Late filed 5500

[mariemonroe]

Client is filing 2018 and 2019 5500s soon and has what I believe to be a reasonable cause for the late filing.

Client received a penalty notice for the 2018  from the IRS but not from the DOL.

I have prepared a reasonable cause statement response to the IRS but am unclear what needs to be done with regards to the DOL.

Do we file DFVCP and pay the penalty or can we get any penalty waiver pursuant to a reasonable cause statement? If the latter, where do we send it?

[Bill Presson]

If it was me, I would recommend the client use DFVCP, especially if it's a small filer. $1,500 is a small price to pay for peace of mind.

[ESOP Guy]

I agree with Bill 100%.   You MIGHT get a good cause waiver but if you don't the cost is so much higher than the DFVCP cost that the risk/reward makes no sense.  

[RatherBeGolfing]

2 hours ago, mariemonroe said:

Client is filing 2018 and 2019 5500s soon and has what I believe to be a reasonable cause for the late filing.

Client received a penalty notice for the 2018  from the IRS but not from the DOL.

I have prepared a reasonable cause statement response to the IRS but am unclear what needs to be done with regards to the DOL.

Do we file DFVCP and pay the penalty or can we get any penalty waiver pursuant to a reasonable cause statement? If the latter, where do we send it?

Just as an FYI, reasonable cause penalty waivers are very hard to get nowadays. The reasonable cause better be damn good if you are going to gamble away your DFVCP eligibility.  Like "all my plan records were trapped in the middle of disaster area and I filed the 5500 as soon as humanly possible after FEMA let us go get them" good.

[mariemonroe]

3 minutes ago, RatherBeGolfing said:

Just as an FYI, reasonable cause penalty waivers are very hard to get nowadays. The reasonable cause better be damn good if you are going to gamble away your DFVCP eligibility.  Like "all my plan records were trapped in the middle of disaster area and I filed the 5500 as soon as humanly possible after FEMA let us go get them" good.

Thanks everyone - When you say it is hard to get the reasonable cause waiver do you mean with IRS or DOL? Or both?

[austin3515]

If the IRS grants a waiver then thats what you would tell the DOL if they ever called.  But as someone has already said it needs to be something really excpeitonal.  The purpose of the DFVC is to cover the crazy stories already.  So for example, if the business owner died on October 10th they would definitely waive everything because only a monster would not appreciate the impact of that.  If Sally was on vacation and forgot to read her emails before she left it's out of the question.  "I've never missed a filing before in 15 years so please just waive it this one time pretty pretty please" also is out. 

BUT if you ask the IRS to waive and they say no, then I think you just do the DFVC and then right back to the DOL and ask them to waive their penalties because you filed under the DFVC and that would work (in my experience, though it has been many many years).

 

[EBECatty]

I completely agree that when DFVCP is available it should absolutely be used. 

Aside from that, a few anecdotal observations. In prior years where clients missed timely filing 5500s or audits and the DOL proposed to assess a penalty, we were able to reduce the proposed penalty by about 90% in each case, which I think is (was?) fairly common. There were some decent (but not great) reasons in each case, e.g., mail went to a rarely used office, service providers were slow, etc. At the rate the penalties accrue, a 90% reduction generally ends up higher than DFVCP, so I would not have opted to argue about reasonable cause if DFVCP was available. Plus attorneys' fees. 

I have a few clients this year whose 5500s were filed on time (10/15/20), but without an audit. Most were due to delays caused by COVID tax-filing deadline extensions that set back the plan audit process. I have spoken to DOL several times and they appear to be more lenient this year if you keep them updated on the status and offer a decent reason. So far, I have not received any notices of intent to assess a penalty.