IRS Notice 2002-23 and IRS Announcement 2002-31

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FYI

When the DOL started the DFVC for delinquent filers of Form 5500, the IRS declined to join the program, although it generally did not assess penalties for the late filings of plan sponsors who entered DFVC. In releasing Notice 2002-23, the IRS has joined forces with the DOL and officially agrees to waive its penalty provisions for employers who use the DFVC program.

When the DOL established VFC, it allowed correction of prohibited transactions, but did not provide for waiver of the IRS penalties under Code section 4975. This leaves plan sponsors still exposed to the collection of Code section 4975 penalties for the prohibited transactions reported in their VFC filings. The DOL is working on a prohibited transaction class exemption that would eliminate this problem, but class exemptions take time. In Announcement 2002-31, the IRS states it will essentially waive its prohibited transaction excise tax for plan sponsors who satisfy the proposed exemption's conditions (one of which is successful completion of VFC).

Notice 2002-23 and Announcement 2002-31 are scheduled to appear in Internal Revenue Bulletin 2002-15, dated April 15, 2002.