Engaged in revenue sharing relationships in the past? Maybe a small fiduciary breach that might have once been overlooked? Not a problem—simply submit a form to the IRS informing them of the oversight and all is forgiven, right? Wrong.
The Voluntary Correction Program (VCP) is a kind of industry amnesty initiative. Aware of the massive exposure 401(k) plan sponsors and advisors face as the DOL’s fiduciary proposal heads towards passage, the IRS offers a lifeline of sorts to keep plans afloat. But it doesn’t mean it has to accept every correction submitted by concerned parties.
And now one that was recently rejected is being challenged in court. Bloomberg reports that Info. Sys. & Networks Corp. v. IRS appears to be the first lawsuit of its kind. Judge Richard J. Leon of the U.S. District Court for the District of Columbia denied the IRS’s motion to dismiss, but did not give a written opinion explaining his reasoning.
According to the news service, the lawsuit raises several questions.
- Will other 401(k) plan sponsors follow suit and start suing the IRS to consider their submissions?
- If too many lawsuits like this are filed against the IRS, will the agency decide it is no longer worth having a voluntary correction program?
- Can this lawsuit be applied to other agencies, such as the DOL, to force them to address submissions in their voluntary compliance programs?
David N. Levine, a principal at Groom Law Group Chartered in Washington, told Bloomberg BNA that “ …regardless of whether or not all of us practitioners always agree with the IRS’s decisions, the IRS has significant discretion over how to approach corrections.”
ISN alleged that after it filed for VCP review, the IRS agreed to review the errors made by the plan’s independent fiduciary if ISN hired a consultant to analyze the errors, and ISN supplied the analysis. However, the IRS later declined to consider the analysis or the VCP submission any further.