Specialists in ERISA and Employee Benefits Law​

What is Audit CAP?


If a qualified plan is under examination by the IRS, any qualification failures that the IRS identifies during the audit can be resolved by entering into a closing agreement (Audit CAP).

This process involves:

  1. Correction of all failure(s) using the correction methods available under EPCRS.

  2. Payment of a sanction. The sanction is a negotiated amount that is determined based on the facts and circumstances. Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures, based on the factors considered. The sanction generally will not be less than the VCP user fee applicable to the plan.

  3. Entering into a closing agreement with the IRS.

The failure to reach an agreement will result in the disqualification of the plan, which is a result that no one wants. If a correction has been previously completed under VCP or SCP, it will not require correction under Audit CAP. (Note that insignificant failures can be corrected at any time, even if the plan is under audit.)


An un-represented employer can make missteps in dealing with the IRS. Even the most seemingly straight-forward interaction can have unintended results. Legal representation in an audit can ensure that only necessary information is shared, any sanctions are aggressively and knowledgeably negotiated, and the employer is able to limit exposure for the best possible outcome.

If you have received a letter from the IRS about your plan, if your plan is under audit, or you have other questions regarding corrections, please contact one of our experienced attorneys.