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Form 5500 Sans Audit Report


austin3515
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We had a 6/30/2021 filing sent in without the audit report around April 15, 2022 and within 45 days the IRS had sent a penalty assessment letter (around $20,000) which appeared to us be a significant change in approach.  Can others indicate whether or not they had similar experiences?  We used to just file without the audit and amend when it was available.   But now I'm wondering if a change in approach would be to not file at all and use the DFVC.

Has anyone else had to deal with this?

Austin Powers, CPA, QPA, ERPA

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I'm assuming you mean a 6/30/21 PYE timely filed on 4/15/22?

In my experience, the DOL usually sends the 45-day correction notice for a timely filed 5500 with no audit attached. While I understand either IRS or DOL can penalize for an incomplete return, the IRS going directly to penalties does seem like a deviation from prior practice and might rule out one of the "standard" options for a late audit that it sounds like was used here. In that case, DFVC for the whole filing may be safer, particularly if DFVC can avoid IRS penalties as well.

We usually end of up with a small handful of these situations each year, and will this year, so would be curious to hear others' input as we get close to the filing deadline.    

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1 minute ago, EBECatty said:

I'm assuming you mean a 6/30/21 PYE timely filed on 4/15/22?

yes

1 minute ago, EBECatty said:

In my experience, the DOL usually sends the 45-day correction notice for a timely filed 5500 with no audit attached. While I understand either IRS or DOL can penalize for an incomplete return, the IRS going directly to penalties does seem like a deviation from prior practice and might rule out one of the "standard" options for a late audit that it sounds like was used here. In that case, DFVC for the whole filing may be safer, particularly if DFVC can avoid IRS penalties as well.

100% on the same page. Sort of annoyed it was a 6/30 because it was a population of just 1... 

Austin Powers, CPA, QPA, ERPA

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18 minutes ago, austin3515 said:

CP-283, penalty was $18,250.  Letter dated May 16, ie. 30 days after filing.

Ok. So you aren't disqualified from DFVCP (CP-283 would disqualify a one participant plan from relief under the IRS late filer program) but its a big change from a "hey your filing is incomplete, fix it within 45 days" letter.

I just had this conversation with someone in my office this morning, and I may need to revisit that discussion if this is the new normal...

 

 

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32 minutes ago, RatherBeGolfing said:

Ok. So you aren't disqualified from DFVCP (CP-283 would disqualify a one participant plan from relief under the IRS late filer program) but its a big change from a "hey your filing is incomplete, fix it within 45 days" letter.

Right but the question is if they are doing this automatically, do you just not file based on the notion that it will take them a lot longer to catch up with the non-filers as opposed to the incomplete filings (which they know immediately).  Then you do the DFVC anyway and just avoid that $18,000 penalty letter.

Austin Powers, CPA, QPA, ERPA

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5 minutes ago, austin3515 said:

Right but the question is if they are doing this automatically, do you just not file based on the notion that it will take them a lot longer to catch up with the non-filers as opposed to the incomplete filings (which they know immediately).  Then you do the DFVC anyway and just avoid that $18,000 penalty letter.

 

4 minutes ago, austin3515 said:

So far no one else has said "it ahppened to me too" so I'm wondering if it was just a fluke too.

Well, I'm not sure that it will take them a lot longer to catch up.  The DOL has been systematically looking at filing about 30 days after the due date.  If you haven't filed, they send an email saying something along the lines of "your last 5500 had participants at year end and wasn't final, so you should have filed your 5500 month" .  You have a few weeks to file DFVCP.  This might give you longer than your current example though.

There is a webinar on retroactive corrections later today, I'll float the question there to see if anyone else has had this experience.

 

 

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I wouldn't be terribly surprised if this was intentional to curb the use of the automatic 45-day extension. Maybe we'll see more of them around November/December this year. The 45-day correction period is statutory, so the DOL can't simply eliminate it, but it certainly wasn't intended for the purpose at issue here.  

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7 minutes ago, EBECatty said:

The 45-day correction period is statutory, so the DOL can't simply eliminate it, but it certainly wasn't intended for the purpose at issue here.

That's what I'm thinking too.  The DOL seems to be more efficient at finding late/incomplete filers early on, so it wouldn't surprise me if they are sharing with the IRS...

 

 

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austin3515, I assume the client did file the IQPA by the end of May, so you are good with DOL, and your issue is that although you are not delinquent with DOL, the IRS penalty could apply since you didn't use DFVCP?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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3 minutes ago, Luke Bailey said:

austin3515, I assume the client did file the IQPA by the end of May, so you are good with DOL, and your issue is that although you are not delinquent with DOL, the IRS penalty could apply since you didn't use DFVCP?

Not really.  The issue here is more global.  Is the DOL/IRS chaging it's approach for enforcing the deadline for having audits complete?  If so, then we need to change our approach accordngly.  The issue with this client is resolved and not at issue.

Austin Powers, CPA, QPA, ERPA

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My understanding - someone please correct me if I'm wrong - is that the plan can only file a 5500-EZ as a one-participant plan if there are no other participants during the entire plan year. Here, there clearly were over 100 participants at the start of the plan year, or else they would not have needed an audit. Maybe if the final filing listed one participant all year the DOL would not get involved, but that would seem contradictory to the audit requirement for the same plan year. Perhaps there are further facts that would be helpful.

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5 hours ago, austin3515 said:

The issue here is more global.

austin3515, I'm not good with global issues. Is this a small plan that needs an audit because of its assets, or a large plan?

Someone please correct me if I'm wrong on this, but it would seem that a plan that qualifies to file a 5500-EZ (which may not be involved with austin3515's question at all; I'm just asking) would not need to have an audit, even if it's assets did not qualify for the audit exemption for a small plan under 29 CFR 2520.104-46. Such a plan would not be subject to ERISA (which is the source of the audit requirement) and the 5500-EZ instructions make no mention of an audit.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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I decied not to address the bit about 5500-EZ but I will now.  Not sure where that came from.  This is just a plain vanilla large company with a 401k.  It could be any company.  Not sre what you mean about not being good with global issues.  The question is global. Has the DOL changed it;s approach for plans that don;t file audits?  That's the question.  From what I can tell others are interested in knowign the answer too.

To be more clear I'm not looking for any advice on how to handle a unique client circumstance.  I'm trying to determine if we need to change our approach in response to a POSSIBLE change in approach by the DOL.  I need to know if the DOL changed its approach.  That's it.

I definitely am noting that no one else has responded and said "me too" so perhaps ours was an odd-ball one-off.

Edit: As of this posting there are 193 views.

Austin Powers, CPA, QPA, ERPA

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9 hours ago, austin3515 said:

To be more clear I'm not looking for any advice on how to handle a unique client circumstance.  I'm trying to determine if we need to change our approach in response to a POSSIBLE change in approach by the DOL.  I need to know if the DOL changed its approach.  That's it.

Yea this is the answer I'm looking for as well.  I have never been a fan of the "attach a statement saying the audit isn't ready just to get it through EFAST" approach, but the fact that DOL has to give you 45 days to fix it has had me use it on occasion.  If the DOL is sharing their data with IRS (who is not required to hive 45 days) that really does change things up a bit.  I don't mind a change, I just want to know best practice of addressing the issue going forward.

 

 

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  • 1 month later...

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

Austin Powers, CPA, QPA, ERPA

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2 hours ago, austin3515 said:

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

austin3515, I had a similar experience a few years ago. The 45 days is statutory and also in the regs. DOL has to give it to you for purposes of its penalties. I think the 45 days runs from the date of their letter, not the date the 5500 should have been filed. Does the letter make this clear one way or the other?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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14 hours ago, austin3515 said:

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

We got some of them as well, all sent on 12/1.  The interesting thing is that all the emails mention possible penalties if you fail to revise your filing, but they do not address a due date or the 45 days.

 

 

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Per the regulation (See 29 C.F.R. 2560.502c-2(b)(3)), you've got 45 days from the date of the notice, and penalties will begin accruing as of the day following the end of the 45-day period if you don't file the IQPA by the end of the 45-day period. I doubt the DOL will not follow that rule. My guess is they should have told you that in the letter, but maybe they have decided to be more generous than their reg. Seems very unlikely.

Does the letter cite the reg? If so, that may be their way of informing you of the deadline.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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