The amendment provides that the
hardship distribution option is available to all em-
ployees. Thus, the amendment satisfies § 401(a), and
the plan as amended in 2000 would have satisfied
§ 401(a) (including § 1.401(a)(4)-4 and the require-
ments applicable to hardship distributions under
§ 401(k)) if the amendment had been adopted in 1998.
(3) Inclusion of Ineligible Employee
Failure. (a) Plan Amendment Correction
Method. The Operational Failure of includ-
ing an ineligible employee in the plan who
either (i) has not completed the plan's mini-
mum age or service requirements, or (ii) has
completed the plan's minimum age or ser-
vice requirements but became a partici-
pant in the plan on a date earlier than the
applicable plan entry date, may be cor-
rected under VCP and SCP by using the
plan amendment correction method set forth
in this paragraph. The plan is amended ret-
roactively to change the eligibility or en-
try date provisions to provide for the in-
clusion of the ineligible employee to reflect
the plan's actual operations. The amend-
ment may change the eligibility or entry
date provisions with respect to only those
ineligible employees that were wrongly in-
cluded, and only to those ineligible em-
ployees, provided (i) the amendment sat-
isfies § 401(a) at the time it is adopted, (ii)
the amendment would have satisfied
§ 401(a) had the amendment been adopted
at the earlier time when it is effective, and
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(iii) the employees affected by the amend-
ment are predominantly nonhighly com-
pensated employees.
(b) Example
Example 22:
Employer L maintains a 401(k) plan applicable to
all of its employees who have at least six months of
service. The plan is a calendar year plan. The plan pro-
vides that Employer L will make matching contribu-
tions based upon an employee's salary reduction con-
tributions. In 2001, it is discovered that all four
employees who were hired by Employer L in 2000
were permitted to make salary reduction contribu-
tions to the plan effective with the first weekly pay-
check after they were employed. Three of the four em-
ployees are nonhighly compensated. Employer L
matched these employees' salary reduction contribu-
tions in accordance with the plan's matching contri-
bution formula. Employer L calculates the ADP and
ACP tests for 2000 (taking into account the salary re-
duction and matching contributions that were made
for these employees) and determines that the tests were
satisfied.
Correction:
Employer L corrects the failure under SCP by
adopting a plan amendment, effective for employ-
ees hired on or after January 1, 2000, to provide that
there is no service eligibility requirement under the
plan and submitting the amendment to the Service for
a determination letter.
## SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES
.01 Earnings Adjustment Methods. (1) In
general. (a) Under section 6.02(4)(a) of this
revenue procedure, whenever the appro-
priate correction method for an Opera-
tional Failure in a defined contribution plan
includes a corrective contribution or allo-
cation that increases one or more employ-
ees' account balances (now or in the fu-
ture), the contribution or allocation is
adjusted for earnings and forfeitures. This
section 3 provides earnings adjustment
methods (but not forfeiture adjustment
methods) that may be used by an employer
to adjust a corrective contribution or allo-
cation for earnings in a defined contribu-
tion plan. Consequently, these earnings ad-
justment methods may be used to determine
the earnings adjustments for corrective con-
tributions or allocations made under the cor-
rection methods in section 2 and under the
correction methods in Appendix A. If an
earnings adjustment method in this sec-
tion 3 is used to adjust a corrective con-
tribution or allocation, that adjustment is
treated as satisfying the earnings adjust-
ment requirement of section 6.02(4)(a) of
this revenue procedure. Other earnings ad-
justment methods, different from those il-
lustrated in this section 3, may also be ap-
propriate for adjusting corrective
contributions or allocations to reflect earn-
ings.
(b) Under the earnings adjustment meth-
ods of this section 3, a corrective contri-
bution or allocation that increases an em-
ployee's account balance is adjusted to
reflect an "earnings amount" that is based
on the earnings rate(s) (determined under
section 3.01(3)) for the period of the fail-
ure (determined under section 3.01(2)). The
earnings amount is allocated in accordance
with section 3.01(4).
(c) The rule in section 6.02(5)(a) of this
revenue procedure permitting reasonable es-
timates in certain circumstances applies for
purposes of this section 3. For this pur-
pose, a determination of earnings made in
accordance with the rules of administra-
tive convenience set forth in this section 3
is treated as a precise determination of earn-
ings. Thus, if the probable difference be-
tween an approximate determination of
earnings and a determination of earnings un-
der this section 3 is insignificant and the ad-
ministrative cost of a precise determina-
tion would significantly exceed the probable
difference, reasonable estimates may be
used in calculating the appropriate earn-
ings.
(d) This section 3 does not apply to cor-
rective distributions or corrective reduc-
tions in account balances. Thus, for ex-
ample, while this section 3 applies in
increasing the account balance of an im-
properly excluded employee to correct the
exclusion of the employee under the real-
location correction method described in sec-
tion 2.02(2)(a)(iii)(B), this section 3 does
not apply in reducing the account balances
of other employees under the reallocation
correction method. (See section 2.02(2)
(a)(iii)(C) for rules that apply to the earn-
ings adjustments for such reductions.) In ad-
dition, this section 3 does not apply in de-
termining earnings adjustments under the
one-to-one correction method described in
section 2.01(1)(b)(iii).
(2) Period of the Failure. (a) General
Rule. For purposes of this section 3, the
"period of the failure" is the period from
the date that the failure began through the
date of correction. For example, in the case
of an improper forfeiture of an employ-
ee's account balance, the beginning of the
period of the failure is the date as of which
the account balance was improperly re-
duced.
(b) Rules for Beginning Date for Ex-
clusion of Eligible Employees from Plan.
(i) General Rule. In the case of an exclu-
sion of an eligible employee from a plan
contribution, the beginning of the period of
the failure is the date on which contribu-
tions of the same type (e.g., elective de-
ferrals, matching contributions, or discre-
tionary nonelective employer contributions)
were made for other employees for the year
of the failure. In the case of an exclusion
of an eligible employee from an alloca-
tion of a forfeiture, the beginning of the pe-
riod of the failure is the date on which for-
feitures were allocated to other employees
for the year of the failure.
(ii) Exclusion from a 401(k) or (m) Plan.
For administrative convenience, for pur-
poses of calculating the earnings rate for
corrective contributions for a plan year (or
the portion of the plan year) during which
an employee was improperly excluded from
making periodic elective deferrals or em-
ployee after-tax contributions, or from re-
ceiving periodic matching contributions, the
employer may treat the date on which the
contributions would have been made as the
midpoint of the plan year (or the midpoint
of the portion of the plan year) for which
the failure occurred. Alternatively, in this
case, the employer may treat the date on
which the contributions would have been
made as the first date of the plan year (or
the portion of the plan year) during which
an employee was excluded, provided that
the earnings rate used is one half of the
earnings rate applicable under section
3.01(3) for the plan year (or the portion of
the plan year) for which the failure oc-
curred.
(3) Earnings Rate. (a) General Rule. For
purposes of this section 3, the earnings rate
generally is based on the investment re-
sults that would have applied to the cor-
rective contribution or allocation if the fail-
ure had not occurred.
(b) Multiple Investment Funds. If a plan
permits employees to direct the invest-
ment of account balances into more than
one investment fund, the earnings rate is
based on the rate applicable to the employ-
ee's investment choices for the period of
the failure. For administrative convenience,
if most of the employees for whom the cor-
rective contribution or allocation is made
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are nonhighly compensated employees, the
rate of return of the fund with the highest
earnings rate under the plan for the pe-
riod of the failure may be used to deter-
mine the earnings rate for all corrective con-
tributions or allocations. If the employee had
not made any applicable investment choices,
the earnings rate may be based on the earn-
ings rate under the plan as a whole (i.e., the
average of the rates earned by all of the
funds in the valuation periods during the pe-
riod of the failure weighted by the por-
tion of the plan assets invested in the vari-
ous funds during the period of the failure).
(c) Other Simplifying Assumptions. For
administrative convenience, the earnings rate
applicable to the corrective contribution or
allocation for a valuation period with re-
spect to any investment fund may be as-
sumed to be the actual earnings rate for the
plan's investments in that fund during that
valuation period. For example, the earn-
ings rate may be determined without re-
gard to any special investment provisions
that vary according to the size of the fund.
Further, the earnings rate applicable to the
corrective contribution or allocation for a
portion of a valuation period may be a pro
rata portion of the earnings rate for the en-
tire valuation period, unless the applica-
tion of this rule would result in either a sig-
nificant understatement or overstatement of
the actual earnings during that portion of
the valuation period.
(4) Allocation Methods. (a) In Gen-
eral. For purposes of this section 3, the earn-
ings amount generally may be allocated in
accordance with any of the methods set
forth in this paragraph (4). The methods un-
der paragraph (4)(c), (d), and (e) are in-
tended to be particularly helpful where cor-
rective contributions are made at dates
between the plan's valuation dates.
(b) Plan Allocation Method. Under the
plan allocation method, the earnings amount
is allocated to account balances under the
plan in accordance with the plan's method
for allocating earnings as if the failure had
not occurred. (See Example 23.)
(c) Specific Employee Allocation
Method. Under the specific employee al-
location method, the entire earnings amount
is allocated solely to the account balance
of the employee on whose behalf the cor-
rective contribution or allocation is made
(regardless of whether the plan's alloca-
tion method would have allocated the earn-
ings solely to that employee). In determin-
ing the allocation of plan earnings for the
valuation period during which the correc-
tive contribution or allocation is made, the
corrective contribution or allocation (in-
cluding the earnings amount) is treated in
the same manner as any other contribu-
tion under the plan on behalf of the em-
ployee during that valuation period. Alter-
natively, where the plan's allocation method
does not allocate plan earnings for a valu-
ation period to a contribution made dur-
ing that valuation period, plan earnings for
the valuation period during which the cor-
rective contribution or allocation is made
may be allocated as if that employee's ac-
count balance had been increased as of the
last day of the prior valuation period by the
corrective contribution or allocation, in-
cluding only that portion of the earnings
amount attributable to earnings through the
last day of the prior valuation period. The
employee's account balance is then fur-
ther increased as of the last day of the valu-
ation period during which the corrective
contribution or allocation is made by that
portion of the earnings amount attribut-
able to earnings after the last day of the
prior valuation period. (See Example 24.)
(d) Bifurcated Allocation Method. Un-
der the bifurcated allocation method, the en-
tire earnings amount for the valuation pe-
riods ending before the date the corrective
contribution or allocation is made is allo-
cated solely to the account balance of the
employee on whose behalf the corrective
contribution or allocation is made. The earn-
ings amount for the valuation period dur-
ing which the corrective contribution or al-
location is made is allocated in accordance
with the plan's method for allocating other
earnings for that valuation period in accor-
dance with section 3.01(4)(b). (See Ex-
ample 25.)
(e) Current Period Allocation Method.
Under the current period allocation method,
the portion of the earnings amount attrib-
utable to the valuation period during which
the period of the failure begins ("first par-
tial valuation period") is allocated in the
same manner as earnings for the valua-
tion period during which the corrective con-
tribution or allocation is made in accor-
dance with section 3.01(4)(b). The earnings
for the subsequent full valuation periods
ending before the beginning of the valua-
tion period during which the corrective con-
tribution or allocation is made are allo-
cated solely to the employee for whom the
required contribution should have been
made. The earnings amount for the valu-
ation period during which the corrective
contribution or allocation is made ("sec-
ond partial valuation period") is allocated
in accordance with the plan's method for
allocating other earnings for that valua-
tion period in accordance with section
3.01(4)(b). (See Example 26.)
.02 Examples.
Example 23:
Employer L maintains a profit-sharing plan that
provides only for nonelective contributions. The plan
has a single investment fund. Under the plan, assets
are valued annually (the last day of the plan year) and
earnings for the year are allocated in proportion to ac-
count balances as of the last day of the prior year, af-
ter reduction for distributions during the current year
but without regard to contributions received during the
current year (the "prior year account balance"). Plan
contributions for 1997 were made on March 31, 1998.
On April 20, 2000, Employer L determines that an op-
erational failure occurred for 1997 because Employee
X was improperly excluded from the plan. Employer
L decides to correct the failure by using the Appen-
dix A correction method for the exclusion of an eli-
gible employee from nonelective contributions in a
profit-sharing plan. Under this method, Employer L
determines that this failure is corrected by making a
contribution on behalf of Employee X of $5,000 (ad-
justed for earnings). The earnings rate under the plan
for 1998 was +20%. The earnings rate under the plan
for 1999 was +10%. On May 15, 2000, when Em-
ployer L determines that a contribution to correct for
the failure will be made on June 1, 2000, a reason-
able estimate of the earnings rate under the plan from
January 1, 2000, to June 1, 2000 is +12%.
Earnings Adjustment on the Corrective
Contribution:
The $5,000 corrective contribution on behalf of
Employee X is adjusted to reflect an earnings amount
based on the earnings rates for the period of the fail-
ure (March 31, 1998, through June 1, 2000) and the
earnings amount is allocated using the plan alloca-
tion method. Employer L determines that a pro rata
simplifying assumption may be used to determine the
earnings rate for the period from March 31, 1998, to
December 31, 1998, because that rate does not sig-
nificantly understate or overstate the actual earnings
for that period. Accordingly, Employer L determines
that the earnings rate for that period is 15% (9/12 of
the plan's 20% earnings rate for the year). Thus, ap-
plicable earnings rates under the plan during the pe-
riod of the failure are:
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Time Periods
Earnings Rate
3/31/98 - 12/31/98 (First Partial Valuation Period)
+ 15%
1/1/99 - 12/31/99
+ 10%
1/1/00 - 6/1/00 (Second Partial Valuation Period)
+ 12%
If the $5,000 corrective contribution had been con-
tributed for Employee X on March 31, 1998, (1) earn-
ings for 1998 would have been increased by the
amount of the earnings on the additional $5,000 con-
tribution from March 31, 1998, through December 31,
1998, and would have been allocated as 1998 earn-
ings in proportion to the prior year (December 31,
1997) account balances, (2) Employee X's account bal-
ance as of December 31, 1998, would have been in-
creased by the additional $5,000 contribution, (3) earn-
ings for 1999 would have been increased by the 1999
earnings on the additional $5,000 contribution (in-
cluding 1998 earnings thereon) allocated in propor-
tion to the prior year (December 31, 1998) account
balances along with other 1999 earnings, and (4) earn-
ings for 2000 would have been increased by the earn-
ings on the additional $5,000 (including 1998 and 1999
earnings thereon) from January 1 to June 1, 2000, and
would be allocated in proportion to the prior year (De-
cember 31, 1999) account balances along with other
2000 earnings. Accordingly, the $5,000 corrective con-
tribution is adjusted to reflect an earnings amount of
$2,084 ($5,000[(1.15)(1.10)(1.12)-1]) and the earn-
ings amount is allocated to the account balances un-
der the plan allocation method as follows:
(a) Each account balance that shared in the allo-
cation of earnings for 1998 is increased, as of De-
cember 31, 1998, by its appropriate share of the earn-
ings amount for 1998, $750 ($5,000(.15)).
(b) Employee X's account balance is increased,
as of December 31, 1998, by $5,000.
(c) The resulting December 31, 1998, account bal-
ances will share in the 1999 earnings, including the
$575 for 1999 earnings included in the corrective con-
tribution ($5,750(.10)), to determine the account bal-
ances as of December 31, 1999. However, each ac-
count balance other than Employee X's account
balance has already shared in the 1999 earnings, ex-
cluding the $575. Accordingly, Employee X's ac-
count balance as of December 31, 1999, will in-
clude $500 of the 1999 portion of the earnings amount
based on the $5,000 corrective contribution allo-
cated to Employee X's account balance as of De-
cember 31, 1998 ($5,000(.10)). Then each account bal-
ance that originally shared in the allocation of earnings
for 1999 (i.e., excluding the $5,500 additions to Em-
ployee X's account balance) is increased by its ap-
propriate share of the remaining 1999 portion of the
earnings amount, $75.
(d) The resulting December 31, 1999, account bal-
ances (including the $5,500 additions to Employee X's
account balance) will share in the 2000 portion of the
earnings amount based on the estimated January 1,
2000, to June 1, 2000, earnings included in the cor-
rective contribution equal to $759 ($6,325(.12)). (See
Table 1.)
CALCULATION AND ALLOCATION OF THE TABLE 1 CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period Earnings
15%
7501
All 12/31/1997 Account Balances4
1999 Earnings
10%
5752
Employee X ($500)/All 12/31/1998 Account Balances ($75)4
Second Partial Valuation Period Earnings
12%
7593
All 12/31/1999 Account Balances (including Employee X's $5,500)4
Total Amount Contributed
$7,084
1$5,000 x 15%
2$5,750($5,000 + 750) x 10%
3$6,325($5,000 + 750 + 575) x 12%
4After reduction for distributions during the year for which earning are being determined but without regard to contributions received during the year for which earn-
ings are being determined.
Example 24:
The facts are the same as in Example 23.
Earnings Adjustment on the Corrective
Contribution:
The earnings amount on the corrective contribu-
tion is the same as in Example 23, but the earnings
amount is allocated using the specific employee al-
location method. Thus, the entire earnings amount for
all periods through June 1, 2000 (i.e., $750 for March
31, 1998, to December 31, 1998, $575 for 1999, and
$759 for January 1, 2000, to June 1, 2000) is allo-
cated to Employee X. Accordingly, Employer L makes
a contribution on June 1, 2000, to the plan of $7,084
($5,000(1.15)(1.10)(1.12)). Employee X's account bal-
ance as of December 31, 2000, is increased by $7,084.
Alternatively, Employee X's account balance as of De-
cember 31, 1999, is increased by $6,325
($5,000(1.15)(1.10)), which shares in the allocation
of earnings for 2000, and Employee X's account bal-
ance as of December 31, 2000, is increased by the re-
maining $759. (See Table 2.)
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TABLE 2 CALCULATION AND ALLOCATION OF THE CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period Earnings
15%
7501
Employee X
1999 Earnings
10%
5752
Employee X
Second Partial Valuation Period Earnings
12%
7593
Employee X
Total Amount Contributed
$7,084
1$5,000 x 15%
2$5,750($5,000 + 750) x 10%
3$6,325($5,000 + 750 + 575) x 12%
### Example 25:
The facts are the same as in Example 23.
Earnings Adjustment on the Corrective
Contribution:
The earnings amount on the corrective contribu-
tion is the same as in Example 23, but the earnings
amount is allocated using the bifurcated allocation
method. Thus, the earnings for the first partial valu-
ation period (March 31, 1998 to December 31, 1998)
and the earnings for 1999 are allocated to Employee
X. Accordingly, Employer L makes a contribution on
June 1, 2000, to the plan of $7,084 ($5,000(1.15)
(1.10)(1.12)). Employee X's account balance as of De-
cember 31, 1999, is increased by $6,325 ($5,000
(1.15)(1.10)); and the December 31, 1999, account bal-
ances of employees (including Employee X's in-
creased account balance) will share in estimated Janu-
ary 1, 2000, to June 1, 2000, earnings on the corrective
contribution equal to $759 ($6,325(.12)). (See Table
3.)
TABLE 3 CLACULATION AND ALLOCATION OF THE CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period Earnings
15%
7501
Employee X
1999 Earnings
10%
5752
Employee X
Second Partial Valuation Period Earnings
12%
7593
12/31/99 Account Balances (including Employee X's $6,325)4
Total Amount Contributed
$7,084
1$5,000 x 15%
2$5,750($5,000 + 750) x 10%
3$6,325($5,000 + 750 + 575) x 12%
4 After reduction for distributions during the 2000 year but without regard to contributions received during the 2000 year.
#### Example 26: The facts are the same as in Example 23.
Earnings Adjustment on the Corrective
Contribution:
The earnings amount on the corrective contribu-
tion is the same as in Example 23, but the earnings
amount is allocated using the current period alloca-
tion method. Thus, the earnings for the first partial
valuation period (March 31, 1998, to December 31,
1998) are allocated as 2000 earnings. Accordingly, Em-
ployer L makes a contribution on June 1, 2000, to the
plan of $7,084 ($5,000 (1.15)(1.10)(1.12)). Employee
X's account balance as of December 31, 1999, is in-
creased by the sum of $5,500 ($5,000(1.10)) and the
remaining 1999 earnings on the corrective contribu-
tion equal to $75 ($5,000(.15)(.10)). Further, both (1)
the estimated March 31, 1998, to December 31, 1998,
earnings on the corrective contribution equal to $750
($5,000(.15)) and (2) the estimated January 1, 2000,
to June 1, 2000, earnings on the corrective contribu-
tion equal to $759 ($6,325(.12) are treated in the same
manner as 2000 earnings by allocating these amounts
to the December 31, 2000, account balances of em-
ployees in proportion to account balances as of De-
cember 31, 1999 (including Employee X's increased
account balance). (See Table 4.) Thus, Employee X
is allocated the earnings for the full valuation pe-
riod during the period of the failure.
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TABLE 4 CALCULATION AND ALLOCATION OF THE CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period Earnings
15%
7501
12/31/99 Account Balances (including Employee X's $5,575)4
1999 Earnings
10%
5752
Employee X
Second Partial Valuation Period Earn- ings
12%
7593
12/31/99 Account Balances (including Employee X's $5,575)4
Total Amount Contributed
$7,084
1$5,000 x 15%
2$5,750($5,000 + 750) x 10%
$$6,325($5,000 + 750 + 575) x 12%
4 After reduction for distributions during the year for which earnings are determined but without regard to contributions received during the year for which earnings
are being determined.
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# APPENDIX C VCP CHECKLIST IS YOUR SUBMISSION COMPLETE?
## INSTRUCTIONS
The Service will be able to respond more quickly to your VCP request if it is carefully prepared and complete. To ensure that
your request is in order, use this checklist. Answer each question in the checklist by inserting yes, no, or N/A, as appropriate, in
the blank next to the item. Sign and date the checklist (as taxpayer or authorized representative) and place it on top of your re-
quest.
You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your re-
quest, substantive consideration of your submission will be deferred until a completed checklist is received.
TAXPAYER'S NAME
TAXPAYER'S I.D. NO.
PLAN NAME & NO.
ATTORNEY/P.O.A.
The following items relate to all submissions:
1\. Have you identified the type of plan or group plans submitted and included a complete description of
the failure(s) and the years in which the failure(s) occurred (including the years for which the statutory
period has expired)? (See sections 11.02(1) & (2) of Rev. Proc. 2003-44.) (Hereafter, all section refer-
ences are to Rev. Proc. 2003-44.)
2\. Have you included an explanation of how and why the failure(s) arose, including a description of the
administrative procedures for the plan in effect at the time the failure(s) occurred? (See section 11.02(3)
and (4).)
3\. Have you included a detailed description of the method for correcting the failure(s) identified in your
submission? This description must include, for example, the number of employees affected and the ex-
pected cost of correction (both of which may be approximated if the exact number cannot be determined
at the time of the request), the years involved, and calculations or assumptions the Plan Sponsor used to
determine the amounts needed for correction. In lieu of providing correction calculations with respect to
each employee affected by a failure, you may submit calculations with respect to a representative sample
of affected employees. However, the representative sample calculations must be sufficient to demon-
strate each aspect of the correction method proposed. Note that each step of the correction method must
be described in narrative form. (See section 11.02(5).)
4\. Have you described the earnings or interest methodology (indicating computation period and basis for
determining earnings or interest rates) that will be used to calculate earnings or interest on any correc-
tive contributions or distributions? (As a general rule, the interest rate (or rates) earned by the plan dur-
ing the applicable period(s) should be used in determining the earnings for corrective contributions or dis-
tributions.) (See section 11.02(6).)
5\. Have you submitted specific calculations for either affected employees or a representative sample of
affected employees? (See section 11.02(7).)
6\. Have you described the method that will be used to locate and notify former employees or, if there are
no former employees affected by the failure(s) or the correction(s), provided an affirmative statement to
that effect? (See section 11.02(8).)
7\. Have you provided a description of the administrative measures that have been or will be imple-
mented to ensure that the same failure(s) do not recur? (See section 11.02(9).)
8\. Have you included a statement that, to the best of the Plan Sponsor's knowledge, the plan is not cur-
rently under an Employee Plans examination? (See section 11.02(10).)
9\. Have you included a statement that, to the best of the Plan Sponsor's knowledge, the Plan Sponsor is
not under an Exempt Organizations examination? (See section 11.02(10).)
10\. If the submission includes a failure related to Transferred Assets, have you included a description of
the related employer transaction, including the date of the employer transaction and the date the assets were
transferred to the plan? (See section 11.02(11).)
11\. Have you included a copy of the portions of the plan document (and adoption agreement, if appli-
cable) relevant to the failure(s) and method(s) of correction? (See section 11.03(2).)
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12\. Have you included the appropriate voluntary compliance fee due with the submission? (See section
11.04.)
13\. Have you included the original signature of the sponsor or the sponsor's authorized representative?
(See section 11.06.)
14\. Have you included a Power of Attorney (Form 2848)? Note: representation under VCP is limited to
attorneys, certified public accountants, enrolled agents, and enrolled actuaries; unenrolled return prepar-
ers are not eligible to act as representatives under VCP. (See section 11.07.)
15\. Have you included a Penalty of Perjury Statement signed (original signature only) and dated by the
Plan Sponsor? (See section 11.08.)
16\. Have you designated your submission for a Qualified Plan, 403(b) Plan, SEP or SIMPLE IRA Plan,
and as a Group Submission, an Anonymous Submission or nonamender submission, if applicable? (See
section 11.10.)
17\. If you are requesting a waiver of the excise tax under § 4974 of the Code, have you included the re-
quest, and, if applicable, an explanation supporting the request for any affected owner-employee or 10 per-
cent owner? (See section 6.09(3).)
18\. Have you submitted an application for a determination letter? (See section 10.06.)
19\. If the plan is currently being considered in an unrelated determination letter application, have you in-
cluded a statement to that effect? (See section 11.02(12).)
20\. Have you included a copy of the first three pages of the Form 5500 (which includes employee cen-
sus information) of the most recently filed Form 5500 series return? Note: If a Form 5500 is not appli-
cable, insert N/A and furnish the name of the plan, and the census information required of Form 5500 se-
ries filers. (See section 11.03(1).)
21\. Have you included a check for the compliance fee made payable to the U.S. Treasury? (See sections
12.01)
If you inserted "N/A" for any item enter explanation:
Signature
Date
Title or Authority
Typed or printed name of person signing checklist
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# APPENDIX D SAMPLE FORMATS FOR VCP SUBMISSIONS I. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN
Plan Type, Group or Anonymous Submission
## Identification of Failures
A complete description of the failures and the years in which the failures occurred, including (but not limited to):
1\)
Years in which the failure(s) occurred (including closed years)
2\)
Number of participants affected (may be estimated)
3\)
A description of the administrative procedures in effect at the time the failures occurred
4\)
Explanation of how and why the failures occurred
## Description of Proposed Method of Correction
A narrative description of each step of the correction method, including (but not limited to):
1\)
the number of employees affected (may be estimated)
2\)
the expected cost of correction (may be estimated)
3\)
the years involved
4\)
calculations or assumptions used to determine the amounts needed for correction
5\)
a description of the methodology that will be used to calculate earnings or actuarial adjustments on any corrective
contributions or distributions (indicating the computation periods and the basis for determining earnings or actuarial
adjustments in accordance with section 6.02(4) of Rev. Proc. 2003-44)
6\)
Specific calculations, sufficient to demonstrate each aspect of the correction method proposed, for each affected
employee or a representative sample of affected employees
7\)
The method that will be used to locate and notify former employees and beneficiaries, or an affirmative statement that
no former employees or beneficiaries were affected by the failures or will be affected by the correction
8\)
If a submission includes a failure that refers to Transferred Assets and the failure occurred prior to the transfer, a
description of the transaction (including the dates of the employer change and the plan transfer)
## Description of Administrative Procedures
A description of the administrative measures that have been or will be implemented to ensure that the failure(s) will not recur.
Statement regarding status of examination:
To the best of the Plan Sponsor's knowledge (1) the subject Plan is not currently under examination of either an Employee
Plans Form 5500 series return or other Employee Plans examination, (2) the Plan Sponsor is not under an Exempt
Organizations examination (that is, an examination of a Form 990 series return or other Exempt Organizations examination,
and (3) neither the Employer nor any of its representatives have received verbal or written notification from the TEGE
Division of an impending examination or of any impending referral for such examination, nor is the Plan in Appeals or
litigation for any issues raised in such an examination.
### Statement (if applicable) regarding status of any determination letter application not related to the VCP submission
Example: The Plan Sponsor applied for and has currently pending an application for a favorable determination letter with the
Service filed on (insert date).
Sample Penalty of Perjury:
Under penalties of perjury, I declare that I have examined this submission, including accompanying documents and, to the
best of my knowledge and belief, the facts and information presented in support of this submission are true, correct and
complete.
Name and Title (Executed by Plan Sponsor)
Required Documentation:
Copy of plan document (or relevant plan provisions, i.e., those provisions relating to the failure(s) described in the
submission.)
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Copy of the first three pages of the most recently filed Form 5500 series return. (In the case of a terminated plan,
the Form 5500 must be the one filed for the plan year prior to the plan year for which the Final Form 5500 return
was filed.)
Power of Attorney (Form 2848), if applicable
#### Determination letter application
Where correction of a Qualification Failure includes correction of a Plan Document Failure or Demographic Failure, or an
Operational Failure by plan amendment, as permitted under section 4.05, other than the adoption of an amendment designated
by the Service as a model amendment or the adoption of a prototype or volume submitter plan for which the Plan Sponsor
has reliance on the plan's opinion or advisory letter as provided in Rev. Proc. 2003-6, 2003-1 I.R.B. 191, please submit the
following documents:
a copy of the amendment
the appropriate application form (i.e., Form 5300 series or Form 6406), and
Form 8717 and the appropriate user fee.
## Assembling your submission
Please assemble your submission package in the following order:
1\. Checklist - Appendix C
2\. Submission signed by the Plan Sponsor or Plan Sponsor's authorized representative
3\. Form 5500
4\. Determination application and associated documentation (if applicable)
5\. Power of attorney
6\. Penalty of perjury statement
7\. Plan document
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# II. SAMPLE FORMAT FOR VCP SUBMISSION FOR QUALIFIED PLAN FAILURE TO AMEND TIMELY FOR TAX LEGISLATION
Plan Type, Group or Anonymous Submission
Identification of Failures
1\) Indicate which tax legislation is the subject of the submission: (check all that apply)
☐
CRA
☐
TEFRA/DEFRA/REA
☐
GUST
☐
UCA/OBRA '93
☐
TEFRA
☐
DEFRA
☐
UCA
☐
OBRA '93
☐
REA
☐
TRA '86
☐
ERISA
2\) Years in which the failure(s) occurred (including closed years)
3\) A description of the administrative procedures in effect at the time the failures occurred
4\)
Explanation of how and why the failures occurred
## Description of Proposed Method of Correction
Include appropriate Determination Letter Application (see "Required Documentation," below).
## Description of Administrative Procedures
A description of the administrative measures that have been or will be implemented to ensure that the failure(s) will not recur
Statement regarding status of examination:
To the best of the Plan Sponsor's knowledge (1) the subject Plan is not currently under examination of either an Employee Plans
Form 5500 series return or other Employee Plans examination, (2) the Plan Sponsor is not under an Exempt Organizations exami-
nation (that is, an examination of a Form 990 series return or other Exempt Organizations examination, and (3) neither the Em-
ployer nor any of its representatives have received verbal or written notification from the TEGE Division of an impending exami-
nation or of any impending referral for such examination, nor is the Plan in Appeals or litigation for any issues raised in such an
examination.
Statement (if applicable) regarding status of any determination letter application not related to the VCP submission
Example: The Plan Sponsor applied for and has currently pending an application for a favorable determination letter with the Ser-
vice filed on (insert date).
Sample Penalty of Perjury:
Under penalties of perjury, I declare that I have examined this submission, including accompanying documents and, to the best of
my knowledge and belief, the facts and information presented in support of this submission are true, correct, and complete.
Name and Title (Executed by Plan Sponsor)
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Required Documentation:
Appropriate determination letter application form (i.e., Form 5300 series or Form 6406)
Copy of plan document in effect prior to proposed amendment
Copy of the proposed plan amendment
Form 8717 and determination user fee
Copy of determination letter most recently issued with respect to the plan
Any other materials required to be submitted with determination letter application (see Forms 5300, 6406, 5310 & Schedule
Q, and 5303)
Copy of the first three pages of the most recently filed Form 5500 series return. (In the case of a terminated plan, include the
Form 5500 filed for the plan year prior to the plan year for which the Final Form 5500 return was filed.)
Power of Attorney (Form 2848), if applicable
Assembling your submission
Please assemble your submission package in the following order:
1\. Checklist - Appendix C
2\. Submission signed by the Plan Sponsor or Plan Sponsor's authorized representative
3\. Form 5500
4\. Determination application and associated documentation
5\. Power of attorney
6\. Penalty of perjury statement
7\. Plan document
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# Part IV. Items of General Interest
## Tax Exempt Bond Mediation Dispute Resolution Pilot Program
### Announcement 2003-36
SECTION 1. BACKGROUND AND
SUMMARY
.01 This announcement contains the pro-
cedures for the Tax Exempt Bond Media-
tion Dispute Resolution Pilot Program (TEB
Mediation). In furtherance of the Service's
goal of resolving tax controversies on a ba-
sis that is fair and impartial to both the gov-
ernment and taxpayers, TEB Mediation es-
tablishes new opportunities for Issuers (as
defined in Rev. Proc. 96-16, 1996-1 C.B.
630) of tax-exempt debt, with the assis-
tance of the Office of Appeals, to expe-
dite the resolution of cases within the Tax
Exempt Bond organization.
.02 TEB Mediation is jointly adminis-
tered by TEB and Appeals and is avail-
able to Issuers of tax-exempt debt with
cases under examination within TEB. Due
to the nature of these cases, conduit bor-
rowers (and in certain limited cases, other
interested parties) may participate in TEB
Mediation, but every TEB Mediation must
involve a person with decision making au-
thority for the Issuer, whether the Issuer it-
self, an authorized representative of the Is-
suer pursuant to a power or attorney, or
another entity (e.g., a conduit borrower) pur-
suant to a power of attorney from the Is-
suer. See §§ 4.05, 4.09, and 4.10. TEB Me-
diation takes place prior to the issuance of
the proposed adverse determination letter
to the Issuer and is designed to be com-
pleted in approximately 60 days or less.
.03 TEB Mediation utilizes the services
of a trained Appeals mediator with TEB ex-
perience (Appeals Mediator), serving as a
neutral participant, to facilitate the resolu-
tion of factual disputes between the par-
ties. At the Issuer's expense, TEB and the
Issuer (the parties) may use a non-Service
co-mediator in the TEB Mediation.
SECTION 2. SCOPE
.01 TEB Mediation is an optional pro-
cess. TEB Mediation may not be the ap-
propriate dispute resolution process for all
cases. The TEB Field Manager and the Is-
suer must evaluate their individual circum-
stances to determine if this process meets
their needs.
.02 TEB Mediation is generally avail-
able for all TEB cases within the jurisdic-
tion of TEB in which:
(1) The factual issues are fully devel-
oped,
(2) There are a limited number of un-
agreed issues,
(3) The preliminary adverse determina-
tion letter has been issued (see Rev. Proc.
99-35, § 4.04(1), 1999-2 C.B. 501, and any
succeeding revenue procedure); and
(4) A written response to the prelimi-
nary adverse determination letter has been
provided by the Issuer.
.03 TEB Mediation will not be avail-
able for any of the following issues:
(1) Legal issues for which there is no
precedent;
(2) Issues in a taxpayer's case desig-
nated for litigation;
(3) Issues docketed in any court;
(4) Issues for which mediation would not
be consistent with sound tax administra-
tion, e.g., issues governed by closing agree-
ments, by res judicata, or by controlling
precedent; and
(5) Issues for which a proposed adverse
determination letter has been issued (see
Rev. Proc. 99-35, § 4.05(1), 1999-2 C.B.
501).
The exclusion of an issue under this sec-
tion, however, does not preclude the con-
sideration of another issue in the case
through the TEB Mediation process.
## SECTION 3. REQUESTS FOR MEDIATION
.01 Either the Issuer or the TEB Field
Manager may suggest the use of TEB Me-
diation procedures.
.02 To initiate formal consideration of
a request for mediation, the Issuer must send
the TEB Field Manager a written request
that includes the following information:
(1) A description of the issue for which
TEB Mediation is being requested;
(2) A representation that the issue for
which TEB Mediation is being requested
is not an excluded issue described in sec-
tion 2.03, above; and
(3) A request by the Issuer to use a non-
Service co-mediator, if applicable.
.03 TEB Mediation requests will be
evaluated to determine if the particular is-
sue(s) is appropriate for inclusion in the pro-
gram. If TEB denies the mediation request,
the TEB Field Manager will promptly in-
form the Issuer and the Appeals TEB Me-
diation Program Manager. The decision not
to approve a request for TEB Mediation is
final and not subject to administrative ap-
peal or judicial review.
.04 If TEB and the Issuer agree that the
use of mediation procedures is appropri-
ate, the TEB Field Manager and the Is-
suer will enter into a written agreement to
mediate, in the form of Exhibit 1, TEB
Agreement to Mediate. The TEB Agree-
ment to Mediate will specify the issues that
the parties have agreed to mediate, iden-
tify a neutral conference site (e.g., the Ap-
peals Mediator's office), and an agreed pro-
jected process ending date. The preliminary
adverse determination letter and a written
response from the Issuer should be attached
to the TEB Agreement to Mediate.
## SECTION 4. PROCEDURES FOR CONDUCTING THE TEB MEDIATION
.01 TEB Mediation utilizes the services
of a trained Appeals Mediator to facili-
tate the resolution of factual disputes be-
tween the Issuer and TEB. The Appeals
Mediator, as a neutral participant, will as-
sist the parties in defining the issues. The
Appeals Mediator will not render a deci-
sion regarding any issue in dispute. Prior
to the commencement of the mediation, the
Appeals Mediator will advise the parties of
the procedures and ground rules for the me-
diation process. At the conclusion of the
TEB Mediation process, the Appeals Me-
diator will prepare a brief written report in
the form set forth in Exhibit 2, Model Me-
diator's Report.
.02 Within three business days of re-
ceiving a TEB Agreement to Mediate, the
Appeals TEB Mediation Program Man-
ager will assign an Appeals Mediator, se-
lected from a list of eligible individuals
who, generally, will be from the same Ap-
peals office or geographic area where the
case is assigned.
.03 The Issuer also may request, at the
Issuer's expense, to use a non-Service co-
mediator. If the Issuer requests to use a non-
Service co-mediator, the Issuer and the TEB
Field Manager shall make the selection from
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
any local or national organization that pro-
vides a roster of qualified neutrals. To
qualify, the proposed non-Service co-
mediator must have completed mediation
training, have previous mediation experi-
ence, and have a substantive knowledge of
relevant tax law or knowledge of indus-
try practices.
.04 Generally, the Appeals Mediator be-
gins the TEB Mediation with an initial joint
session at which all parties are present. Both
the Issuer and TEB will be provided ample
opportunity to present their respective po-
sitions. After the initial joint session, the Ap-
peals Mediator may hold, as necessary, in-
dividual sessions with the parties, or
additional joint sessions, as deemed appro-
priate in the sole judgment of the Appeals
Mediator.
.05 During the TEB Mediation session,
both the Issuer and TEB will have at least
one representative present with decision-
making authority, unless there is an agree-
ment to the contrary (e.g., a decision maker,
while not physically present, must be avail-
able by telephone). The Issuer and TEB
should also include individuals with the in-
formation and expertise necessary to as-
sist the parties and the Appeals Mediator
during the mediation process. In cases
where doing so will facilitate the process,
the Appeals Mediator may ask that the num-
ber of participants be limited. Any person
engaged in practice before the Service, as
defined in Publication 216, Conference and
Practice Requirements, must have a power
of attorney from the issuer or other repre-
sented party (Form 2848, Power of Attor-
ney and Declaration of Representative).
.06 The goal of the TEB Mediation Pro-
gram is to complete the mediation pro-
cess in approximately 60 days.
.07 The TEB mediation session gener-
ally will be held at the Appeals Media-
tor's office, unless the TEB Field Man-
ager and the Issuer specify another neutral
location, on a date agreeable to the par-
ties.
.08 The TEB mediation process is con-
fidential. All information concerning any
dispute resolution communication is con-
fidential and may not be disclosed by any
party, participant, observer or mediator, ex-
cept as provided by statute, such as in sec-
tions 6103 and 7214(a)(8) and 5 U.S.C.
§ 574. A dispute resolution communica-
tion includes all oral or written communi-
cations prepared for purposes of a dis-
pute resolution proceeding, including the
mediator's report prepared at the conclu-
sion of the mediation process.
.09 In executing the TEB Agreement to
Mediate, the Issuer consents under sec-
tion 6103 to the disclosure by the Service
of its returns and return information inci-
dent to the TEB Mediation to any partici-
pant or observer identified in the initial lists
of participants and observers and to any
subsequent participants and observers iden-
tified in writing by the parties. (See Ex-
hibit 1 of this announcement). In addi-
tion, the Issuer may authorize any person
(e.g., conduit borrower) to inspect or re-
ceive confidential information during the
mediation process by submitting a duly ex-
ecuted Form 8821, Tax Information Author-
ization, to the TEB Field Manager. Where
appropriate for the mediation of the is-
sues involved, the conduit borrower (or any
other interested party participating in the
TEB Mediation) must consent under sec-
tion 6103 to the disclosure by the Service
of its returns and return information inci-
dent to the TEB Mediation to any partici-
pant or observer identified in the initial lists
of participants and to any subsequent par-
ticipants and observers identified in writ-
ing by the parties.
.10 The Issuer may authorize certain per-
sons to represent the Issuer during the me-
diation process by submitting a duly ex-
ecuted Form 2848, Power of Attorney and
Declaration of Representative, to the TEB
Field Manager. If the TEB Agreement to
Mediate is executed by a person pursuant
to a Form 2848, that power of attorney must
clearly express the Issuer's grant of au-
thority to consent to disclose its returns and
return information by the Service to third
parties, and a copy of that power of attor-
ney must be attached to the agreement.
.11 Employees of the Service and the
Treasury Department who participate in or
observe the mediation process in any way,
and any person under contract to the Ser-
vice, pursuant to section 6103(n), that the
Service invites to participate or observe, will
be subject to the confidentiality and dis-
closure provisions of the Code, including
sections 6103, 7213, and 7431.
.12 The prohibition of ex parte com-
munications between Appeals Officers and
other Service employees provided by
§ 1001(a) of the Internal Revenue Ser-
vice Restructuring and Reform Act of 1998
does not apply to the communications aris-
ing in the TEB Mediation process because
the Appeals personnel, in facilitating the
resolution of a factual dispute between the
Issuer and TEB, are not acting in their tra-
ditional Appeals' settlement role.
.13 At the conclusion of the TEB Me-
diation process, the Appeals Mediator will
prepare a brief written report, in the form
attached as Exhibit 2, Model Mediator's Re-
port, which will summarize the Appeals
Mediator's findings. A copy of the Media-
tor's Report shall be provided to the TEB
Field Manager and the Issuer. If a non-
Service co-mediator is involved in the pro-
cess, a single report will be prepared for
joint signature. The Mediator's Report may
not be used as precedent by any party.
.14 If the parties reach an agreement on
all or some issues through TEB Media-
tion, TEB will use established issue or case
closing procedures, which may include the
preparation of a Form 906, Closing Agree-
ment on Final Determination Covering Spe-
cific Matters, or the mailing of a no-change
closing letter.
.15 If any issues remain unresolved af-
ter TEB Mediation, the Issuer retains the
option of requesting that the issue be heard
through the traditional Appeals process in
accordance with Rev. Proc. 99-35.
## SECTION 5. WITHDRAWAL FROM THE TEB MEDIATION DISPUTE RESOLUTION PILOT PROGRAM
Either party may withdraw from TEB
Mediation at any time by notifying the other
party and the Appeals Mediator in writ-
ing. The Appeals Mediator, but not the non-
Service co-mediator, may terminate the TEB
Mediation process, by notifying the par-
ties and, if applicable, the non-Service co-
mediator, in writing, if it becomes appar-
ent that meaningful progress toward
resolution of the issues has stopped.
## SECTION 6. EFFECTIVE DATE
The TEB Mediation Dispute Resolu-
tion Pilot Program is effective beginning
June 3, 2003, and applications to the pro-
gram will be accepted through June 3, 2005.
## SECTION 7. COMMENTS
The Service invites interested persons to
comment on this pilot program. Written
comments on the announcement should be
delivered or mailed by December 3, 2004,
to:
2003-25 I.R.B.
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
Internal Revenue Service
Office of the Chief, Appeals
1099 14th Street, NW
Suite 4035 - East
Washington, D.C. 20005
Alternatively, comments may be sub-
mitted by e-mail to the following address:
Notice.comments@irscounsel.treas.gov.
### SECTION 8. FURTHER INFORMATION
For further information regarding this an-
nouncement, contact: Jacqueline A.
Harris, Appeals TEB Mediation Program
Manager, at (972) 308-7330; Ralph G.
Messenger, Appeals TEB Team Manager,
Oklahoma City, OK at (405) 297-4910;
Brian W. Haley, Appeals Area Director,
Dallas, TX at (972) 308-7455; or
Thomas C. Louthan, Appeals Area Direc-
tor, Washington, DC at (202) 694-1842 (not
toll-free calls).
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
# EXHIBIT 1 TEB Agreement to Mediate
Date
The undersigned requests that an Appeals Mediator be assigned in the TEB Mediation Process as described in Announcement 2003-
36. The Issuer (as defined in Rev. Proc. 96-16, 1996-1 C.B. 630) may also use a non-Internal Revenue Service (Service) co-
mediator, at the Issuer's expense. The Issuer, by signing this Agreement to Mediate and participating in the mediation, acknowl-
edges that the Appeals Mediator is a current employee of the Service.
IRS and Treasury employees who participate in any way in the TEB Mediation process and any person under contract to the IRS
invited to participate, will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C.
sections 6103, 7213, and 7431. See also 5 U.S.C. section 574. The parties also acknowledge that IRS and all other Treasury em-
ployees involved in the mediation are bound by I.R.C. section 7214(a)(8) and must report information concerning violations of any
revenue law to the Secretary. The Appeals Mediator will have the right to ask either party for additional information if deemed nec-
essary for a full understanding of the issues being mediated. A copy of any submission a party gives to the Appeals Mediator will
be provided simultaneously to the other party.
The Issuer consents to the disclosure by the IRS of the Issuer's returns and return information incident to the mediation to any par-
ticipant or observer for the Issuer. If the mediation agreement is executed by a person pursuant to a power of attorney executed by
the Issuer, that power of attorney must clearly express the Issuer's grant of authority to consent to disclose the Issuer's returns and
return information by the IRS to third parties, and a copy of that power of attorney must be attached to this agreement.
The issues for which mediation is requested are as follows: (provide attachment if necessary)
Each party will prepare a discussion summary of the issues, including the party's arguments in favor of the party's position, for con-
sideration by the Mediator(s), not to exceed 20 pages (exclusive of exhibits consisting of pre-existing documents and reports), double-
spaced and using a typeface no smaller than 12 characters per inch. The discussion summaries should be submitted to the Media-
tor(s) and the other party no later than two weeks before the mediation session is scheduled to begin. The Mediator(s) will have
the right to ask either party for additional information before the mediation session, if deemed necessary for a full understanding
of the issues to be mediated.
Estimated TEB Mediation Process End Date:
Neutral Conference Site:
TEB Field Manager Name:
Telephone #:
.)
Fax #:
)
Issuer's Name:
Fax #:
)
Issuer's Address:
Issuer's Representative (if applicable):
Name of Firm:
Address:
Telephone #:
)
Fax #:
)
SIGNATURES
Issuer:
Date
TEB Field Manager:
Date
Issuer's Representative (if applicable):
Date
Comments and Other Participants (attach additional sheets as necessary)
Name
Position or Affiliation
Phone
Appeals Mediator Assigned, Name: phone number
Appeals TEB Mediation Program Manager
Date
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
## EXHIBIT 2 Model Mediator's Report
The parties below agreed to mediate their dispute and attended a mediation session on Month, Day, Year in an attempt to resolve
the following factual issue(s):
ISSUE:
RESOLUTION
[
Yes
No
[
[
Partial
ISSUE:
RESOLUTION:
[
Yes
No
[
[
Partial
DATED this
day of
/s/ Mediator(s)
/s/ Co-Mediator (if necessary)
/s/ Party
/s/ Party
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
Rev. Proc. 2003-30, General
Rules and Specifications for
Substitute Forms W-2 and
W-3; Correction
### Announcement 2003-41
This document contains corrections to
Rev. Proc. 2003-30, 2003-17 I.R.B. 822,
the specifications for the private printing of
paper and laser-printed substitute Form
W-2, Wage and Tax Statement, and Form
W-3, Transmittal of Wage and Tax State-
ments.
As published in the Internal Revenue
Bulletin on April 28, 2003, Rev. Proc.
2003-30 contains errors that may be mis-
leading and are in need of correction. Ac-
cordingly, the below sections of Rev. Proc.
2003-30 are corrected to read as follows:
* * *
Part B, Section 1A*
.12 The checkboxes in box 13 of
Form W-2 (Copy A) must be .14 inches
each; the spacing on each side of the 3
checkboxes is .36 inches; the space after the
3rd checkbox is .46 inches (see Exhibit A).
The checkboxes in box b of Form W-3
must be .14 inches (see Exhibit B).
* * *
Exhibit A ***
This exhibit was corrected to accurately
reflect the requirements listed in Part B,
Section 1A.06. See revised exhibit, at-
tached.
* * *
Exhibit B ***
This exhibit was corrected to accurately
reflect the requirements listed in Part B,
Section 1A.06 and Section 1A.08. See re-
vised exhibit, attached.
* * *
Exhibit D ***
This exhibit was corrected to accurately
reflect the requirements listed in Part B,
Section 2. See revised exhibit, attached.
* * *
Exhibit E and Exhibit F ***
This exhibit was corrected to accurately
reflect the requirements listed in Part B,
Section 1B.01(11). See revised exhibit, at-
tached.
* * *
FOR FURTHER INFORMATION CON-
TACT: Paul Finger of the Special Prod-
ucts Branch, Tax Forms and Publications
Division, at (202) 622-4078 (not a toll-
free number).
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
Exhibit
.375"
a Control number 1.6"
22222 94'
Void ☐ For Official Use Only LOMB No. 1645-0008 4.82'
A 3ª
b Employer identification
number
4" .14" .1"
1 Wages, tips, other compensation $
2 Federal income $
tax withheld .2"
Form
c Employer's name,
address, and ZIP code
3 Social security wages $
4 Social security $
tax withheld
W-2
4.4"
5 Medicare wages and tips $ 1.8"
6 Medicare tax $
withheld 1.8"
(Copy A)
7 Social security tips $
8 Allocated tips $
(Red Ink)
d Employee's social
security number
9 Advance EIC payment $
10 Dependent care $
benefits
e Employee's first
name and initial Last name
11 Nonqualified plans $
12a See instructions C o $ d e
for box 12
4.94" 8.0" and ZIP code
13 Statutory Retirement Third-party 2 employee plan sick pay # + #
12b C 4.56" o $ d e
14 Other 36" 36 # 46"
1 12c C
.14"
$ e
12d C o $ d e
f Employee's address
15 State Employer's
state ID number 16 State wages, tips, etc. $ $
17 State income tax 18 Local wages, tips, etc. $ $ $ $
$ 19 Local income tax
20 Locality name
$
W-2 Form Copy A For Social page with Form photocopies are
Security Administration-Send this entire W-3 to the Social Security Administration; not acceptable. Wage and Tax 2003 Department of the Treasury-Internal Revenue Service Statement For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 10134D
Do Not Cut, Fold, or Staple Forms on This Page - Do Not Cut, Fold, or Staple Forms on This Page 8.5" 11.0"
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
.375"
Exhibit
B
Form
W-3
(Red Ink)
# DO NOT STAPLE OR FOLD
a
Control number
For Official Use Only
MB No. 1545-0008
1.6"
33333
.94
5.46"
b
941
36"Military .36
943
1
Wages, tips, other compensation
Kind
of
Payer
4
4
\#
.46"
2
Federal income tax withheld
$
Ashld.
Medicare
govt. emp.
Third-party
sick
ck pay .36
$
.2"
CT-1
14
emp.
3
Social security wages
$
4
Social security tax withheld
$
\+
K
H
.14'
\#
₩
c
Total number of Forms W-2
d
Establishment number
.14"
e
Employer identification number
3.5"
1.6"
1.9"
5
Medicare wages and tips
$
6
Medicare tax withheld
$
7
Social security tips
2.3"
8
Allocated tips
2.2"
$
$
f
Employer's name
8.0"
9
Advance EIC payments
10
Dependent care benefits
$
$
11
Nonqualified plans
$
12
Deferred compensation
$
13
4.8"
For third-party sick pay use only
14
Income tax withheld by payer of third-party sick pay
$
g
Employer's address and ZIP code
h
Other EIN used this year
15
State
Employer's state ID number
16
State wages, tips, etc.
$
17
State income tax
$
18
Local wages, tips, etc.
$
19
Local income tax
$
Contact person
Telephone number
(
)
For Official Use Only
E-mail address
Fax number
(
)
Under penalties of perjury, I declare that I have examined this return and accompanying documents, and, to the best of my knowledge and belief,
they are true, correct, and complete.
Signature
Title
Date
## W-3 Transmittal of Wage and Tax Statements
2003
Form
Department of the Treasury
Internal Revenue Service
Send this entire page with the entire Copy A page of Form(s) W-2 to the Social Security Administration.
Photocopies are not acceptable.
Do not send any payment (cash, checks, money orders, etc.) with Forms W-2 and W-3.
An Item To Note
Where To File
Separate instructions. See the separate 2003 Instructions for
Forms W-2 and W-3 for information on completing this form.
Send this entire page with the entire Copy A page of Form(s)
W-2 to:
Purpose of Form
Use this form to transmit Copy A of Form(s) W-2, Wage and
Tax Statement. Make a copy of Form W-3, and keep it with
Copy D (For Employer) of Form(s) W-2 for your records. Use
Form W-3 for the correct year. File Form W-3 even if only one
Form W-2 is being filed. If you are filing Form(s) W-2 on
magnetic media or electronically, do not file Form W-3.
Social Security Administration
Data Operations Center
Wilkes-Barre, PA 18769-0001
Note: If you use "Certified Mail" to file, change the ZIP code to
"18769-0002." If you use an IRS approved private delivery
service, add "ATTN: W-2 Process, 1150 E. Mountain Dr." to the
address and change the ZIP code to "18702-7997." See
Circular E, Employers Tax Guide (Pub. 15), for a list of IRS
approved private delivery services.
When To File
File Form W-3 with Copy A of Form(s) W-2 by March 1, 2004.
Do not send magnetic media to the address shown above.
8.5"
For Privacy Act and Paperwork Reduction Act Notice, see the 2003 Instructions for Forms W-2 and W-3.
Cat. No. 10159Y
11.0"
?
Printed on recycled paper
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
# Exhibit D Form W-2 Alternative Employee Copies
(Illustrating
Horizontal and
Vertical Formats)
Form W-2
Wage and Tax Statement
2003
b Employer identification number
1 Wages, tips, other compensation
2 Federal income tax withheld
c Employer's name, address, and ZIP code
3 Social security wages
4 Social security tax withheld
5 Medicare wages and tips
6 Medicare tax withheld
d Employee's social security number e Employee's name f Employee's address and ZIP code
15 State
Employer's state ID number
16 State wages, tips, etc.
17 State income tax
18 Local wages, tips, etc.
19 Local income tax
20 Locality name
Copy C for EMPLOYEE'S RECORDS.
Department of the Treasury-Internal Revenue Service
1 Wages, tips, other compensation
2 Federal income tax withheld
3 Social security wages
4 Social security tax withheld
5 Medicare wages and tips
6 Medicare tax withheld
Employer indentification number
Employer's name, address, and ZIP code
Employee's social security number
Employee's name
Employee's address and ZIP code
15 State Employer's state ID number
18 Local wages, tips, etc.
16 State wages, tips, etc.
19 Local income tax
17 State income tax
20 Locality name
Form W-2
Wage and Tax
Statement
2003
Department of the Treasury-
Internal Revenue Service
Vertical Format
## Horizontal Format
Note: Exhibit D provides
examples of employee copies of
Form W-2 only. For examples of
Copy A, see Exhibit A or Exhibit
E. For the specifications of
Copy A, which must be filed
with the SSA, see Part B,
sections 1A and 1B.
The core data boxes are 1
through 6 and, if applicable, 15
through 20. The core data must
be similarly positioned, exactly
numbered, and exactly titled as
shown for each format. Other
data may be placed in
unoccupied areas based upon
the employer's needs. Form
identification may be placed
before or after the core data.
However, the employer's
non-core elements may be
positioned only between the
sections of core data.
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageBreak -->
Exhibit
E
Form
W-2
(Copy A)
(Laser-Printed)
.5"
a Control number
22222
1.6"
.9"
Void
1.71
For Official Use Only
OMB No. 1645-0008
4.3"
b Employer identification number
1
Wages, tips other compensation
2 Federal income tax withheld
5'
c Employer's name, address, and ZIP code
3
Social security wages
4
Social security tax withheld
5
Medicare wages and tips
1.
6
Medicare tax withheld
1.7"
7
Social security tips
8
Allocated tips
9
Advance EIC payment
10
Dependent care benefits
11
Nonqualified plans
12a See instructions for box 12
.5"
1.2"
13 Statutory employee
Retirement plan
Third-party sick pay
12b
1.7"
14 Other
12c
12d
f Employee's address and ZIP code
15 State
Employer's state ID number
16 State wages, tips, etc.
17 State income tax
18 Local
wages, tips, etc.
19 Local income tax
20 Locality name
4"
1.8"
1.2"
1.1"
1.2"
1.1"
4.7"
Form
W-2
Wage and Tax
Statement
Copy A For Social Security Administration-Send this entire
page with Form W-3 to the Social Security Administration;
photocopies are not acceptable.
2003
0000/0000
Department of the Treasury-Internal Revenue Service
For Privacy Act and Paperwork Reduction
Act Notice, see separate instructions.
11"
Do Not Cut, Fold, or Staple Forms on This Page
a Control number
22222
Void
For Official Use Only
OMB No. 1545-0008
b Employer identification number
1 Wages, tips
other compensation
2 Federal income tax withheld
c Employer's name, address, and ZIP code
3 Social
security wages
4 Social security tax withheld
5 Medicare
wages and tips
6 Medicare tax withheld
7 Social
security tips
8 Allocated tips
d Employee's social security number
9 Advance
EIC payment
10 Dependent care benefits
e Employee's first name and initial Last name
11 Nonqualified
plans
12a See instructions for box 12
13 Statutory employee
Retirement Third-party plan sick pay
12b
14 Other
12c
f Employee's address and ZIP code
12d
15 State
Employer's state ID number
16 State wages, tips, etc.
17 State income tax
18 Local
wages, tips, etc.
19 Local income tax
20 Locality name
Form
W-2
Wage and Tax
Statement
Copy A For Social Security Administration-Send this entire
page with Form W-3 to the Social Security Administration;
photocopies are not acceptable.
2003
0000/0000
Department of the Treasury-Internal Revenue Service
For Privacy Act and Paperwork Reduction
Act Notice, see separate instructions.
<!-- PageFooter="2003-25 I.R.B." -->
<!-- PageFooter="June 23, 2003" -->
.5'
4.1"
d Employee's social security number
e Employee's first name and initial
1.9"
Last name
2.2"
This form may
be subject to
change.
7.5"
<!-- PageBreak -->
## Exhibit F Form W-3
5"
a
Control number
33333
9'
For Official Use Only
DMB No. 1545-0008
b
941
Military
943
1
Wages, tips, other compensation
5.0"
2
Federal income tax withheld
.5'
Kind
of
Payer
CT-1
Hshld.
emp.
Medicare
govt. emp.
Third-party
sick pay
3
Social security wages
4
Social security tax withheld
c
Total number of Forms W-2
1.6"
d
Establishment number
5
Medicare wages and tips
6
Medicare tax withheld
e
Employer identification number
3.2"
7
Social security tips
2.15"
8
Allocated tips
2.15"
f
Employer's name
9
Advance EIC payments
10
Dependent care benefits
This form may
be subject to
change.
13
For third-party sick pay use only
14
Income tax withheld by payer of third-party sick pay
h
Other EIN used this year
15 State
Employer's state ID number
16 State wages, tips, etc.
17 State income tax
18 Local wages, tips, etc.
19 Local income tax
Contact person
Telephone number
For Official Use Only 0000/0000
E-mail address
Fax number
Under penalties of perjury, I declare that I have examined this return and accompanying documents, and, to the best of my knowledge and belief,
they are true, correct, and complete.
Signature
Title
Date
Form
W-3 Transmittal of Wage and Tax Statements
2003
Department of the Treasury
Internal Revenue Service
Send this entire page with the entire Copy A page of Form(s) W-2 to the Social Security Administration.
Photocopies are not acceptable.
Do not send any payment (cash, checks, money orders, etc.) with Forms W-2 and W-3.
### An Item To Note
Separate instructions. See the separate 2003 Instructions
for Forms W-2 and W-3 for information on completing this
form.
Purpose of Form
Use this form to transmit Copy A of Form(s) W-2, Wage and
Tax Statement. Make a copy of Form W-3, and keep it with
Copy D (For Employer) of Form(s) W-2 for your records. Use
Form W-3 for the correct year. File Form W-3 even if only
one Form W-2 is being filed. If you are filing Form(s) W-2 on
magnetic media or electronically, do not file Form W-3.
When To File
File Form W-3 with Copy A of Form(s) W-2 by
March 1, 2004.
Where To File
Send this entire page with the entire Copy A page of Form(s) W-2
to:
Social Security Administration
Data Operations Center
Wilkes-Barre, PA 18769-0001
Note: If you use "Certified Mail" to file, change the ZIP code to
"18769-0002." If you use an IRS approved private delivery
service, add "ATTN: W-2 Process, 1150 E. Mountain Dr." to the
address and change the ZIP code to "18702-7997." See
Circular E, Employer's Tax Guide (Pub. 15), for a list of IRS
approved private delivery services.
Do not send magnetic media to the address shown above.
For Privacy Act and Paperwork Reduction Act Notice, see the 2003 Instructions for Forms W-2 and W-3.
<!-- PageFooter="June 23, 2003" -->
<!-- PageFooter="2003-25 I.R.B." -->
.5"
3.2"
1.6"
(Laser-Printed)
7.5"
11
Nonqualified plans
12
Deferred compensation
g
Employer's address and ZIP code
1.6"
<!-- PageBreak -->
## Foundations Status of Certain Organizations
Announcement 2003-42
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grant-
ors and contributors may not, after this date,
rely on previous rulings or designations in
the Cumulative List of Organizations (Pub-
lication 78), or on the presumption aris-
ing from the filing of notices under sec-
tion 508(b) of the Code. This listing does
not indicate that the organizations have lost
their status as organizations described in
section 501(c)(3), eligible to receive de-
ductible contributions.
Former Public Charities. The follow-
ing organizations (which have been treated
as organizations that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private
foundations:
2B Healthy Nutrition Network,
Modesto, CA
4Ts Productions, White Plains, NY
22nd National Conference of Women
and the Law, San Francisco, CA
3890 VIP Housing Development Fund
Corporation, Fort Lee, NJ
A. C. Crowder Sr. Scholarship Fund,
Inc., Hillsborough, NC
Acoustic Concerts of Southern Utah,
St. George, UT
Advantage Foster Family Agency,
Anaheim, CA
Affordable Housing Association of
Pittsburg, Martinez, CA
African Children's Dream, Inc.,
Snellville, GA
Ajewelyon Enterprises, Cincinnati, OH
Alaska Deaf Hard of Hearing and
Deafblind Council, Anchorage, AK
Alliance of Christian Youth for Christ,
Memphis, TN
Alternative Education, Los Angeles, CA
Alternative Energy Institute, Inc.,
Tahoe City, CA
Alviso Community in Action, Inc.,
Alviso, CA
American Association of University
Women Foundation Valparaiso Br.,
Valparaiso, IN
Americans Making a Difference, Inc.,
Boise, ID
<!-- PageFooter="2003-25 I.R.B." -->
Any Body Can Youth Resorts
Foundation, Santee, CA
Association of Chevros Kadisha, Inc.,
Brooklyn, NY
Autism Community Services,
Vancouver, WA
Bailey Christian Education Fund,
Kansas City, KS
Baytown Agape Community Services,
Inc., Baytown, TX
Behavioral Health Network, Inc.,
Coral Gables, FL
Belmont Seniors Organization, Inc.,
Belmont, MA
Benbrook Lions Club, Inc.,
Benbrook, TX
Bill Blackwood Law Enforcement
Management Institute Graduate
Assoc., San Marcos, TX
Blessed Hand, St. Louis, MO
Booneys Corporation, Hempstead, NY
BROTHER S, Rockville, MD
Butterfly Palace, Inc.,
Arroyo Grande, CA
California Citrus Mutual Scholarship
Foundation, Exeter, CA
California Latino Council of the Deaf
and Hard of Hearing, Inc.,
Lakewood, CA
California Signrise Corporation,
Oakland, CA
Carl and Dorothy Crow Scholarship
Fund, Portland, OR
Carl Rauser Mental Health Housing
Foundation, Sacramento, CA
Carmel Middle School Theatre Arts
Association, Carmel, CA
Center for Corporate Giving,
St. Paul, MN
Center for the Arts, Inc., Honolulu, HI
Central Christian Missionary Conference,
Inc., Jasper, TX
Central Hardin High School JROTC
Booster Club, Cecilia, KY
Centralia Emergency Shelter, Inc.,
Centralia, IL
Centralized Leasing Office, Inc.,
Woodland Hills, CA
Charitable Foundation of the Vail Eagle
Valley Rotary Club, Edwards, CO
Charleston Volunteer Fire Fighters
Association, Coos Bay, OR
Children at Risk, New York, NY
Childrens Haven, Lancaster, CA
Childrens Services of Monterey Bay,
Inc., Marina, CA
Chipman Booster Club, Bakersfield, CA
Christian Covenant Group,
Columbus, OH
Christian Education Mission Center, Inc.,
Granada Hills, CA
Chuck Muncie Youth Foundation, Inc.,
Antioch, CA
Circle of Life-Living Dying Project of
Hawaii, Kapaa, HI
Clovis Primary Parent Booster Club,
Clovis, CA
Coldbrook Foundation, Martinez, CA
Colville Main Street Revitalization
Program, Colville, WA
Community Agency Support Team Cast,
Pasco, WA
Community Arts & Cultural
Enhancement Corporation,
Berkeley, CA
Community Connections Clinic for
Children, Bend, OR
Community Onramp, Inc., Atlanta, GA
Community Partnerships, Inc.,
Kahului, HI
Creative Counseling Concepts,
Seattle, WA
Crimes Drugs & Prison Alternatives,
Salem, OR
Cross Purpose Ministries, Inc.,
Duncanville, TX
Crossties Teacher Network,
Woodstock, GA
Crosstimbers Heritage Alliance, Inc.,
Keller, TX
Culpeper Interfaith Volunteer Caregivers,
Culpeper, VA
Culver City Civic Light Opera,
Culver City, CA
D C Kinshipcare Coalition, Inc.,
Washington, DC
Dawns Early Light, Breaux Bridge, LA
Daybreak Prayer Ministry,
Anchorage, AK
Decatur Macon County Senior Center
Foundation, Decatur, IL
Detroit Workforce Development Board,
Detroit, MI
Domestic Peace, Tacoma, WA
Earth Protection Fund, Miami, FL
East West Adoptions, Incorporated,
Berkeley, CA
Eastside Network, Bellevue, WA
Eden Alvarado Niles, Inc.,
Hayward, CA
Educational Distribution Corporation,
Walnut, CA
El Capitan Educational Foundation,
Oakhurst, CA
<!-- PageFooter="June 23, 2003" -->
<!-- PageBreak -->
Emmanuel Temple Youth Center, Orange, TX
Hearers of the Cry, Kansas City, MO Help the Children See Foundation, Inc., Houston, TX
Latino Family Drug and Alcohol Council, Inc., Whittier, CA
Estero Community Access,
Lees Jr Tournament Fund, Mesquite, TX Lifeshare, Inc., Oklahoma City, OK
Morro Bay, CA
Helping Elderly Residents Out,
Fame Institute, San Diego, CA
Houston, TX
Lincoln High School Band Booster
Family Enrichment Housing
Helping Hand Foundation, Dallas, TX
Club, Dallas, TX
Development Corporation,
Helping Ministry, St. Louis, MO
Love Outreach, Inc., Carol City, FL
Long Beach, CA
Higgy Foundation, Santa Paula, CA
Lynwood Community Partnership, Inc.,
Family Works, Mesa, AZ
His Healing Hands, Inc., Tulsa, OK
Lynwood, CA
Fang Education Association, Inc.,
Homes 2000, Modesto, CA Hope for Girls Group Home, Inc.,
Maui Center for Health Care Education, Kahului, HI
Fresno, CA
Fannin County Community Development
Midland, TX
Maxwell Conservation Trust, Ltd., Scituate, MA
Corporation, Sherman, TX
Housing Opportunities Program for the
Feed-A-Child, Inc., New Orleans, LA
Elderly, Long Beach, CA How to Spiritually Heal, Inc.,
Mckinney Housing Opportunities Corporation, McKinney, TX
Fierro Preservation Association, Inc.,
Silver City, NM
Hyannis, MA
Mediation Association of Guadalupe County, Inc., Seguin, TX
Filipino Youth Coalition-Community
Hyperbaric Research Foundation, Inc.,
Services & Dev of Sta Clara Co.,
Boca Raton, FL
Medical Education Loan Fund of
Inc., San Jose, CA
Image Elementary School PTO,
McGehee, McGehee, AR
Flight Path Learning Center of Southern
Vancouver, WA
Medical Missionary Evangelists, Fresno, CA
California, Los Angeles, CA
International Rehabilitation Consulting
Florissant Valley Community
Center, Spring, TX
Mercy House Ministries, Inc., Euless, TX
Development Foundation,
Jackson Elementary School Parent
Florissant, MO
Teacher Organization,
Merry Enterprises, Inc., Wichita, KS
Fort Worth Ser-Jobs for Progress, Inc.,
El Dorado Hills, CA
Mesopatamia Museum,
Fort Worth, TX
Janus Foundation USA, Inc., Miami, FL
Prospect Heights, IL
Fred Shipman Ministries, Inc.,
Jasper High School Parent Teacher
Mexican Cultural Institute of Mid-America, St. Louis, MO
West Palm Beach, FL
Student Organization, Plano, TX
Freedom Mobility Innovations,
Jesus Christ is Lord and Savior
Millennium Elementary PTSA, Tacoma, WA
Marysville, WA
Ministries, Lake Mary, FL
Freedom Quest, Colorado Springs, CO Friends of the Cypress Masterworks Chorale, Signal Hill, CA
Jewish Home of Bergen, Inc., Rockleigh, NJ
Milwaukee Area Select High School Hockey (MASHH), Brookfield, WI
Johnson Foundation, Inc.,
Mission of T.E.A.R.S., Raleigh, NC
FS Access, Inc., Philadelphia, PA
Future of Detroit Community
Knoxville, TN Joseph Lavalley Foundation, Incorporated, Springfield, MA
Mountains for Miracles, Missoula, MT Multicultural Student Alliance, Las Cruces, NM
Development, Clinton Township, MI
Garden Oaks Elementary Exploratorium
Group, Houston, TX
Just-Us-For-All Legal Aid,
N. C. Minority Plwa Coalition, Inc.,
Globaltrek, Inc., Salem, OR
Stockton, CA
Smithfield, NC
Golden State Warriors Foundation,
Justin C. Stewart Plaza Housing
Nantucket Center for the Arts, Nantucket, MA
Oakland, CA
Corporation, Salt Lake City, UT
Grandview Rotary Club Scholarship, Inc., Grandview, WA
Kau High School Foundation, Mililani, HI
National Housing Associates, Inc., Westerville, OH
Haitian American Community
Kemet-Nu Empowerment,
Nehemiah Project, Inc., Anchorage, AK
Broadcasting Association, Inc., Miami, FL
Winston Salem, NC Kids Ambassador Foundation,
Neighborhood Assistance Program, Sacto, CA
Hamilton Court Housing Corporation, Glendale, CA
Grosse Isle, MI
Nevada Youth Football League, Inc., Las Vegas, NV
Kids on Stage Foundation, Inc.,
Hands of Angels Foundation, Brea, CA
Littleton, CO Klein Intermediate Parent Teacher
New Directions for Men, Inc., Phoenix, AZ
Harbor Lights Festival, Inc.,
Corpus Christi, TX
Organization, Inc., Houston, TX La Bel Opera Foundation,
New Hope Community Development Corporation, Detroit, MI
Harrison-Rochon CPAs Educational
Foundation, Inc., New Orleans, LA
West Point, UT La Center Booster Club, La Center, WA
New Hope Educational Institute, Inc., Detroit, MI
Hawaiis International Institute of Plastic
& Reconstructive Microsurg, Hilo, HI
Lake Washington Foundation, Inc., Greenville, MS
New Mexico Teen Court Association, Truth or Consequences, NM
Hazeldale Parent Teacher Club, Incorporated, Aloha, OR
Lakeland Manor Housing Corporation, Pasadena, CA
New Museum for Children, Encino, CA New Neighbors, Inc., Anchorage, AK
June 23, 2003
1105
2003-25 I.R.B.
<!-- PageBreak -->
Newport Boys Basketball Association, Bellevue, WA
Project Achieve of Glendale, Glendale, CA Project Amistad of Deming,
Sembrando El Futuro, Santa Cruz, CA Severly Disabled Youth Association, Snohomish, WA
Nia Foundation Seven Principle Cultural
Comm., Missouri City, TX
Deming, NM
Shear Kindness, Vallejo, CA SHIM Community Development, Inc., Miami, FL
North Area Community Progress Team, Salem, OR
Property Development Engineers, Inc., Stratford, CT
North Brunswick Educational
Puyallup Rotary Foundation,
SOCIAL, Inc., St. Louis, MO
Foundation, Incorporated,
Puyallup, WA Quicktime Resolve Services, Inc., Los Angeles, CA Quilombo, Oakland, CA
Solana County Rescue Mission, Inc., Vallejo, CA
North Brunswick, NJ
North Richmond Senior Housing, Inc., Hayward, CA
Solo Strategies for Widowed Persons, Spokane, WA
North Shore Recovery Together,
Ra Foundation, Carbondale, IL
South County Hope Villa Esperanza, Inc., Gilroy, CA
Incline Village, NV
Rams Club, Inc., Rio Rancho, NM
Northeast Louisiana Youthbuild Delta
Raymond Elementary PTA 4 75,
South Hill Aquatic and Recreation Enthusiasts, Puyallup, WA
Council, Inc., Lake Providence, LA
Tacoma, WA
Northern Calif First Jurisdiction Church
REACH for the Stars, Inc., Bradenton, FL
Southern California CISD Team, Upland, CA
of God in Christ, Inc., Oakland, CA
Notable Youth Foundation, Sandy, UT
Redlands Senior Housing Two,
Southwest Montana Rehabilitation Center, Inc., Butte, MT
NW Senior Resource Services,
Pleasanton, CA
Seattle, WA
Research and Investigations, Fort Washington, MD Resource Training Center, Inc., Brooklyn, NY Resources for Independence, Torrance, CA Retreat Learning Center, Inc.,
Southwest Volunteer Services, Inc., Avondale, AZ
Oak Park Drug Free Zone Council,
Sacramento, CA
Sowin Love, Inc., Glendale, AZ
Oceanic Climate Sciences Center, Amarillo, TX
Sserulanda International Center of Los Angeles, Los Angeles, CA
Odyssey Community Group,
Stanly County Firemens Association, Inc., Albemarle, NC
Redmond, WA
Options Activities Support Information
Indianapolis, IN Rice Family Foundation, La Mesa, CA Richland, P T O, Johnstown, PA
Star-Fire Corporation, Tijeras, NM Stone-Bonding Enterprises, Norwalk, CA
Self-Help, Inc.,
Colorado Springs, CO
O'Rourke Family Foundation,
Rock That Rolls, Greenbrier, TN Rock the Nations, Colorado Springs, CO Rose House, Inc., Pahoa, HI
Straight Talk on Prevention, Rancho Palos Verdes, CA
Harbor Springs, MI
Outreach Alive Youth Impact Ministries,
Strategy Research Foundation, Inc., West Lafayette, IN
Federal Way, WA
Owen Roe Oneill House, Amesbury, MA
Rose Petal Associates, Taylorsville, UT Rotary Club of Hingham Foundation a Charitable Trust, Hingham, MA Rowland Foundation, Webster, FL Russian-American Cultural & Educational Center, Inc., Studio City, CA
Stray Katz a New Jersey Non Profit Corporation, Trenton, NJ Students At Work, Inc., Augusta, GA
Pacific Northwest Unitarian Universalist
Growth Foundation, Bellingham, WA
Superior Wildlands Conservancy, Inc., Oshkosh, WI
Panoramic Productions, Inc.,
Tucson, AZ
Supporting Elementary Students for Success, Charlottesville, VA Tc Pops Orchestra, Rogers, MN
Paradise for Birds Rehab., Inc., Cary, NC
Russian Schools of Evangelism, Inc., Dallas, TX Salt & Pepper Tr, Inc., Cambridge, MA Samuel Dewitt Proctor Academy Charter School Foundation, Princeton, NJ
Parvuli Dei, Inc., Rathdrum, ID
Texas Institute of Human Development, Inc., Grand Prairie, TX Texas Rural Networks Foundation, Austin, TX
PCMC, Inc., Northampton, MA
Pearl Ubungen Dancers and Musicians, Boulder, CO
People Set Free Ministries, Wilmington, DE
San Mateo County Women Lawyers Section Educational Foundation, San Carlos, CA San Miguel Education Foundation,
Three Doors, Inc., Kenilworth, NJ TLC Services, Inc., Show Low, AZ Tulare County Quest for Youth, Visalia, CA
Peoria Lions Foundation, Inc., Peoria, AZ
Phi Delta Theta-Oklahoma Delta
San Miguel, CA
Tvp Residents Association I, Inc.,
Educational Fund, Norman, OK
Saudia Foundation, St. Paul, MN
Detroit, MI
Phila Graduate Chapter of Grove Phi Grove Social Fellowship, Inc.,
Saul B. and Naomi R. Cohen Foundation, Inc., Chestnut Hill, MA Second Ward Association, Inc., Houston, TX
Tvp Residents Association II, Inc., Detroit, MI
Philadelphia, PA
Tvp Residents Association III, Inc., Detroit, MI
Prayer for Pur Schools, Inc.,
Jacksonville, FL
Secure Beginnings, Inc., Boulder, CO Seeds of Texas Seed Exchange, Inc.,
Tvp Residents Association IV, Inc., Detroit, MI
Programme for Technological Careers,
Philadelphia, PA
College Station, TX
UCAAN, Anchorage, AK
2003-25 I.R.B.
1106
June 23, 2003
<!-- PageBreak -->
UJF Retreat Center, Inc., Latham, NY Unidad Latina, Inc., Farmingville, NY
Waukesha Area Music Preservation Society, Inc., Caledonia, WI Western Counties Resources Policy Institute, Salt Lake City, UT West Valley Middle School Pack Parents, Yakima, WA
Young Women Empowerment Training, Inc., Denver, CO If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a pri-
United Services Association, Mesa, AZ Unity Fellowship Breaking Ground, Inc., Brooklyn, NY
US AIDS Foundation, Inc.,
Baltimore, MD
Wetlands Action Network, Malibu, CA
vate operating foundation, the Internal Rev- enue Service will issue a ruling or deter-
USS Forrestal Naval Museum, Inc.,
Wildlife Education,
Bensalem, PA
Lake Hauasu City, AZ
mination letter with the revised classification
Valley Rotary Charitable Association, Spokane, WA
Windsor Arts Council, Inc., Windsor, CT
as to foundation status. Grantors and con- tributors may thereafter rely upon such rul-
Ventura High School Music Boosters, Ventura, CA
Wine Society of Texas-Scholarships, Bedford, TX
ing or determination letter as provided in section 1.509(a)-7 of the Income Tax Regu-
Vernonia Hands on Art Center,
Woodlands Holiday Home Tour, Inc., The Woodlands, TX
lations. It is not the practice of the Ser-
Vernonia, OR
vice to announce such revised classifica- tion of foundation status in the Internal Revenue Bulletin.
Virgin Islands Comprehensive Mental Health Agency, Inc., St. Thomas, VI
World Apostolate of Fatima Archdiocese of Boston Division, Inc., E. Bridgewater, MA
Visual Arts Resources, Springfield, OR
Washington East Opera,
YFC Youth National Network, Inc., Cleveland, OH
Kennewick, WA
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## Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as"rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare with amplified
and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case,
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
## Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A-Individual.
Acq .- Acquiescence.
B-Individual.
BE-Beneficiary.
FPH-Foreign Personal Holding Company.
F.R .- Federal Register.
B.T.A .- Board of Tax Appeals.
FUTA-Federal Unemployment Tax Act.
FX-Foreign Corporation.
G.C.M .- Chief Counsel's Memorandum.
GE-Grantee.
GP-General Partner.
COOP-Cooperative.
GR-Grantor.
Ct.D .- Court Decision.
IC-Insurance Company.
CY-County.
I.R.B .- Internal Revenue Bulletin.
D-Decedent.
LE-Lessee.
DC-Dummy Corporation.
LP-Limited Partner.
DE-Donee.
LR-Lessor.
TT-Trustee.
U.S.C .- United States Code.
DISC-Domestic International Sales Corporation.
DR-Donor.
O-Organization.
Y-Corporation.
E-Estate.
EE-Employee.
E.O .- Executive Order.
ER-Employer.
ERISA-Employee Retirement Income Security Act.
EX-Executor.
F-Fiduciary.
FC-Foreign Country.
FICA-Federal Insurance Contributions Act.
FISC-Foreign International Sales Company.
Rev. Rul .- Revenue Ruling.
S-Subsidiary.
S.P.R .- Statements of Procedural Rules.
Stat .- Statutes at Large.
T-Target Corporation.
T.C .- Tax Court.
T.D .- Treasury Decision.
TFE-Transferee.
TFR-Transferor.
T.I.R .- Technical Information Release.
TR-Trust.
Del. Order-Delegation Order.
M-Minor.
Nonacq .- Nonacquiescence.
X-Corporation.
P-Parent Corporation.
PHC-Personal Holding Company.
PO-Possession of the U.S.
PR-Partner.
PRS-Partnership.
PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.
REIT-Real Estate Investment Trust.
Rev. Proc .- Revenue Procedure.
BK-Bank.
C-Individual.
C.B .- Cumulative Bulletin.
CFR-Code of Federal Regulations.
CI-City.
TP-Taxpayer.
Z-Corporation.
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<!-- PageBreak -->
Numerical Finding List1
Notices-Continued:
Revenue Procedures-Continued:
Bulletins 2003-1 through 2003-24
2003-17, 2003-12 I.R.B. 633
2003-21, 2003-6 I.R.B. 448
2003-18, 2003-14 I.R.B. 699
2003-22, 2003-10 I.R.B. 577
Announcements:
2003-19, 2003-14 I.R.B. 703
2003-23, 2003-11 I.R.B. 599
2003-1, 2003-2 I.R.B. 281
2003-20, 2003-19 I.R.B. 894
2003-24, 2003-11 I.R.B. 599
2003-2, 2003-3 I.R.B. 301
2003-21, 2003-17 I.R.B. 817
2003-25, 2003-11 I.R.B. 601
2003-3, 2003-4 I.R.B. 361
2003-22, 2003-18 I.R.B. 851
2003-26, 2003-13 I.R.B. 666
2003-4, 2003-5 I.R.B. 396
2003-23, 2003-17 I.R.B. 821
2003-27, 2003-13 I.R.B. 667
2003-5, 2003-5 I.R.B. 397
2003-24, 2003-18 I.R.B. 853
2003-28, 2003-16 I.R.B. 759
2003-6, 2003-6 I.R.B. 450
2003-25, 2003-18 I.R.B. 855
2003-29, 2003-20 I.R.B. 917
2003-7, 2003-6 I.R.B. 450
2003-26, 2003-18 I.R.B. 855
2003-30, 2003-17 I.R.B. 822
2003-8, 2003-6 I.R.B. 451
2003-27, 2003-19 I.R.B. 898
2003-31, 2003-17 I.R.B. 838
2003-9, 2003-7 I.R.B. 490
2003-28, 2003-22 I.R.B. 971
2003-32, 2003-16 I.R.B. 803
2003-10, 2003-7 I.R.B. 490
2003-29, 2003-20 I.R.B. 917
2003-33, 2003-16 I.R.B. 803
2003-11, 2003-10 I.R.B. 585
2003-31, 2003-21 I.R.B. 948
2003-34, 2003-18 I.R.B. 856
2003-12, 2003-10 I.R.B. 585
2003-32, 2003-21 I.R.B. 949
2003-35, 2003-20 I.R.B. 919
2003-13, 2003-11 I.R.B. 603
2003-33, 2003-23 I.R.B. 990
2003-36, 2003-18 I.R.B. 859
2003-14, 2003-11 I.R.B. 603
2003-34, 2003-23 I.R.B. 990
2003-37, 2003-21 I.R.B. 950
2003-15, 2003-11 I.R.B. 605
2003-35, 2003-23 I.R.B. 992
2003-38, 2003-24 I.R.B. 1017
2003-16, 2003-12 I.R.B. 641
2003-36, 2003-23 I.R.B. 992
2003-39, 2003-22 I.R.B. 971
2003-17, 2003-15 I.R.B. 722
2003-42, 2003-23 I.R.B. 993
2003-18, 2003-13 I.R.B. 675
Proposed Regulations:
2003-43, 2003-23 I.R.B. 998
2003-19, 2003-15 I.R.B. 723
REG-209500-86, 2003-2 I.R.B. 262
Revenue Rulings:
2003-20, 2003-15 I.R.B. 750
REG-113007-99, 2003-23 I.R.B. 1004
2003-21, 2003-17 I.R.B. 846
REG-104385-01, 2003-12 I.R.B. 634
2003-1, 2003-3 I.R.B. 291
2003-22, 2003-17 I.R.B. 846
REG-116641-01, 2003-8 I.R.B. 518
2003-2, 2003-2 I.R.B. 251
2003-23, 2003-16 I.R.B. 808
REG-125638-01, 2003-5 I.R.B. 373
2003-3, 2003-2 I.R.B. 252
2003-24, 2003-16 I.R.B. 810
REG-126016-01, 2003-7 I.R.B. 486
2003-4, 2003-2 I.R.B. 253
2003-25, 2003-17 I.R.B. 846
REG-126485-01, 2003-9 I.R.B. 542
2003-5, 2003-2 I.R.B. 254
2003-26, 2003-18 I.R.B. 862
REG-164754-01, 2003-22 I.R.B. 975
2003-6, 2003-3 I.R.B. 286
2003-27, 2003-18 I.R.B. 862
REG-103580-02, 2003-9 I.R.B. 543
2003-7, 2003-5 I.R.B. 363
2003-28, 2003-19 I.R.B. 899
REG-124069-02, 2003-7 I.R.B. 488
2003-8, 2003-3 I.R.B. 290
2003-29, 2003-20 I.R.B. 928
REG-131478-02, 2003-13 I.R.B. 669
2003-9, 2003-4 I.R.B. 303
2003-30, 2003-20 I.R.B. 929
REG-138882-02, 2003-8 I.R.B. 522
2003-10, 2003-3 I.R.B. 288
2003-31, 2003-20 I.R.B. 930
REG-139768-02, 2003-10 I.R.B. 583
2003-11, 2003-3 I.R.B. 285
2003-32, 2003-20 I.R.B. 933
REG-141097-02, 2003-16 I.R.B. 807
2003-12, 2003-3 I.R.B. 283
2003-33, 2003-21 I.R.B. 953
REG-141659-02, 2003-20 I.R.B. 927
2003-13, 2003-4 I.R.B. 305
2003-34, 2003-21 I.R.B. 953
REG-142605-02, 2003-23 I.R.B. 1010
2003-14, 2003-4 I.R.B. 302
2003-35, 2003-21 I.R.B. 956
REG-151043-02, 2003-3 I.R.B. 300
2003-15, 2003-4 I.R.B. 302
2003-37, 2003-24 I.R.B. 1025
REG-152524-02, 2003-22 I.R.B. 979
2003-16, 2003-6 I.R.B. 401
2003-38, 2003-24 I.R.B. 1029
REG-157302-02, 2003-24 I.R.B. 1021
2003-17, 2003-6 I.R.B. 400
2003-39, 2003-24 I.R.B. 1030
REG-164464-02, 2003-2 I.R.B. 262
2003-18, 2003-7 I.R.B. 467
Court Decisions:
Revenue Procedures:
2003-19, 2003-7 I.R.B. 468
2003-20, 2003-7 I.R.B. 465
2077, 2003-19 I.R.B. 868
2003-1, 2003-1 I.R.B. 1
2003-21, 2003-8 I.R.B. 509
Notices:
2003-2, 2003-1 I.R.B. 76
2003-22, 2003-8 I.R.B. 494
2003-3, 2003-1 I.R.B. 113
2003-23, 2003-8 I.R.B. 511
2003-1, 2003-2 I.R.B. 257
2003-4, 2003-1 I.R.B. 123
2003-24, 2003-10 I.R.B. 557
2003-2, 2003-2 I.R.B. 257
2003-5, 2003-1 I.R.B. 163
2003-25, 2003-13 I.R.B. 642
2003-3, 2003-2 I.R.B. 258
2003-6, 2003-1 I.R.B. 191
2003-26, 2003-10 I.R.B. 563
2003-4, 2003-3 I.R.B. 294
2003-7, 2003-1 I.R.B. 233
2003-27, 2003-11 I.R.B. 597
2003-5, 2003-3 I.R.B. 294
2003-8, 2003-1 I.R.B. 236
2003-28, 2003-11 I.R.B. 594
2003-6, 2003-3 I.R.B. 298
2003-9, 2003-8 I.R.B. 516
2003-29, 2003-11 I.R.B. 587
2003-7, 2003-4 I.R.B. 310
2003-10, 2003-2 I.R.B. 259
2003-30, 2003-13 I.R.B. 659
2003-8, 2003-4 I.R.B. 310
2003-11, 2003-4 I.R.B. 311
2003-31, 2003-13 I.R.B. 643
2003-9, 2003-5 I.R.B. 369
2003-12, 2003-4 I.R.B. 316
2003-32, 2003-14 I.R.B. 689
2003-10, 2003-5 I.R.B. 369
2003-13, 2003-4 I.R.B. 317
2003-33, 2003-13 I.R.B. 642
2003-11, 2003-6 I.R.B. 422
2003-14, 2003-4 I.R.B. 319
2003-34, 2003-17 I.R.B. 813
2003-12, 2003-6 I.R.B. 422
2003-15, 2003-4 I.R.B. 321
2003-35, 2003-14 I.R.B. 687
2003-13, 2003-8 I.R.B. 513
2003-16, 2003-4 I.R.B. 359
2003-36, 2003-18 I.R.B. 849
2003-14, 2003-8 I.R.B. 515
2003-17, 2003-6 I.R.B. 427
2003-37, 2003-15 I.R.B. 717
2003-15, 2003-9 I.R.B. 540
2003-18, 2003-6 I.R.B. 439
2003-38, 2003-17 I.R.B. 811
2003-16, 2003-10 I.R.B. 575
2003-19, 2003-5 I.R.B. 371
2003-39, 2003-17 I.R.B. 811
2003-20, 2003-6 I.R.B. 445
2003-40, 2003-17 I.R.B. 813
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002-26 through 2002-52 is
in Internal Revenue Bulletin 2003-1, dated January 6, 2003.
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Revenue Rulings-Continued:
2003-41, 2003-17 I.R.B. 814
2003-42, 2003-16 I.R.B. 754
2003-43, 2003-21 I.R.B. 935
2003-44, 2003-18 I.R.B. 848
2003-45, 2003-19 I.R.B. 876
2003-46, 2003-19 I.R.B. 878
2003-47, 2003-19 I.R.B. 866
2003-48, 2003-19 I.R.B. 863
2003-49, 2003-20 I.R.B. 903
2003-50, 2003-21 I.R.B. 944
2003-51, 2003-21 I.R.B. 938
2003-52, 2003-22 I.R.B. 960
2003-53, 2003-22 I.R.B. 969
2003-54, 2003-23 I.R.B. 982
2003-55, 2003-22 I.R.B. 961
2003-56, 2003-23 I.R.B. 985
2003-57, 2003-22 I.R.B. 959
2003-58, 2003-22 I.R.B. 959
2003-59, 2003-24 I.R.B. 1014
2003-60, 2003-23 I.R.B. 987
2003-61, 2003-24 I.R.B. 1015
Tax Conventions:
Ann. 2003-21, 2003-17 I.R.B. 846
Treasury Decisions:
9024, 2003-5 I.R.B. 365
9025, 2003-5 I.R.B. 362
9026, 2003-5 I.R.B. 366
9027, 2003-6 I.R.B. 413
9028, 2003-6 I.R.B. 415
9029, 2003-6 I.R.B. 403
9030, 2003-8 I.R.B. 495
9031, 2003-8 I.R.B. 504
9032, 2003-7 I.R.B. 471
9033, 2003-7 I.R.B. 483
9034, 2003-7 I.R.B. 453
9035, 2003-9 I.R.B. 528
9036, 2003-9 I.R.B. 533
9037, 2003-9 I.R.B. 535
9038, 2003-9 I.R.B. 524
9039, 2003-10 I.R.B. 561
9040, 2003-10 I.R.B. 568
9041, 2003-8 I.R.B. 510
9042, 2003-10 I.R.B. 564
9043, 2003-12 I.R.B. 611
9044, 2003-14 I.R.B. 690
9045, 2003-12 I.R.B. 610
9046, 2003-12 I.R.B. 614
9047, 2003-14 I.R.B. 676
9048, 2003-13 I.R.B. 644
9049, 2003-14 I.R.B. 685
9050, 2003-14 I.R.B. 693
9051, 2003-16 I.R.B. 755
9052, 2003-19 I.R.B. 879
9053, 2003-20 I.R.B. 914
9054, 2003-20 I.R.B. 909
9055, 2003-21 I.R.B. 945
9056, 2003-21 I.R.B. 940
9057, 2003-22 I.R.B. 964
9058, 2003-22 I.R.B. 962
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Finding List of Current Actions on Previously Published Items2
Proposed Regulations-Continued: REG-143321-02 Corrected by
Revenue Procedures-Continued: 2002-9 Modified and amplified by
Bulletins 2003-1 through 2003-24
Ann. 2003-12, 2003-10 I.R.B. 585
Rev. Proc. 2003-20, 2003-6 I.R.B. 445
Notices:
REG-164464-02
Rev. Rul. 2003-3, 2003-2 I.R.B. 252 Rev. Rul. 2003-54, 2003-23 I.R.B. 982
97-19
Corrected by
Suspended in part by
Modified by
Ann. 2003-6, 2003-6 I.R.B. 450
Notice 2003-36, 2003-23 I.R.B. 992
Rev. Proc. 2003-1, 2003-1 I.R.B. 1
Revenue Procedures:
2002-20
97-32
83-23
Supplemented by
Revoked by
Supplemented by
Rev. Proc. 2003-26, 2003-13 I.R.B. 666
T.D. 9058, 2003-22 I.R.B. 962
Rev. Proc. 2003-21, 2003-6 I.R.B. 448
2002-22
2000-38
84-37
Modified by
Modified by
Modified by
Rev. Proc. 2003-3, 2003-1 I.R.B. 113
Notice 2003-20, 2003-19 I.R.B. 894
Rev. Proc. 2003-1, 2003-1 I.R.B. 1
2002-29
2001-26
93-38
Modified by
Obsoleted by
Obsoleted by
Rev. Proc. 2003-10, 2003-2 I.R.B. 259
T.D. 9032, 2003-7 I.R.B. 471
Rev. Proc. 2003-15, 2003-4 I.R.B. 321
2002-37
2001-46
97-31
Modified by
Modified by
Modified by
Rev. Proc. 2002-34, 2002-18 I.R.B. 856
Notice 2003-6, 2003-3 I.R.B. 298
Rev. Proc. 2003-9, 2003-8 I.R.B. 516
2002-39
2001-69
98-13
Modified by
Modified and superseded by
Obsoleted by
Rev. Proc. 2002-34, 2002-18 I.R.B. 856
Notice 2003-1, 2003-2 I.R.B. 257
T.D. 9032, 2003-7 I.R.B. 471
2002-51
2002-20
98-55
Superseded by
Superseded by
Superseded by
Rev. Proc. 2003-31, 2003-17 I.R.B. 838
Rev. Proc. 2003-36, 2003-18 I.R.B. 859
Rev. Proc. 2003-43, 2003-23 I.R.B. 998
2002-52
2002-27
2002-1
Modified by
Clarified by
Superseded by
Rev. Proc. 2003-1, 2003-1 I.R.B. 1
Notice 2003-3, 2003-2 I.R.B. 258
Rev. Proc. 2003-1, 2003-1 I.R.B. 1
2002-53
2002-2
Superseded by
2002-40
Superseded by
Rev. Proc. 2003-30, 2003-17 I.R.B. 822
Modified by
Rev. Proc. 2003-2, 2003-1 I.R.B. 76
Ann. 2003-18, 2003-13 I.R.B. 675
2002-57
2002-3
Superseded by
2002-46
Superseded by
Rev. Proc. 2003-28, 2003-16 I.R.B. 759
Modified by
Rev. Proc. 2003-3, 2003-1 I.R.B. 113
2002-67
Notice 2003-10, 2003-5 I.R.B. 369
2002-4
Supplemented by
Proposed Regulations:
Superseded by Rev. Proc. 2003-4, 2003-1 I.R.B. 123
Ann. 2003-3, 2003-4 I.R.B. 361
REG-209500-86
2002-75
Corrected by
2002-5
Superseded by
Ann. 2003-6, 2003-6 I.R.B. 450
Superseded by Rev. Proc. 2003-5, 2003-1 I.R.B. 163
Rev. Proc. 2003-3, 2003-1 I.R.B. 113 2003-3
REG-103829-99
Corrected by
2002-6
Amplified by
Ann. 2003-12, 2003-10 I.R.B. 585
Superseded by Rev. Proc. 2003-6, 2003-1 I.R.B. 191
Rev. Proc. 2003-14, 2003-4 I.R.B. 319
REG-126485-01
2003-7
Withdrawn by
2002-7
Corrected by
REG-126485-01, 2003-9 I.R.B. 542
Superseded by
Ann. 2003-4, 2003-5 I.R.B 396
Corrected by
Rev. Proc. 2003-7, 2003-1 I.R.B. 233
Ann. 2003-25, 2003-17 I.R.B. 846
2002-8
Revenue Rulings:
REG-164754-01
Superseded by
53-131
Supplemented by
Rev. Proc. 2003-8, 2003-1 I.R.B. 236
Modified by
REG-164754-01, 2003-22 I.R.B. 975
Rev. Rul. 2003-12, 2003-3 I.R.B. 283
REG-131478-02
57-190
Corrected by
Obsoleted by
Ann. 2003-24, 2003-16 I.R.B. 810
Rev. Rul. 2003-18, 2003-7 I.R.B. 467
2 A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2002-26 through 2002-52 is in Internal Revenue
Bulletin 2003-1, dated January 6, 2003.
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Revenue Rulings-Continued:
65-190
Revoked by
Rev. Rul. 2003-3, 2003-2 I.R.B. 252
66-118
Distinguished by
Rev. Rul. 2003-41, 2003-17 I.R.B. 814
68-345
Obsoleted by
Rev. Rul. 2003-54, 2003-23 I.R.B. 982
69-372
Revoked by
Rev. Rul. 2003-3, 2003-2 I.R.B. 252
70-140
Distinguished by
Rev. Rul. 2003-51, 2003-21 I.R.B. 938
70-522
Distinguished by
Rev. Rul. 2003-51, 2003-21 I.R.B. 938
79-70
Distinguished by
Rev. Rul. 2003-51, 2003-21 I.R.B. 938
79-194
Distinguished by
Rev. Rul. 2003-51, 2003-21 I.R.B. 938
86-88
Supplemented by
Rev. Rul. 2003-46, 2003-19 I.R.B. 878
88-36
Supplemented by
Rev. Rul. 2003-46, 2003-19 I.R.B. 878
92-19
Supplemented in part by
Rev. Rul. 2003-24, 2003-10 I.R.B. 557
2000-49
Modified and superseded by
Rev. Rul. 2003-49, 2003-20 I.R.B. 903
2002-80
Distinguished by
Rev. Rul. 2003-43, 2003-21 I.R.B. 935
2003-2
Revoked by
Rev. Rul. 2003-22, 2003-8 I.R.B. 494
Treasury Decisions:
9002
Corrected by
Ann. 2003-8, 2003-6 I.R.B. 451
9021
Corrected by
Ann. 2003-16, 2003-12 I.R.B. 641
9022
Supplemented by
Ann. 2003-7, 2003-6 I.R.B. 450
Corrected by
Ann. 2003-11, 2003-10 I.R.B. 585
9048
Corrected by
Ann. 2003-23, 2003-16 I.R.B. 808
2003-25 I.R.B.
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