DFVC program

[Belgarath]

Does anybody have any practical experience with this? Here's what I'm wondering:

In the "old days" when the 5500's were filed with the IRS, the IRS was pretty good about waiving the 25.00 per day penalty for late filing. And out of the many, many plans that have filed late with the IRS that I've seen, I have NEVER seen one where the DOL imposed their penalties, even if the IRS imposed the penalty.

Now that these are being filed with DOL, does anybody have a feeling as to how reasonable the DOL will be about waiving their penalties? Since they will obviously now know directly if filed late, this is a real concern - do you opt for DFVC up-front, which is still expensive, or do you take your chances on penalties being waived? (And of course, the EZ filers aren't eligible for DFVC, so they will have to pray for reasonableness anyway) I also realize that under IRS Notice 2002-23, the IRS automatically waives the 25.00 per day if you are eligible for, and satisfy, the DFVC requirements.

Anybody have "contacts" at the DOL to have garnered a feeling as to the mood on this? All discussion appreciated!

[Fredman]

My gut feeling is that at first they'll try to adhere to the notice, but may waffle from it as time goes on. This is my gut speaking, not anyone from the DOL.

Notice 2002-23

PURPOSE

This notice provides administrative relief from the penalties under §§ 6652©(1), (d), (e), and 6692 of the Internal Revenue Code (the ACode@) for failure to timely comply with the annual reporting requirements under §§ 6033(a), 6057, 6058, 6047, and 6059 of the Code. This administrative relief applies to late filers who both are eligible for and satisfy the requirements of the Delinquent Filer Voluntary Compliance Program (ADFVC Program@), which is administered by the Department of Labor=s ("DOL") Pension and Welfare Benefits Administration (APWBA@). The DFVC Program was published on April 27, 1995, in the Federal Register (60 FR 20874). A modification of the DFVC Program was published on March 28, 2002.

BACKGROUND

Plan administrators who fail to file Form 5500 annual returns/reports on a timely basis can be subject to civil penalties under both Title I of the Employee Retirement Income Security Act of 1974 (AERISA@) and the Code. The Secretary of Labor has the authority under section 502©(2) of ERISA and 29 CFR 2575.502c-2 to assess civil penalties of up to $1,100 per day against plan administrators who fail or refuse to file complete and timely annual reports.

Pursuant to 29 CFR 2560.502c-2 and 29 CFR 2570.60 et seq., PWBA maintains an administrative program for the assessment of civil penalties for noncompliance with the annual reporting requirements. Under this program, plan administrators filing late annual reports may be assessed a penalty of $50 per day for each day of noncompliance. Plan administrators who fail to file an annual report may be assessed a penalty of $300 per day, up to $30,000 per year, until a complete annual report is filed.

In addition to the civil penalties that may be assessed by DOL under section 502©(2) of ERISA, the Internal Revenue Service (the "Service") may assess penalties under §§ 6652©(1), (d), (e) and 6692 of the Code for the failure to satisfy the annual reporting requirements. Section 6652©(1) generally provides that in the case of any failure to file a return under § 6033(a), the exempt organization shall pay an amount equal to $20 for each day during which the failure continues, not to exceed the maximum amount specified under the Code. Section 6652(d)(1) generally provides that in the case of any failure to file an annual registration statement under § 6057(a), the late filer shall pay, upon notice and demand, a penalty of $1 for each participant with respect to whom there is a failure to file for each day the failure continues, up to $5,000 for any plan year. Section 6652(d)(2) generally provides that in the case of any failure to file a notification of change of status, the late filer shall pay, upon notice and demand, a penalty of $1 for each day the failure continues, up to $1,000. Section 6652(e) generally provides, in part, that in the case of any failure to file a return or statement required under §§ 6058 or 6047(e), the late filer shall pay, upon notice and demand, a penalty of $25 for each day the failure continues, up to $15,000 per return or statement. Section 6692 generally provides that in the case of any failure to file a report required by ' 6059, the late filer shall pay a penalty of $1,000 for each failure.

DOL ADMINISTRATIVE RELIEF FROM PENALTY

In order to encourage voluntary compliance with the annual reporting requirements by late filers, DOL implemented the DFVC Program. Plan administrators who are subject to the assessment of civil penalties for failing to file a timely annual report and who are eligible for the DFVC program may pay reduced civil penalties by voluntarily complying with the terms of the DFVC Program.

ADMINISTRATIVE RELIEF FROM CERTAIN INTERNAL REVENUE CODE PENALTIES FOR DFVC PROGRAM PARTICIPANTS

The Service will not impose the penalties under §§ 6652©(1), (d), (e), and 6692 (as these sections relate to the filing of a Form 5500) on a person who is eligible for and satisfies the requirements of the DFVC Program with respect to the filing of a Form 5500. Once the late filer satisfies the requirements of the DFVC Program, including paying the reduced civil penalty under section 502©(2) of ERISA, the relief under this notice will apply. The late filer need not file a separate application for relief with the Service. The Service will coordinate with DOL in determining which late filers are eligible for the relief under this notice.

INAPPLICABILITY OF THE ABOVE RELIEF FOR CERTAIN FILERS

The relief under this notice is available only to the extent that a Form 5500 is required under Title I of ERISA. Therefore, for example, Form 5500-EZ filers and Form 5500 filers for plans without employees (as described in 29 CFR 2510.3-3(B) and ©) are not eligible for the relief in this notice. Because such plans are not subject to Title I of ERISA, they are ineligible to participate in the DFVC Program.

[Guest BenefitsLawyer]

My impression is that DOL is now refusing to go lower than DFVC penalty amounts--others have "bought" relief for the DFVC price, and they don't want to give a discount to folks who want to bypass DFVC. The new "per plan" max ($4,000 for large plans, $1,500 for small plans, regardless of the number of years filed late) makes DFVC more affordable (but you're right--it's still not cheap).

[Theresa Lynn]

A further consideration is that, if you file a late return and do not check Item D on Form 5500, indicating that you obtained an extension of time or are filing late in compliance with the terms of the DFVC Program, you are essentially "flagging" your return for audit and further review.

Regardless of whether you conclude that the directions regarding attaching a special statement annotated with the words "Form 5500, Box D-DFVC Filing" no longer apply since the DFVC Program was revised, filing a later return without checking D arguably would be an "edit check" that may cause your return to be "kicked out" for manual review and clarification.

Does any one know if the annotations still apply--since they technically are not on the return to clog the EFAST processing? Any thoughts on my guesses about checking or failing to check Item D?

[Kirk Maldonado]

I had an extended discussion with a senior DOL official on this point. He basically said that they set up this program so that they don't have to get into individual negotiations with each employer. It is basically "one size fits all" approach. He indicated that it would be very difficult to get them to cut you any slack on this issue.

I should point out that this call involved what I consider to be an extremely sympathetic situation, yet that did not carry any weight with the DOL official.

[Guest D Ledden]

If the IRS has already sent you a late notice fee, which is higher than the $1500 DVFP fee, do you feel that by filing under DVFP, and then showing proof of that to the IRS, the IRS would waive their fee?