1. Introduction: What is Form 14568-E?

IRS Form 14568-E, officially titled Schedule 5 (Form 14568-E) – Model VCP Compliance Statement: Plan Loan Failures (Qualified Plans and 403(b) Plans), is an official compliance schedule published by the Internal Revenue Service (IRS). It is governed by Employee Plans (EP), a specialized division under the IRS Tax Exempt and Government Entities (TE/GE) Division.

This form serves 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 plan administrators who sponsor qualified retirement plans (such as 401(k), profit-sharing, or defined benefit plans) or Section 403(b) plans to disclose, correct, and resolve participant loan violations without triggering harsh tax penalties for their employees.

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

Under Section 72(p) of the Internal Revenue Code, loans taken by participants from their retirement accounts must satisfy strict statutory requirements regarding loan limits, repayment terms, and amortization schedules. If a participant loan exceeds legal dollar limits, is scheduled past the five-year maximum term, or defaults due to missed payroll deductions, the loan is treated as a “deemed distribution.”

A deemed distribution means the entire unpaid loan balance is immediately taxed to the employee as ordinary income, plus a 10% early withdrawal tax penalty if the employee is under age 59½. Form 14568-E exists to provide an orderly, standardized mechanism to solve these problems:

Relief from Deemed Distributions: It allows the employer to request IRS approval to avoid issuing a Form 1099-R to the employee for the year of default, provided the loan is properly reamortized or repaid.
Preserving Plan Qualification: Uncorrected loan errors that violate the written terms of a plan or anti-alienation rules can jeopardize the tax-qualified status of the entire plan. Form 14568-E cures these defects.
Pre-Approved Make-Whole Remedies: It provides standardized, IRS-accepted formulas to reamortize unpaid balances, collect lump-sum catch-up payments, or adopt retroactive plan amendments.

3. Who Needs to File This Form?

Form 14568-E is completed by employers, business owners, and plan administrators (known as plan sponsors) who discover participant loan defects within their retirement plans. You need to use this form if you meet the following conditions:

You sponsor a retirement plan under Section 401(a), 401(k), 403(a), or 403(b) that offers participant loans.
A participant was issued a loan that exceeded the statutory dollar limits—generally the lesser of $50,000 (reduced by the highest balance over the prior 12 months) or 50% of the participant’s vested account balance.
A loan was scheduled for a repayment period exceeding five years and was not used to purchase the participant’s principal residence.
A participant missed required loan payments (often due to payroll withholding errors or unpaid leaves of absence), and the loan was not timely defaulted within the permissible cure period.
The plan issued more loans to a participant than permitted under the written plan document, or failed to obtain mandatory spousal consent.
You are submitting a formal Voluntary Correction Program filing via Pay.gov using IRS Form 8950 and master Form 14568.

4. Who Is Exempt / Not Required to File?

Form 14568-E applies specifically to loan errors in qualified plans and 403(b) arrangements. You are exempt or not eligible to file this form under the following circumstances:

SEP and SIMPLE IRAs: Participant loans are strictly prohibited from IRAs, including SEPs and SIMPLE IRAs. Any loan from an IRA constitutes a prohibited transaction under Section 4975 and cannot be corrected using Form 14568-E.
Fully Compliant Loan Programs: Plans where participant loans are issued within statutory limits and repaid according to schedule have no need for this form.
Certain Self-Correction Eligible Defaults: Minor loan defaults that can be corrected within statutory cure periods or under expanded Self-Correction Program (SCP) guidelines without requiring specialized IRS deemed distribution relief may not require a formal VCP submission.
Individual Borrowers: Individual employees who took out loans cannot file Form 14568-E on their own tax returns; the submission must be executed by the plan sponsor.
Plans Under IRS Examination: If the IRS has notified your business that the retirement plan is under an Employee Plans audit, you cannot use VCP and must resolve loan failures through the Audit Closing Agreement Program (Audit CAP).

5. When to File: Deadlines and Frequency

Form 14568-E is an event-based filing. It is not submitted on an annual tax cycle, but rather as soon as participant loan failures are uncovered during internal compliance audits or third-party administrator reviews.

To qualify for the favorable terms of VCP and protect participants from deemed distribution taxes, you must file before the IRS contacts your organization regarding an audit. Once an IRS examination notice is issued, the Voluntary Correction Program is closed. After the IRS approves the submission and delivers your executed compliance statement, the plan sponsor generally has 150 calendar days to complete all loan reamortizations, collect necessary catch-up payments, or execute required retroactive amendments.

6. Where and How to File

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

Pay.gov Electronic Submission: Complete Form 14568-E as an attachment to master Form 14568. Combine these forms, loan amortization schedules, promissory notes, and participant census data into a single PDF package and upload it via Pay.gov alongside Form 8950 (Application for Voluntary Correction Program).
Electronic User Fee Payment: The mandatory VCP user fee—which is based on the total net assets in the retirement plan—must be paid electronically through Pay.gov at the time of submission.
Supplemental Information: If the assigned IRS Employee Plans specialist requests additional loan ledgers 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-E

Form 14568-E uses standardized language to document loan defects, specify corrective repayment methods, and request statutory deemed distribution relief. The table below outlines its primary sections.

Section	Title	Required Information
Header	Plan & Sponsor Details	Plan name, Employer Identification Number (EIN), and 3-digit plan number (on every page).
Section I	Identification of Loan Failures	Checkboxes identifying statutory dollar limit excess, term excess, default/amortization errors, loan count excess, or spousal consent failures.
Section II	Description of Proposed Correction	Detailed explanation of corrective actions: lump-sum catch-up payments, reamortization over allowable periods, or retroactive amendments.
Section III	Request for Relief from Deemed Distributions	Formal request under Treasury Regulation Section 1.72(p)-1 that loans not be treated as taxable deemed distributions for the failure year.
Section IV	Revision of Administrative Procedures	Narrative describing updated automated payroll deduction systems and TPA controls to prevent future defaults.
Section V	Enclosures	Checkboxes for attached amortization schedules, promissory notes, participant listings, and proposed amendments.

Header: Plan and Employer Information

Enter the complete legal name of the retirement plan, the plan sponsor’s nine-digit Employer Identification Number (EIN), and the three-digit plan number (such as 001). Federal rules require this exact header to appear at the top of every page of Form 14568-E and all attached calculation sheets.

Section I: Identification of Failures

Select the specific loan failures that occurred in your plan:

Loan Amount in Excess of Section 72(p)(2)(A): Check this box if a participant borrowed more than the statutory maximum limits based on their account balance or previous 12-month loan history.
Loan Term in Excess of Section 72(p)(2)(B): Check this box if a general-purpose loan was scheduled for a repayment period exceeding five years.
Loan Default / Amortization Failure: Check this box if repayments were not made on a substantially level amortization schedule (at least quarterly) due to missed payroll deductions.
Exceeded Number of Plan Loans: Check this box if the plan document permitted only one or two concurrent loans, but an additional loan was mistakenly issued.
Spousal Consent: Check this box if the plan is subject to qualified joint and survivor annuity rules and loans were made without obtaining required written spousal consent.

Section II: Description of Proposed Method of Correction

Confirm the standardized correction methods required by the IRS:

Reamortization: For defaulted loans or term errors, the participant reamortizes the remaining balance (including accrued interest) over the remainder of the maximum statutory repayment period.
Lump-Sum Catch-Up: The participant pays a lump-sum amount equal to the missed payments plus accrued interest, after which original loan amortization resumes.
Retroactive Amendment: If participants received more loans than allowed by plan terms, the employer adopts a retroactive plan amendment permitting the additional loan, provided the amendment is nondiscriminatory.

Section III: Request for Relief from Deemed Distributions

This is the most critical section for participant protection. You will formally check the boxes requesting that the IRS grant relief under Treasury Regulation Section 1.72(p)-1. This relief confirms that participants will not be issued a Form 1099-R treating the loan as taxable income in the year of failure, provided the agreed correction is completed on time.

Section IV: Revision of Administrative Procedures

Provide a detailed narrative explaining the internal controls established to ensure loans do not fall through the cracks again. Examples include implementing automated payroll alerts when an employee goes on unpaid leave, establishing quarterly loan reconciliations with your TPA, and conducting automated loan limit checks prior to issuing funds.

Section V: Enclosures and Attachments

Assemble and check off all supporting documentation, including the list of affected participants, original promissory notes, payment ledgers, proposed reamortization schedules, and copies of any proposed retroactive amendments.

8. Required Documents and Information Needed Before Filling

Before preparing Form 14568-E, compile the following records from your plan and payroll files:

Copies of the original loan agreements, promissory notes, and initial repayment schedules.
Participant account statements showing the total and vested account balances on the date each loan was issued.
Detailed payroll withholding ledgers showing when repayments stopped and identifying any missed payroll deductions.
Calculations showing the outstanding loan balance, unpaid principal, accrued interest, and proposed new reamortization schedules.
The written plan document provisions governing participant loans.
Completed master Form 14568 and Form 8950.
A signed Form 2848 (Power of Attorney) if a benefits attorney, CPA, or retirement plan consultant is submitting the application on your behalf.

9. Common Mistakes to Avoid

Form 14568-E is a legally binding model schedule. Deviating from standard procedures can result in processing delays or rejection. Avoid these frequent errors:

Altering Model Language: The wording on Form 14568-E is pre-approved by the IRS. Striking out, modifying, or rewriting the standard legal text will cause the IRS to treat your application as an expensive, customized submission rather than a streamlined model filing.
Failing to Include Accrued Interest: When calculating catch-up payments or reamortizing balances, you must include interest that accrued during the period of nonpayment. Ignoring accrued interest invalidates the correction.
Reamortizing Beyond the Statutory Five-Year Limit: Unless the loan qualifies as a principal residence loan, general-purpose loans cannot be reamortized past five years from the original loan origination date, except as specifically authorized under EPCRS guidelines.
Forgetting to Check Deemed Distribution Relief: Failing to complete Section III means the IRS compliance statement may not protect the participant from receiving a taxable Form 1099-R.
Missing the 150-Day Implementation Window: The plan sponsor must ensure that all loan reamortization agreements are signed and repayments begin within 150 days of receiving the signed IRS compliance statement.

10. Penalties for Non-Filing or Errors

Failing to correct participant loan failures before the IRS uncovers them during an audit can have severe consequences for both the employer and employees:

Deemed Distributions and 10% Penalties: The full outstanding loan balance becomes taxable income to the employee in the year the failure occurred. Participants under age 59½ also face a 10% early withdrawal excise tax under IRC Section 72(t).
Form 1099-R Reporting Penalties: The plan administrator may face late-filing and information-reporting penalties for failing to issue timely Forms 1099-R for deemed distributions.
Plan Disqualification Risks: If loan errors violate the written terms of the plan or anti-alienation provisions under Section 401(a)(13), the entire plan could face disqualification, revoking the trust’s tax-exempt status.
Substantial Audit CAP Sanctions: If the IRS discovers the loan defects during an examination, the employer must negotiate a monetary sanction under Audit CAP, which is significantly higher than standard VCP user fees.

11. Related Forms or Schedules

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

Form 14568: Model VCP Compliance Statement (the master application).
Form 14568-B: Schedule 2 – Nonamender Failures for 401(a) Plans.
Form 8950: Application for Voluntary Correction Program (VCP) Submission.
Form 8951: Additional User Fee Payment for Open VCP Request.
Form 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Form 5500 / 5500-SF: Annual Return/Report of Employee Benefit Plan.
Form 2848: Power of Attorney and Declaration of Representative.

12. Frequently Asked Questions (FAQs)

1. What is a “deemed distribution” under IRC Section 72(p)?

A deemed distribution occurs when a participant loan violates statutory rules or falls into default. The IRS treats the unpaid loan balance as an actual cash distribution, subjecting the participant to immediate income tax and potential early withdrawal penalties.

2. Can an employer use Form 14568-E to prevent an employee from getting a 1099-R?

Yes. That is one of the primary benefits of Form 14568-E. By requesting deemed distribution relief under Section III, the employer ensures the participant is not taxed on the defaulted balance, provided the loan is corrected through reamortization or repayment.

3. How does reamortization work for a defaulted loan?

The outstanding principal balance plus accrued unpaid interest is recalculated into a new repayment schedule. The participant resumes payroll deductions over the remaining statutory repayment period (generally up to the end of the original five-year period from loan inception).

4. What happens if a loan exceeded the statutory $50,000 limit?

The excess amount over the statutory limit cannot remain as a valid loan. The participant must repay the excess portion (plus interest) via a lump-sum payment, while the remaining allowable portion can continue to be repaid under a compliant schedule.

5. Can Form 14568-E be used for loans taken from an IRA or SEP?

No. Under federal tax law, participant loans are strictly prohibited from IRAs, including SEPs and SIMPLE IRAs. Borrowing from an IRA is a prohibited transaction that causes the entire account to lose its IRA status.

6. How long does the employer have to implement the corrections once the IRS approves Form 14568-E?

Once the IRS signs and issues the compliance statement, the plan sponsor generally has 150 calendar days from the date of the compliance statement to execute all corrective agreements and ensure repayments resume.

13. Conclusion: Key Takeaways

IRS Form 14568-E provides an essential, protective mechanism for employers sponsoring 401(k) and 403(b) retirement plans. By utilizing this standardized schedule under the Voluntary Correction Program, plan sponsors can resolve loan defaults, statutory excess amounts, and missing spousal consents while shielding their workers from devastating deemed distribution taxes.

Because calculating reamortized loan balances, accrued interest, and statutory limits requires exact payroll and ERISA accounting, plan sponsors should work closely with an experienced benefits attorney, third-party administrator, or qualified pension consultant when preparing Form 14568-E.

IRS Form 14568-E Guide: Plan Loan Failures Compliance Rules