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CCH® PENSION AND BENEFITS — 4/15/08

New IRS examination initiative focuses on plans with greatest audit potential

The Employee Plans (EP) office of the IRS has announced a new examination initiative, the “EP Risk Modeling Project,” in order to focus its efforts on pension plan filers with the greatest audit potential. The EP Risk Modeling Project will refine how returns are selected for audit, and will result in EP spending more time on returns that show areas of noncompliance.

EP Risk Model

In developing the EP Risk Model, the Tax Exempt and Government Entities’ Data Analysis Unit (DAU) used data mining software, with three central purposes in mind:

1. enhance the ability to identify noncompliant plans electronically;
2. develop EP noncompliance risk assessment strategies; and
3. reduce taxpayer burden by not auditing compliant plans.

The initial test study will involve the examination of 200 Form 5500 returns with Code Sec. 401(k) CODA features. These examinations will be worked as full-scope priority field examinations in order to provide a complete picture of the EP Risk Model performance. EP will then analyze audit results, to determine if the goal of selecting noncompliant plans has been met.