The IRS has a three tiered penalty structure for failure to file a correct information return by the required due date: $15 per return if within 30 days of due date; $30 per return if more than 30 days but before August 1; and $50 if after August 1 or if you fail to file.

Does anyone know how often the IRS assesses this penalty if the custodian is submitting a corrected return to address a prior year error? For example, if a contribution was originally received as a 2006 contribution (and not reported yet), and it was subsequently discovered that the contribution was clearly designated by the participant to be a 2005 contribution (custodian receiving error), is the custodian generally assessed a penalty when the corrected 5498 for 2005 is submitted?

Does anyone have experience with being assessed this penalty as custodian for making this type of correction? If so, how are you notified of the penalty? Is it lumped in with other penalties (such as 945 filings etc.) or are you notified separately? If you were assessed a penalty, what were the circumstances? Failure to file? Correction? A few accounts or a lot?

I have sent corrections for one or two forms (as custodian) to IRS past the deadline but was never assessed penalties. The few times this has happened, I included a statement explaining why it was late, for example, the information just became available. There may be something in the instructions for the form you are filing about late filing. I would never volunteer to pay a penalty up front. But by reporting it, even if late, you are showing you are not willfully avoiding filing. The penalties are meant to be punitive so if it's an innocent mistake, I believe the IRS will let it go. At least they did not assess my institution penalties.
~S~