TEI-IRS interview on Voluntary Compliance Resolution Program.

• Author: Klausman, David L.
• Position: IRS official William Hulteng - Interview

On May 10, 1993, David L. Klausman of Westinghouse Electric Corporation, Chair of TEI's Subcommittee on Employee Benefits, and Jeffery P. Rasmussen of the Institute's Legal Staff interviewed William Hulteng--Chief, Rulings Branch (Employee Plans/Exempt Organizations) for the Internal Revenue Service. The interview was prompted by the Institute's letter of February 23, 1993, regarding Rev. Proc. 92-89, which sets forth the Voluntary Compliance Resolution Program for correcting operational violations of employee benefit plans. On March 29, 1993, Timothy J. McCormally and Jeffery P. Rasmussen met with John E. Burke, Assistant Commissioner (Employee Plans & Exempt Organizations), and members of his staff, including William Hulteng, to discuss TEI's letter commenting upon VCR. Mr. Burke requested TEI's assistance in communicating the benefits of VCR and assuaging taxpayer concerns about the program. The interview which follows, provides additional information about the VCR program that may be of interest to TEl members.

The Tax Executive (TTE): Bill, as a preliminary matter, please describe for our readers the background and deliberations that lead the IRS to promulgate the VCR program.

William Hulteng (WH): The VCR program had its roots in our closing agreement program (CAP). Under CAP, we would work out a closing agreement in the field that--short of disqualification--would result in correction of the plan's qualification and a payment of a sanction amount based on a number of considerations including the tax liabilities at stake, the behavior of the taxpayer, etc. We found that we were getting a lot of walk-in business---"John Doe" business. That is, taxpayers would come to the District Office with a plan that had problems and they would approach the District through a representative on a John Doe basis--anonymously. The representative would work out the basic terms of the closing agreement with the District Office. When an agreement was reached, the taxpayer would disclose its identity, the closing agreement would be signed, and the case would be closed.

Over time, we began getting more and more John Doe cases--and we were getting comments from practitioners as well--so we decided that some sort of voluntary correction system for employee plans would be useful. In light of the CAP experience, we conceived a voluntary program where taxpayers could approach us to describe the qualification defects and we would work out correction of these defects. Under the VCR program, however, there would be no payment of a sanction or tax amount. In order to use the program there is a user fee but no tax payment. So, VCR is a product of IRS field experience with a John Doe program, plus practitioners' comments. Because it was a new approach, the IRS established the VCR program on an experimental basis.

TTE: We understand that negotiation of corrections on a John Doe basis is not envisioned under the VCR program. Is this in part a reaction to the IRS experience in the closing agreement program?

WH: John Doe is generally not the most efficient way to do things, because we are allocating resources to cases that may or may not come to fruition. So, no, you can not have a John Doe VCR submission. But we have something that I believe works just as well. That is, if you call with the question, within 15 minutes or so IRS can answer the question that you have so that you will know whether or not you want to come in with a full VCR application. So far, the cases have generally been single-issue cases--taxpayers have one issue in mind that they want to correct--so they are able to call on the telephone, and very quickly we are able to give an answer. So, even though we do not have a full-fledged John Doe VCR program, we have something that we feel works just as well.

TTE: Then you view yourself and your group as a sounding board for taxpayers to obtain feedback on an anonymous basis--taxpayers should give you a call to see what your preliminary, non-binding view is concerning the appropriate means of correction?

WH: We should end up being more than just a sounding board because, as the program continues, we are getting more experience with a wider variety of issues. By giving us a call, you will be able to tap into our experience. We have found that most phone calls last about 10 minutes and that the taxpayer knows what IRS wants to have happen. A number of current VCR submissions started in just this way.

TTE: Your telephone number is ....

WH: (202) 622-8400. [Not a toll-free number.]

TTE: Is VCR handled strictly from the National Office?

WH: It is strictly a National Office function today. You can call people at the District Office-each District has a VCR coordinator whose job is to verify the fact of correction--but the cases are administered and the decisions affecting the proper plan corrections are made in the National Office. That is where you should call.

TTE: Section 3.03 of the Revenue Procedure concerns the definition of "under examination." How does the IRS interpret the meaning of "under examination"? Specifically, how does the standard apply in the context of taxpayers under continuous examination under the Coordinated Examination Program?

WH: In its broadest sense, "under examination" is focused on an employee plan examination. If the plan has been referred to the Employee Plans Division for examination, or the taxpayer has been notified that the plan is going to be referred to the Employee Plans Division for an examination, that would kick the plan out of the VCR program. Either written or oral notification will suffice where the agent has looked the plan over and said there may be an employee plan problem, and the case is to be referred to the Employees Plans Division for full scale examination.

Concerning CEP taxpayers, I think it is fair to say that a plan will not be excluded from VCR merely because the employer happens to be under examination for income tax purposes. That would not serve the purpose of the program. In a situation where an agent said, "Yes, you have a section 415 problem, or a joint and survivor annuity issue, or a topheavy problem and this is going to the EP/EO Division for an examination"--I think that would put the taxpayer outside the scope of the VCR program. But where the employer is under a CEP examination every year and the agent is just looking at deductions or something of that order, that shouldn't kick the plan out of the VCR program. IRS is really interested in including these plans rather than excluding them. The only definitive answer I can provide is that it will be a question of all the facts and circumstances concerning whether a plan is "under examination."

TTE: That sounds good. But in CEP cases, at the opening conference, team coordinators or case managers may vaguely allude to referring the Form 5500s over to EP/EO by saying "Well, we're not sure; we'll see how the audit goes." Would that type of statement be considered oral notification?

WH: It will always be a facts-and-circumstances call. My guess is that situation would not be treated as a referral to EP/EO. There should be something definitive that the agents are going after. For example, the agents might say, "You have a section 415 problem" or, for whatever reason, "We are referring this plan and it is going to be under an EP/EO examination." There has to be something that would be a little more precise than what you described.

TTE: In many examinations, there is a set of standard Information Document Requests (IDRs) that are issued. Alternatively, agents may routinely request the Form 5500s--either because there is an examination checklist that requires the collection of the data or because the agent is following the...