What is VCP?
A VCP is a formal application to the IRS through its voluntary correction program offered under the Employee Plans Compliance Resolution System (EPCRS). Under VCP, an employer voluntarily discloses to the IRS one or more qualification failures and proposes corrections for those failures. The IRS may negotiate changes to the proposed corrections, but the end result is generally an IRS-approved correction and a compliance statement setting out the failures and the approved corrections. VCP is a valuable option for plans to maintain their tax-qualified status.
VCP is ideal for:
- Failures that are not eligible for self-correction
- Proposed corrections that do not follow the IRS safe harbor correction methods
IRS VCP fees range between $1,500 and $3,500. Other costs involved are the costs of correction and any costs to prepare the submission, such as legal fees. The IRS can take several months to review and close a VCP submission.
Unlike correction under audit, resolution under VCP does not entail the payment of penalties and there is a general presumption of good faith due to the voluntary nature of the submission.
Unlike self-correction, VCP provides the certainty of IRS approval of the specific correction methods. Once a VCP is filed, the plan cannot be audited on the specific failures described in the submission.