The IRS employee plans compliance unit has recently launched a Roth compliance check questionnaire program aimed at helping the IRS understand compliance related to the Roth deferral provision in 401(k) plans. It is intended to verify whether the plans randomly selected comply with the Tax Code as it relates to the Roth provisions, as well as identify any noncompliance issues. If noncompliance is discovered, the IRS may launch a plan audit or advise the employer to seek voluntary correction through the IRS.
It is important to respond to the questionnaire in a timely and accurate manner. Failure to do so could trigger an audit.
A 401(k) plan may provide pre-tax salary deferrals or after-tax salary deferrals referred to as Roth contributions. The Roth contributions and earnings thereon are not subject to income tax when distributed. The IRS recently completed similar questionnaire programs for 401(k) plans, 403(b) plans and 457 plans. In its section 401(k) compliance check questionnaire program, the IRS contacted about 1,200 401(k) plan sponsors, of which 98% responded. The IRS then audited the two percent that did not respond. It is likely that the IRS will follow a similar game plan for its compliance check of the Roth deferral provisions in 401(k) plans.
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Based on this process, it is clear that the IRS does not consider participation in any compliance check questionnaire voluntary. According to the IRS, we will not inspect your books and records to determine a filing liability for a particular tax period. If you dont respond, however, we may need to take other measures to ensure compliance, including an audit of your plan or organization.
Employers sponsoring plans with a Roth feature should consider conducting a self-audit of their plan in light of this latest IRS compliance initiative to be certain that the plan is written and operating in compliance with the law. It is advisable for employers selected to participate in this latest compliance check to seek assistance from an ERISA expert when completing the questionnaire. Answering what appear to be simple questions incorrectly could result in an IRS audit.
Bernard E. Kaplan is a managing director at CBIZ MHM and leader of the retirement plan services group. He can be reached at
