IRS Digs in on New VCP Fee Structure

The IRS has responded to the American Retirement Association’s comment letter on the significant changes to the pricing structure for the Voluntary Compliance Program (VCP) – but it’s not very responsive.

The American Retirement Association had pointed out that the true beneficiaries of the new VCP user fees were larger plan sponsors with plans that cover more than 100, more than 1,000, and more than 10,000 participants. As for smaller plans, the new fee schedule triples, quadruples or even sextuples the VCP fee for small plans – a move that the ARA’s comment letter pointed out is in “direct conflict with Congress’ directive to the Treasury Department to ‘[take] into account special concerns and circumstances that small employers face with respect to compliance and correction of compliance failures,’” and a “complete departure” from the previous VCP user fee approach that was based on participant counts with lower fees for smaller plans.

You may recall that this change was announced Jan. 2 in Revenue Procedure 2018-4 “with no advance warning, no discussion, and no grace period to allow plan sponsors the opportunity to make their VCP submissions prior to the new fees taking effect,” as was pointed out in ARA’s comment letter.

While the IRS said it will “certainly consider” the comments and recommendations regarding the impact of the new user fees on small businesses,” after a brief explanation of the biennial process for reviewing user fees, and noting that those fees vary “after considering the average time (and difficulty of) complying with the requests,” exemptions and reduced fees are allowed where the IRS deems them to be appropriate.

As for the VCP fees, the IRS response was brief – and to the point: “Based on our most recent analysis, we decided to increase the VCP user fees for small plans to more accurately reflect the average time spent on these cases, and to reduce the fees for larger plans to reflect the average time it takes to do these cases.”

It’s a move that seems likely to reduce the number of cases presented through that program – though it’s hard to imagine it will do much to encourage smaller employers to take advantage of it.

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One Comment

  1. Larry Ruff
    Posted March 16, 2018 at 11:41 am | Permalink

    I have been waiting to see this update. However, it is not helpful. Our client has one small infraction, which was to be submitted by year-end. It was signed and readied for mailing in 2017.

    Unfortunately, due to a payment glitch, the filing was not submitted until 2018. In fighting the IRS, they are not backing down on the fees. This fee went from $300 to $3,000 for a small employer with one minor infraction. This is ridiculous. Something needs changing here.

    I would appreciate it if you would pass this information on to Brian Graff.

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