Federal Appendix C Part II Schedule 5 Plan Loan Failures (Qualified Plans and 403(b) Plans)

Appendix C Part II Schedule 5 Plan Loan Failures (Qualified Plans and 403(b) Plans)
Form 14568-E (Rev. 6-2018)
Department of the Treasury - Internal Revenue Service

Form 14568-E
(June 2018)

Model VCP Compliance Statement - Schedule 5: Plan
Loan Failures (Qualified Plans and 403(b) Plans)

OMB Number
1545-1673

Include the plan name, Applicant’s EIN and plan number on each page of the compliance statement, including attachments

Plan name

EIN

Plan number

Section I - Identification of Failure
The plan identified above did not comply with the requirements of Section 72(p)(2) of the Internal Revenue Code (IRC).
(Note: The conditions of IRC Section 72(p)(2) must be satisfied for a participant loan to be exempt from being treated as a distribution
to the participant under IRC Section 72(p)(1).) The failure occurred for the following reason(s) (check applicable boxes and provide the
information requested)

A. The loan(s) exceeded the limit under IRC Section 72(p)(2)(A)
Plan Year

Number of Participants Affected

Total Number of Loans Issued That Violated IRC Section 72(p)(2)(A)

B. Loan terms did not satisfy the limits on the duration of the loan under IRC Section 72(p)(2)(B)
Plan Year

Number of Participants Affected

Total Number of Loans Issued That Violated IRC Section 72(p)(2)(B)

C. Loan terms did not satisfy IRC Section 72(p)(2)(C) relating to the frequency and amortization of payments
Plan Year

Number of Participants Affected

Total Number of Loans Issued That Violated IRC Section 72(p)(2)(C)

Catalog Number 66149Q
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For Paperwork Reduction Act information see current EPCRS Revenue Procedure.

Form 14568-E (Rev. 6-2018)

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Plan name

EIN

Plan number
D. Defaulted loan(s) (where the loan terms satisfied the requirements of IRC Section 72(p)(2), but default(s)
occurred because loan payments were not made in accordance with the terms of the loan)

Plan Year

Number of Participants Affected

Total Number of Loans in Default

Section II - Eligibility for Use of Form 14568-E
Yes No
A.

Is any affected participant either a key employee (as defined in IRC Section 416(i)(1)) or an owneremployee (as defined in IRC Section 401(c)(3))?
If “Yes,” proceed to Section II B.
If “No,” skip Section II B and proceed to Section II C.
Yes No

B.

Is the purpose of this request limited to permitting the plan sponsor to report the loan as a deemed
distribution in the year of correction instead of the year of the failure?
If “Yes,” complete Section III and then proceed directly to Section IV D. (Sections IV A, B and C do
not apply.)
If “No,” STOP-do NOT use this Form 14568-E. Any request for relief should be made by filing a
detailed written attachment to Form 14568, Model VCP Compliance Statement, describing the relief
requested and the reasons why such relief should be granted.
Yes No

C.

Will correction be completed before the maximum period for repayment of the loan (pursuant to IRC
Section 72(p)(2)(B)) has expired? (Note: The maximum period is determined from the original date of
the loan. Generally, this period is five years from the original date of the loan, except for home loans as
described in IRC Section 72(p)(2)(B)(ii).) The original date of the loan is considered to be the date the
participant received the proceeds from the loan.
If ”Yes,” and the plan sponsor wants relief from reporting the loan as a deemed distribution, complete
Section III and then answer applicable questions in Sections IV A through IV C.
If “No,” complete Section III and then proceed to Section IV D.

Section III - Explanation of How and Why the Plan Loan Failures Occurred

Catalog Number 66149Q

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Form 14568-E (Rev. 6-2018)

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Plan name

EIN

Plan number

Section IV - Description of Proposed Method of Correction
If the plan sponsor is requesting relief from reporting loans as deemed distributions,then complete Sections IV A, B or C,
as applicable.
If the plan sponsor is only requesting postponement of reporting loans as deemed distributions on Form 1099-R, then
proceed directly to Section IV D.
A. Correction for loans in excess of IRC Section 72(p)(2)(A)
Any participant affected by this failure will make a corrective repayment to the plan. After repaying the excess of the
loan amount over the maximum loan amount under IRC Section 72(p)(2)(A) (the “excess loan amount”), the remaining
balance of the loan will be repaid over the remaining period of the original loan (not beyond the period permitted
under IRC Section 72(p)(2)(B), determined from the original date of the loan) in a manner that complies with the
frequency and level payment requirements of IRC Section 72(p)(2)(C). The excess loan amount that will be repaid by
the participant is determined based on how previously made payments have been applied to the loan. The previous
loan payments were applied as follows: (check applicable box, and complete necessary information)
Prior loan payments were made in accordance with an amortization schedule that complied with the requirements
of IRC Section 72(p)(2)(B) relating to the terms of the loan and IRC Section 72(p)(2)(C) relating to frequency, and
level loan payments. For the purpose of determining the excess loan amount and the remaining outstanding
amount of the loan to be repaid over the remaining period of the loan, the previously made loan payments will be
applied as follows: (check box that applies)
1. Solely to reduce the portion of the loan that did not exceed the maximum loan amount under IRC Section
72(p)(2)(A). Result: The corrective repayment would equal the excess loan amount plus interest thereon.
2. To reduce the excess loan amount to the extent of the interest thereon, with the remainder of the
repayments applied to reduce the portion of the loan that did not exceed the maximum loan amount under
IRC Section 72(p)(2)(A). Result: The corrective repayment would equal the excess loan amount.
3. Pro rata against the excess loan amount and the maximum loan amount under IRC Section 72(p)(2)(A).
Result: The corrective repayment would equal the outstanding balance remaining on the excess loan
amount on the date that corrective repayment is made.
Prior loan payments were not made in accordance with an amortization schedule that complied with the
requirements of IRC Section 72(p)(2)(B) or (C).
Methodology for determining the excess loan amount that will be repaid and the remaining outstanding balance of
the loan that will be amortized over the remaining period of the loan

After the corrective repayment is made (Check one of the two options listed below)
Option 1: The remaining loan balance will be repaid according to the original amortization schedule. (This
option is available only if the original amortization schedule would result in the loan being repaid
within the maximum period permitted under IRC Section 72(p)(2)(B) determined from the original
date of the loan.)
Option 2: The loan will be reformed to amortize the remaining principal balance as of the date of repayment
over the remaining period of the original loan, provided that the recalculated payments over the
remaining period comply with the requirements of IRC Section 72(p)(2)(B) determined from the
original date of the loan.
Catalog Number 66149Q

www.irs.gov

Form 14568-E (Rev. 6-2018)

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Plan name

EIN

Plan number

B. Correction for loans with terms that: (i) provided for a repayment period that exceeded the period permitted
under IRC Section 72(p)(2)(B) and/or (ii) provided for payments that did not provide for substantially level
amortization with payments not less frequently than quarterly, as provided under IRC Section 72(p)(2)(C):
(check the box that applies)
1. The loan balance will be reamortized with payments made on a substantially level basis (per IRC Section
72(p)(2)(C)), made at least quarterly.
2. The reamortized loan balance will be paid over a remaining period that does not extend beyond five years
from the date of the original loan. If original loan was a home loan described in IRC Section 72(p)(2)(B)(ii)
the reamortized loan balance will be paid over the remaining period of the original loan (per IRC Section
72(p)(2)(B)).
C. Correction for defaulted loans with terms that complied with the requirements of IRC Sections 72(p)(2)(A), (B)
and (C): (check the box that applies)
1. A lump sum repayment will be made to the plan in an amount equal to the additional repayments that the
affected participant would have made to the plan if there had been no failure to repay the plan, plus interest
accrued on the missed repayments.
2. The outstanding balance of the loan, including accrued interest, will be reamortized over a remaining period
that does not extend beyond five years from the date of the original loan. If the original loan was a home loan
described in IRC Section 72(p)(2)(B)(ii) the reamortized loan balance will be paid over the remaining period of
the original loan.
3. The Applicant will use a combination of the methods described in #1 and #2 above, as follows:

Determination of Interest Accrued on Missed Repayments (check the box that applies)
Plan loan rate

{insert rate}

Rate of return of investments under plan

{insert rate}

Note: This option may only be used if the rate of investment return under the plan equals or exceeds the plan loan
rate.
The interest rate for missed payments was determined as follows:

The additional unpaid interest (

will be

has been (check one)) paid by the: (check the box that applies)

Plan sponsor
Affected participants
(Note: Irrespective of the plan sponsor’s election to have the affected participants pay the unpaid interest, the IRS
may, based on the facts and circumstances, determine that the plan sponsor should pay all or a portion of the
additional unpaid interest. If the IRS makes this determination, the plan sponsor will be requested to revise this
submission.)
Catalog Number 66149Q

www.irs.gov

Form 14568-E (Rev. 6-2018)

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Plan name

EIN

Plan number

D. Correction for Deemed Distributions (check if applicable)
The plan sponsor is not eligible to or will not correct in accordance with Parts IV A through IV C of this compliance
statement. The plan sponsor proposes that the loans be reported as deemed distributions (using Form 1099-R)
for the year of correction instead of the year of the failure. The plan sponsor shall pay any applicable income tax
withholding amount that was required to be paid in connection with the failure. (See Income Tax Regulations
Section 1.72(p)-1, Q&A-15.)

Section V - Change in Administrative Procedures
Include a description of the measures that have been (or will be) implemented to ensure that the same failures will not
recur.

Section VI - Request for Relief
Yes No
The plan sponsor requests relief from reporting all participant loans as deemed distributions.
Yes No
The plan sponsor requests that the plan be permitted to report all participant loans as deemed distributions
in the year of correction instead of the year of the failure.
Yes No
The plan sponsor requests that for one or more of the participant loans described in this compliance
statement that it be permitted to report the participant loans(s) as deemed distributions in the year of
correction instead of the year of the failure. For other affected participant loan(s), the plan sponsor requests
relief from reporting them as deemed distributions. Details relating to this request are as follows

Section VII - Enclosures
In addition to the applicable items listed on the Procedural Requirements Checklist for Form 8950, the plan sponsor
encloses the following with this submission:
• A copy of the original loan agreement for each affected participant (a sample representation may be provided if there
are multiple participants affected).
• Loan amortization schedules for affected participants. Include a copy of the original loan amortization schedule and if
applicable, a copy of the modified loan amortization schedule (a sample representation may be provided if there are
multiple participants affected).
• Specific calculations for each affected employee or a representative sample of affected employees. (The sample
calculations must be sufficient to demonstrate each aspect of the correction method proposed (for example, a failure
with respect to a loan that exceeds the maximum amount permitted by IRC Section 72(p)(2)(A), the calculations must
include the amounts of the excess loan amounts that will be repaid to the plan, determination of the outstanding loan
balance, and the proposed method of repayment of the outstanding loan balance; for the correction of a defaulted
loan, the enclosure should set forth the periods of such loan defaults.)
Catalog Number 66149Q

www.irs.gov

Form 14568-E (Rev. 6-2018)