IRS Form 14568-C – IRS Forms, Instructions, Pubs 2026 – In the realm of retirement plan compliance, maintaining adherence to Internal Revenue Code (IRC) requirements is crucial for employers offering Simplified Employee Pension (SEP) plans or Salary Reduction Simplified Employee Pension (SARSEP) plans. When errors occur, the IRS provides mechanisms like the Voluntary Correction Program (VCP) to rectify issues without severe penalties. One key document in this process is IRS Form 14568-C, the Model VCP Compliance Statement Schedule 3, specifically designed for SEPs and SARSEPs. This article explores the form’s purpose, common failures it addresses, completion guidelines, and correction methods to help plan sponsors navigate compliance effectively.
What is IRS Form 14568-C?
IRS Form 14568-C serves as a standardized schedule within the broader Model VCP Compliance Statement (Form 14568) framework. It is used exclusively for correcting compliance failures in SEP and SARSEP plans under the Employee Plans Compliance Resolution System (EPCRS). SEPs are employer-sponsored retirement plans that allow contributions to individual retirement accounts (IRAs), while SARSEPs are a variant that includes employee elective deferrals, though new SARSEPs have been prohibited since 1997.
This form must be attached to the main Form 14568 when submitting a VCP application via Pay.gov, ensuring all necessary details about failures and corrections are documented. The latest revision, as of July 2023, incorporates updates to align with current EPCRS procedures under Revenue Procedure 2021-30. Plan sponsors cannot modify the form’s format or content, emphasizing its role as a model document to streamline submissions.
The Purpose of Form 14568-C in the Voluntary Correction Program
The VCP allows plan sponsors to voluntarily disclose and correct retirement plan errors, potentially avoiding audits, disqualification, or excise taxes. Form 14568-C specifically targets SEP and SARSEP failures, enabling sponsors to request IRS approval for proposed corrections. It is part of a suite of schedules (Forms 14568-A through 14568-I) that address various plan types and errors.
By using this form, employers can seek relief from excise taxes under IRC Sections 4972 and 4979, provided they justify the request with supporting documentation. Submissions under VCP incur user fees based on the total value of IRAs associated with the plan, ranging from $1,500 for assets up to $500,000 to higher amounts for larger plans. This program is particularly valuable for SARSEPs, which are grandfathered plans and subject to unique eligibility rules.
Common Failures Addressed by Form 14568-C
Form 14568-C outlines several specific failures common to SEPs and SARSEPs, allowing sponsors to check applicable boxes and provide details. Here are the primary ones:
- Employer Eligibility Failure (SARSEPs Only): This occurs if the plan was established after December 31, 1996, or if the employer had more than 25 eligible employees in the prior year, or if fewer than 50% of eligible employees elected deferrals. It’s a critical issue that could lead to plan disqualification if not corrected.
- Failure to Satisfy the Deferral Percentage Test (SARSEPs Only): When highly compensated employees (HCEs) defer more than 125% of the average deferral percentage for non-highly compensated employees (NHCEs).
- Failure to Make Required Employer Contributions: Errors in excluding eligible employees or miscalculating contributions based on compensation.
- Failure to Provide Eligible Employees the Opportunity to Make Elective Deferrals (SARSEPs Only): Denying employees the chance to participate in deferrals.
- Excess Amounts Contributed: Contributions exceeding plan limits, IRC Section 402(g) elective deferral limits, or compensation caps.
These failures must be described in detail, including affected plan years and participant counts.
How to Complete IRS Form 14568-C?
Completing Form 14568-C requires meticulous attention to detail. Start by entering the plan name, applicant’s Employer Identification Number (EIN), and plan number on every page. The form is divided into key sections:
Section I: Identification of Failures and Proposed Corrections
Check the boxes for relevant failures and describe the proposed fixes. For instance, for excess contributions, specify distribution or return methods adjusted for earnings.
Section II: Changes in Administrative Procedures
Explain the root causes of failures and outline preventive measures, such as improved record-keeping or training.
Section III: Requests for Excise Tax Relief
Request waivers for applicable taxes, supported by rationale and calculations.
Section IV: Enclosures
List and attach supporting documents, including plan documents, failure explanations, correction calculations, and earnings computations using tools like the Department of Labor’s VFCP Online Calculator.
Attach additional pages as needed, labeling them clearly.
Correction Methods for SEP and SARSEP Failures
Corrections must restore the plan to compliance and benefit affected participants. Common methods include:
- For Employer Eligibility Failures: Cease all contributions and deferrals upon VCP submission.
- Deferral Percentage Test Failures: Provide nonforfeitable contributions to NHCEs to meet the required average, adjusted for earnings.
- Missed Contributions: Make additional contributions to employees’ IRAs, minus prior amounts, with earnings.
- Missed Deferral Opportunities: Contribute 50% of the estimated missed deferral amount, based on group averages.
- Excess Contributions: Distribute excesses with earnings or return employer overpayments, reporting via Form 1099-R.
For former employees, sponsors must attempt to locate and notify them, making contributions if found.
Benefits of Using VCP and Form 14568-C
Utilizing VCP with Form 14568-C can prevent costly audits and maintain plan qualification. It also allows for excise tax relief, reducing financial burdens. As of 2026, the IRS continues to emphasize timely corrections, with updated forms ensuring alignment with evolving regulations.
Conclusion
IRS Form 14568-C is an essential tool for SEP and SARSEP plan sponsors seeking to correct compliance errors through the VCP. By understanding its structure and requirements, employers can proactively address issues, safeguard employee retirement benefits, and avoid penalties. For the most current guidance, consult the official IRS website or a tax professional. Download the form directly from the IRS at https://www.irs.gov/pub/irs-pdf/f14568c.pdf.