1. Introduction: What is Form 14568-C?

IRS Form 14568-C, officially titled Schedule 3 (Form 14568-C) – Model VCP Compliance Statement: SEPs and SARSEPs, is a specialized compliance schedule issued by the Internal Revenue Service (IRS). It is governed by Employee Plans (EP) under the IRS Tax Exempt and Government Entities (TE/GE) Division.

This form functions as an attachment to master Form 14568 (Model VCP Compliance Statement) under the IRS Voluntary Correction Program (VCP). It is designed specifically for employers and small business owners who sponsor Simplified Employee Pension (SEP) plans or Salary Reduction Simplified Employee Pension (SARSEP) plans and need to correct operational or plan document failures to preserve their plan’s tax-qualified status.

2. Purpose of the Form: Why Does Form 14568-C Exist?

SEP and SARSEP plans are popular retirement vehicles for small businesses and self-employed individuals because they offer simpler setup and lower administrative overhead than traditional 401(k) plans. However, they are still governed by strict rules under Internal Revenue Code Section 408(k). When an employer fails to include all eligible employees, exceeds statutory contribution limits, or fails annual SARSEP tests, the entire retirement arrangement risks disqualification.

Form 14568-C exists to provide small business owners with a standardized, pre-approved pathway to fix these compliance errors. It solves key administrative and legal issues by:

Preventing Disqualification and Excise Taxes: Disqualification treats SEP contributions as excess contributions to employees’ personal IRAs, which can trigger a recurring 6% excise tax until corrected. Form 14568-C eliminates this risk through formal IRS relief.
Streamlining Corrective Contributions: It provides clear, IRS-approved methods to calculate missed employer contributions, allocate lost investment earnings, and make affected employees whole.
Providing Binding Legal Protection: Once the IRS signs the compliance statement, the business owner receives written assurance that the IRS will not challenge the tax status of the SEP or SARSEP arrangement for the disclosed errors.

3. Who Needs to File This Form?

Form 14568-C is completed by employers, business owners, and plan administrators who sponsor a SEP or grandfathered SARSEP plan and discover compliance defects. You should file this form if you meet the following criteria:

You sponsor a SEP plan established under Form 5305-SEP or a prototype agreement, or a grandfathered SARSEP plan established before 1997 under Form 5305A-SEP.
Your business accidentally excluded eligible employees from employer SEP contributions, such as part-time workers who met the statutory age and service requirements.
You contributed more than the allowable annual percentage or dollar limits under Internal Revenue Code Section 408(k) or Section 402(h).
Your SARSEP failed the mandatory 50% employee participation test or the Actual Deferral Percentage (ADP) nondiscrimination test.
You failed to adopt an updated model plan agreement or required prototype plan amendment by the legal deadline.
You are submitting an electronic Voluntary Correction Program filing via Pay.gov using IRS Form 8950 and Form 14568.

4. Who Is Exempt / Not Required to File?

Form 14568-C applies only to SEPs and SARSEPs. Employers and taxpayers are exempt or not eligible to use this schedule in the following situations:

Qualified Plans and 403(b) Plans: Employers with 401(k) or profit-sharing plan errors must use other schedules (such as Form 14568-B), while 403(b) plans must use Form 14568-A.
SIMPLE IRA Plans: Employers sponsoring Savings Incentive Match Plan for Employees (SIMPLE) IRAs must use Form 14568-D instead.
Compliant Plans: Business owners who have consistently followed their SEP plan agreement and covered all eligible workers do not need this form.
Self-Correction Program (SCP) Eligible Errors: Minor operational mistakes that qualify for self-correction under IRS guidelines can be fixed internally without filing an application or paying a user fee.
Plans Under Examination: If the IRS has already notified you that your SEP or company is under audit, you cannot use the Voluntary Correction Program. These issues must be resolved through the Audit Closing Agreement Program (Audit CAP).

5. When to File: Deadlines and Frequency

Form 14568-C is an event-based form rather than an annual tax filing. You prepare and submit it only when you identify qualification or operational failures that require formal IRS approval.

You must file the form before the IRS initiates an audit of your business or retirement plan. Once an IRS examination notice is issued, the Voluntary Correction Program is no longer available. After the IRS approves your application and signs the compliance statement, you generally have 150 calendar days from the date of the compliance statement to deposit all corrective contributions and adjust internal payroll processes.

6. Where and How to File

Form 14568-C is not filed by paper mail for initial submissions. It is handled entirely through the federal government’s digital filing portal:

Pay.gov Submission: Complete Form 14568-C as an attachment to master Form 14568. Combine these forms, employee census spreadsheets, and proposed plan documents into a single PDF and upload it via Pay.gov with Form 8950 (Application for Voluntary Correction Program).
Electronic User Fee Payment: Pay the required VCP user fee electronically on Pay.gov when submitting. The user fee is determined by the total net assets in the SEP or SARSEP plan.
Supplemental Information: If the assigned IRS Employee Plans specialist requests additional payroll records or calculations, submit them through secure electronic channels or deliver them to the designated IRS address as per instructions provided by the specialist.

7. Step-by-Step Instructions to Fill Form 14568-C

Form 14568-C provides standardized language to document SEP and SARSEP failures and describe corrective measures. The table below provides an overview of the primary sections.

Section	Title	Information Required
Header	Plan & Sponsor Information	Plan name, Plan Sponsor EIN, and 3-digit plan number (on every page).
Section I	Identification of Failures	Checkboxes identifying excluded employees, excess contributions, SARSEP testing failures, or document defects.
Section II	Correction Method	Detailed explanation of corrective contributions made to employee SEP-IRAs, including earnings and treatment of excess funds.
Section III	Administrative Procedures	Narrative describing updated payroll and onboarding controls to ensure future compliance.
Section IV	Enclosures	Checkboxes for attached contribution spreadsheets, earnings calculation worksheets, and plan agreements.

Header: Plan and Employer Information

Enter the legal name of the SEP or SARSEP plan, the employer’s nine-digit Employer Identification Number (EIN), and the three-digit plan number (usually 001). Federal rules require this exact header to appear at the top of every page of Form 14568-C and all attached calculation sheets.

Section I: Identification of Failures

Select the specific operational or document failures that occurred in your plan:

Exclusion of Eligible Employees: Check this box if you failed to make employer contributions for all employees who met the statutory requirements (age 21, worked for the employer in at least 3 of the last 5 years, and earned minimum statutory compensation).
Excess Contributions: Check this box if contributions exceeded the 25% compensation cap or statutory annual dollar limit.
SARSEP Testing Failures: Check this box if a SARSEP failed the 50% participation requirement or exceeded the allowable Actual Deferral Percentage (ADP) limits.
Document Nonamender Failures: Check this box if you failed to adopt an updated model Form 5305-SEP or prototype agreement by mandatory deadlines.

Section II: Description of Proposed Method of Correction

Confirm the standardized correction methods required by the IRS:

Correcting Excluded Employees: The employer must make a corrective contribution to the SEP-IRA of each excluded employee equal to the amount the employee would have received, adjusted for lost investment earnings from the date the contribution was due to the date deposited.
Correcting Excess Contributions: Explain how excess funds will be handled—either by retaining the excess in the SEP-IRA subject to a special IRS sanction fee, or by distributing the excess contributions and earnings back to the employer or participant as permitted by IRS guidance.

Section III: Revision of Administrative Procedures

Explain the internal changes you have put in place to prevent the same mistakes from recurring. For example, explain how your payroll software has been reconfigured to track employee service years automatically, or describe how onboarding checklists now flag all employees turning 21.

Section IV: Enclosures and Attachments

Assemble and check off all supporting documentation, including the list of affected employees, compensation amounts, corrective contribution calculations, and copies of current SEP plan agreements.

8. Required Documents and Information Needed Before Filling

Before preparing Form 14568-C, compile the following payroll and plan records:

A copy of your original signed Form 5305-SEP, Form 5305A-SEP, or prototype plan agreement.
Payroll ledgers, W-2 forms, and employee census data showing hire dates, birth dates, and annual compensation for all employees during the affected years.
Spreadsheets detailing the exact corrective contributions and lost earnings calculations for each excluded worker.
Documentation showing that active SEP-IRA accounts are open and available to receive corrective deposits for affected employees.
Completed master Form 14568 and Form 8950.
A signed Form 2848 (Power of Attorney) if a CPA, enrolled agent, or ERISA attorney is submitting the application for you.

9. Common Mistakes to Avoid

Errors on Form 14568-C can delay IRS approval and increase administrative costs. Be sure to avoid these frequent errors:

Overlooking the “3 of 5 Years” Rule: Under federal SEP rules, employees who have worked in any part of three of the preceding five years are generally eligible. Employers frequently exclude part-time or seasonal staff by mistake.
Omitting Investment Earnings: Depositing only the original contribution amount is not sufficient. You must calculate and include lost investment earnings to make the employee whole.
Altering Model Language: The wording in Form 14568-C is pre-approved by the IRS. Striking out or rewriting standard text can cause the IRS to reject the filing as a model submission.
Failing to Locate Former Employees: Employers are obligated to make corrective contributions for eligible former workers. You must make reasonable efforts to contact them and open a SEP-IRA on their behalf if needed.
Missing the 150-Day Correction Window: You must deposit all corrective funds and finalize administrative updates within 150 days of receiving the signed IRS compliance statement.

10. Penalties for Non-Filing or Errors

Ignoring SEP or SARSEP compliance errors can result in severe financial penalties if the IRS discovers the mistakes during an audit:

Loss of Plan Status: The entire arrangement fails under Internal Revenue Code Section 408(k), revoking its status as a tax-advantaged retirement plan.
Disallowed Employer Deductions: The employer may lose business tax deductions claimed for SEP contributions made during open tax years.
6% Annual Excise Taxes on Employees: If the SEP is disqualified, all contributions are reclassified as regular IRA contributions. Amounts exceeding the annual traditional IRA contribution limit become subject to a 6% excise tax under IRC Section 4973 for every year the excess remains in the account.
Substantial Audit CAP Sanctions: If the IRS discovers the error during an audit, the employer must negotiate a monetary sanction under Audit CAP, which is significantly more expensive than standard VCP user fees.

11. Related Forms or Schedules

Form 14568-C operates within an interconnected system of retirement plan forms:

Form 14568: Model VCP Compliance Statement (the primary master application).
Form 14568-D: Schedule 4 – SIMPLE IRAs.
Form 8950: Application for Voluntary Correction Program (VCP) Submission.
Form 8951: Additional User Fee Payment for Open VCP Request.
Form 5305-SEP: Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement.
Form 5305A-SEP: Salary Reduction Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement.
Form 5330: Return of Excise Taxes Related to Employee Benefit Plans.
Form 2848: Power of Attorney and Declaration of Representative.

12. Frequently Asked Questions (FAQs)

1. What is the most common error reported on Form 14568-C?

The most common failure is excluding eligible part-time, seasonal, or hourly employees from employer SEP contributions because the employer did not understand the statutory three-of-five-years service rule.

2. Can a self-employed business owner use Form 14568-C?

Yes. Sole proprietors, single-member LLCs, and independent contractors who established a SEP-IRA and made excess contributions or failed to cover an eligible assistant can use Form 14568-C.

3. How do I calculate lost earnings on late SEP contributions?

Lost earnings can be calculated based on the actual investment return of the employee’s SEP-IRA during the period of omission, or by using the Department of Labor Online Voluntary Fiduciary Correction Program earnings calculator.

4. What should I do if an excluded employee has left the company?

You must still make the corrective contribution for the former employee. You should contact the former employee to obtain their current SEP-IRA information, or establish a SEP-IRA on their behalf with your financial institution if permitted by the plan agreement.

5. Does filing Form 14568-C protect employees from the 6% IRA excise tax?

Yes. When the IRS approves the correction under VCP, the contributions are formally recognized as qualified SEP contributions, eliminating the 6% excess IRA contribution excise tax under Section 4973.

6. How much is the IRS user fee for submitting Form 14568-C?

The VCP user fee is based on the total net assets held in the SEP plan at the time of submission, typically ranging between $1,500 and $3,500, paid directly through Pay.gov.

13. Conclusion: Key Takeaways

IRS Form 14568-C is an invaluable compliance tool for small business owners sponsoring SEP or SARSEP plans. By using this model schedule under the Voluntary Correction Program, employers can rectify missed contributions, resolve testing failures, and ensure their employees receive their full retirement benefits.

Because calculating corrective allocations and lost earnings requires precise payroll and tax computations, employers should work alongside an experienced CPA, third-party administrator, or benefits attorney when preparing the Form 14568-C submission package.

IRS Form 14568-C Guide: SEP & SARSEP Plan Compliance Rules