7.11.8. EP Determinations Closing Agreement Program

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

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

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

(4) See these IRMs for other closing agreement procedures:

1. Procedures relating to closing agreements originating in the office of EP Technical. SeeIRM 7.2.1, TE/GE Closing Agreements, Closing Agreements Originating in EP Technical.

2. IRM 7.2.2, TE/GE Closing Agreements, Employee Plans Compliance Resolution System (EPCRS) - Procedures for closing agreements entered into under the Employee Plans Compliance Resolution System (EPCRS).

3. IRM 7.2.4, TE/GE Closing Agreements, Employee Plans Voluntary Closing Agreement Requests - Procedures EP Voluntary Compliance follows to process requests for closing agreements under EP Voluntary Closing Agreement Procedures.

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

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

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

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

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

(1) This table lists commonly used terms and provides their definitions.

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

1. Completely resolve any other issues not related to the closing agreement before you begin the closing agreement.

2. Ensure the issue involves a Qualification Failure, as described in Rev. Proc. 2021-30, Section 5.

3. Fully research and develop all issues for the proposed closing agreement and document the case file.

4. Get approval from your manager to start the closing agreement process.

5. Complete the Plan Document Failure Worksheet (PDFW). See Exhibit 7.11.8-1, Plan Document Failure Worksheet for an example of the worksheet. A blank version can be found on the shared server in the "Closing Agree" folder under "Forms".

   Note: If the plan already received a Compliance Statement from the Voluntary Correction Program (VCP) and you find an additional defect, consult your manager.

   Reminder: Don’t list any personally identifiable information (PII) such as the plan sponsor or plan name in the email subject line.

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

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

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

1. Either call the plan sponsor or Power of Attorney (POA) to describe the closing agreement program process or send them a Closing Agreement Offer Letter (changing to a 6480 letter once approved). An example of the letter can be found in Exhibit 7.11.8-2, Closing Agreement Offer Letter. A blank version is on the shared server in the "Closing Agree" folder under "Forms".

2. Explain to the plan sponsor or POA that before we can continue with the closing agreement process, the plan sponsor must agree, verbally or in writing, to enter into the EP Determinations Closing Agreement Program. If the plan sponsor verbally agrees to enter into a closing agreement, make note of the plan sponsor's agreement in the case file.

(1) To correct the failure:

1. For non-amender cases, secure a corrective amendment (if the plan sponsor hasn’t already amended the plan).

2. For all other cases, consult with your manager for the appropriate correction. Refer to Rev. Proc. 2021-30, Appendices A and B, for some common correction methods.

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

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

1. Plan sponsor can prove undue financial hardship.

2. Plan amendment was timely adopted but doesn’t satisfy the qualification requirements of the Code.

   Note: Gather the facts and present them to the manager to evaluate a sanction reduction.

   Note: In most cases, the sanction won’t be reduced to less than the VCP user fee applicable to the plan.

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

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

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

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

1. Plan Document Failure Worksheet (PDFW).

2. The closing agreement.

3. The operational compliance statement for any non-amender failure. (Find an example in Exhibit 7.11.8-3, Example - Operational Compliance Statement and a blank version on the shared server in the "Closing Agree" folder under "Operational Compliance Statements".)

Reminder: Don't include PII in the email subject line.

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

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

(5) Mail the following documents to the taxpayer:

1. Closing Agreement Cover Letter.

2. The Instructions for Execution of Closing Agreement from shared server.

3. Two copies of the final closing agreement (one for taxpayer records).

4. Two copies of operational compliance statement (one for taxpayer records), if applicable.

5. Form 3244-A (use the version on the shared server in the “Closing Agree” folder because it has directions and explains the required items that the taxpayer will need to complete when they submit their payment through Pay.gov).

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

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

1. The signed and dated closing agreements.

2. Confirmation of payment through Pay.gov.

3. Signed and dated copies of operational compliance statements, if applicable.

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

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

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

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

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

1. Email a copy of the signed closing agreement to the specialist.

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

1. Mail a copy of closing agreement to the plan sponsor for their records with Letter 1595-D.

2. Mail a copy of closing agreement to the POA with Letter 1595-D and 937-A, if applicable.

3. Prepare a package of the following documents to send to the deposit unit:

1. The package will include the Form 3210 and all items listed on the Form 3210:

2. Cover memorandum

3. One copy of the Closing Agreement/OCS

4. Form 5734

5. Form 3244A

6. Remittance (check or ACH Transaction Detail)

7. Voucher Number (Tracking ID#) if paid through Pay.gov. Must be documented on 3210

Note: Find an example of the Cover Memo in Exhibit 7.11.8-6, Cover Memo and a blank version on the shared server in the "Closing Agree" folder under "Forms".

4. If a check was received for the sanction, mail the package to the deposit unit overnight via UPS
   Kansas City Submission Processing Center
   Attn: Name of Supervisory Financial Technician, Manual Deposit
   Unit, Stop 7777
   333 W. Pershing Road
   Kansas City, MO 64108

5. If the sanction was received electronically (via Pay.gov), submit the package to the Mailbox: *CFO:CFM Pay.Gov Closing Agreements. RACS-ANMF. The Form 3210 and Cover Memo should be addressed to the same mailing address to the attention of “KC RACS Unit Stop 6264.”

6. Keep a copy of the closing agreement packet in the non-disclosable folder within TEDS per IRM 7.11.8.2.4(2)(e) and add the signed acknowledged Form 3210 to verify the Campus received it.

7. Make sure the copy of the Closing Agreement packet, Letters 1595-D and, 937-A are in TEDS in the non-disclosable folder before you close the case.

8. Close the case under normal closing procedures.