Retirement plan compliance letter is not an examination

Plain-English summary

Chief Counsel concluded that Letter 6519 does not begin an examination under section 7605. The letter tells a taxpayer that the IRS may examine a retirement plan later, asks the taxpayer to review the plan for possible failures, and explains correction options. Those activities resemble information matching, requests to perfect an incomplete filing, discrepancy verification, and review of voluntarily supplied records, which Revenue Procedure 2005-32 excludes from the definition of an examination. The letter does not require documents or inspect the taxpayer's books of account. Any supporting documents would be submitted voluntarily.

Ruling snapshot

• Question: Does Letter 6519 constitute an examination of a taxpayer's retirement plan under section 7605?
• Outcome: Advice given, it does not
• Key authorities: IRC § 7605(b); Rev. Proc. 2005-32, § 4.03(1)

Full text (IRS public release)

 ID:          CCA_2023040422391413                [Third Party Communication:

 UILC:        7605.00-00, 7605.01-00              Date of Communication: Month DD, YYYY]

Number: 202346015
Release Date: 11/17/2023
From: -----------------
Sent: Tuesday, April 4, 2023 10:39:14 PM
To: --------------------------------------
Cc: ------------------------------------------------------
Bcc:
Subject: RE: RESPONSE: New LTR6519 – P3 (CF34557) Counsel Review Requested DUE COB 4/6/23


Hi -------,

We’ve reviewed Letter 6519 and don’t believe that it constitutes an examination under
IRC 7605.

Under Rev. Proc. 2005-32 (Examination of Returns and Claims for Refund, Credit, or
Abatement; Determination of Correct Tax Liability) Section 4.03(1) the following actions
by the IRS do not constitute an examination under IRC 7605:

         (b) matching information on a tax return with, or preparing a missing return from,
         other records or information items that are already in the Service’s possession; or

         (c) considering any records the taxpayer voluntarily provides to the IRS to explain
         an apparent error on a tax return or to explain a discrepancy between either a
         filed tax return or a substitute for return and information from third parties that is
         or may be used for the matching described in (b) . . .

         (d)(B) request the taxpayer file a tax return, or if a tax return is incomplete, to
         explain the criteria for perfecting the tax return, or to solicit the taxpayer’s
         perfection of the tax return; or

         (d)(C) verify a discrepancy between the taxpayer’s tax return and an information
         return, or between a tax return and information otherwise in the Service’s
         possession.

Here, Letter 6519 states that the IRS plans to examine the taxpayer’s retirement plan
within 90 days if the taxpayer does not respond. The letter further asks the taxpayer to
review their plan documents and operations to determine if there are any failures or
mistakes, and advises the taxpayer on how to fix those failures/mistakes. This seems to
fall under Rev. Proc. Section 4.03(1)(d)(B) and (C) where the IRS is asking the taxpayer
to verify possible discrepancies in the plan and check if the plan is incomplete (i.e. has
failures) in some way, and then explains how the taxpayer can perfect the plan (c orrect
the failures).
                                            2


The letter also states that the taxpayer may want to voluntarily send in certain
documents to substantiate that the plan is qualified and working correctly. This seems to
fall under Rev. Proc Section 4.03(1)(c) which allows the IRS to review any records the
taxpayer may send in to explain an apparent error, or lack of error, with the plan.

Lastly, for an examination to occur, the IRS must actually examine the taxpayer’s books
of account. IRC 7605(b). Here, the letter is not requiring the taxpayer to do anything or
send in any documents, it is simply advising that the taxpayer should check their plan
for failures/mistakes and explains what the taxpayer can do to fix those
failures/mistakes. Any documents provided to the IRS will happen voluntarily on the
taxpayer’s behalf, so there is no examination of books of account.

Please let us know if you have any questions or concerns.

Regards,

-------------------
Attorney
CC:PA:07
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