IRS Announces A Self-Audit Program

The IRS announced a new audit program.  Retirement Plans selected for this new audit program, will be given an opportunity to do a self-audit. 

Under the new self-audit program, the IRS will notify plans that they are being audited.  This audit letter triggers a 90-day period during which employers can do their self-audit.  For example, a letter for a 401k plan could ask employers to show proof that no one in the plan contributed more than the IRS limits, which is $20,500 in 2022.  Other issues like discrimination testing and other rules, may be part of the self-audit program.  But no one is clear if it will be limited to only certain plans or issues.

Employers would have to submit to the IRS documentation of how the self-audit was conducted and what corrections, if any, were made. If a retirement plan finds an issues during its self-audit, those errors can self-corrected using the IRS self-correction guidelines.  Any errors that are discovered that can’t be self-corrected, the IRS will impose a fine.  Fines under this self-audit process, would be lower than other programs designed to fix errors.  

If the IRS approves the corrections and approves all of documentation submitted, it will close the audit and issue a closing letter. If the IRS does not approve of the corrections, the documentation, or the employer does not respond within 90 days, the IRS will conduct either a limited or a full scope exam, at their discretion.

The self-audit program is a tool that the IRS is experimenting with to save IRS agents time and resources.  How long the program lasts, will depend on how successful it is. If the new program achieves its goal of “reducing the  taxpayer burden and reducing the amount of time spent on in person audits, the self-audit program may be here to stay.

If you or someone you know receives a self audit letter, 90 days is not a lot of time.  Employers should act quickly when they receive the letter to avoid an in person audit.   If you have received a letter, contact us now.