We'll handle it

Slightly more than 1% of qualified plans are audited by the IRS annually.  Certain factors can trigger an audit (for example, large fluctuations in plan assets year over year, late or missing filings, compliance issues, etc). Other plans are chosen for audit at random. 

We assist with an average of 2-3 IRS audits per year.  Our strategy for handling IRS audits is two-fold: (1) we work directly with the IRS on your behalf, ensuring they contact only us and do not come to your place of business, and (2) we work collaboratively with the IRS towards solutions should any compliance issues arise.

Audit of a Defined Benefit Plan
A plan sponsor was selected for audit over a large deduction taken for their defined benefit plan. The former plan administrators had ceased operations, and BCG was given the assignment. After reviewing the claims made by the IRS, we contacted the prior actuaries to research the facts. After preliminary discussion with the IRS agent and their auditing actuary, we reviewed the work of the prior firm, found serious problems with their work product, and feared that the client had a potential for an adverse outcome. But, on further analysis, we found inconsistencies between the data used by the prior firm compared to the actual business records of the sponsor, in particular errors in employment data and in plan document provisions. By careful review of the actual facts, we were able to prepare multiple years of administrative and actuarial work to show the IRS that the deductions were in acceptable ranges.

​By understanding the IRS needs and using proper analysis, we obtained a favorable outcome.

Audit of a "Large Plan"
When a plan becomes a "large plan", an audit by an Independent Qualified Public Accountant (IQPA) may be required.  The IQPA follows through on a range of tasks, broadly including auditing the financial statements and plan accounting, ensuring treatment of participants is in compliance, verifying the plan is operating in step with the plan document, and much more.  

One of our clients started their company and a new 401(k) Plan with 9 employees.  Within 5 years, the company grew to over 150 and the 401(k) Plan qualified as a large plan.  We introduced two prospective IQPAs to the client, the client selected one, and we acted as the conduit to provide information to the auditor and inform the client of any necessary corrective actions.  

The audit lasted 4 months (the first year of auditing required a 'full scope' audit) and successfully concluded upon auditing the previous year and current year (as required by a 'full scope' audit).  The auditor finalized his report, we completed Form 5500 along with Schedules A, C, and H, and all was submitted to the IRS/DOL in a timely manner.

In the second year requiring an audit (a 'limited scope' audit), the process was again exhaustive, however took only 2.5 months before all forms and documents were submitted to the IRS/DOL.

It is important to note that an audit by an IQPA does not automatically exempt a plan from an IRS audit.