Reasonable Cause - Fee Waiver

[Dawn Hafner]

In the past the IRS was very accepting of reasonable cause letters and often waived their late fees. (I realize that this did not waive the DOL fee at that time.)

Now that we file 5500s with the PWBA does anyone have any experiences they can share on reasonable cause letters? We are considering the DFVC program, but feel we have a reasonable cause. Our fear is that we will file for waiver of fees and have it denied and then have full fees apply rather than reduced DFVC fees.

Thanks.

[jpod]

I don't have any experience with DOL's position on "reasonable cause." However, under the new DFVC, in my judgment a client would be making a big mistake by rolling the dice rather than going for DFVC, unless the "cause" is fire, death, or something comparable.

Yes, I know that the IRS has been extremely liberal (or stupid) in accepting reasonable cause arguments, and I have pushed the envelope in claiming reasonable cause after the client has already received dunning notices from the IRS Service Center. But, DFVC is really a great deal; don't let the client's or its advisor's pride get in the way.

[Kirk Maldonado]

I don't think that they have a "reasonable cause" position; your only choice is the DFVC or fight it out.

[jpod]

Allow me to amend my remarks by deleting the parenthetical "(or stupid)". I truly believe that the IRS and the DOL wish to encourage voluntary compliance, and the IRS' liberal attitude over the years is probably reflective of that goal. Nevertheless, when you consider the amount of penalties which can be imposed for a late filing (or, worse, multiple late filings), DFVC may be the best thing since sliced bread.

[Steve72]

DFVCP is your best bet, IMHO. I do not believe the DOL will grant a reasonable cause waiver.

[Kirk Maldonado]

A senior DOL official told me on a phone call that they don't make individual exceptions; your choice is DFVC or a fight with the DOL (which you will probably lose).

My advice is to cut your losses and take the DFVC.

[E as in ERISA]

A client timely filed an incomplete 5500 (no audit, some incorrect answers). It received notices. It filed amended returns and responded to notices. However, it did a poor job, and none of the amended returns or responses was complete (the updates on the amended returns were not included in the notice responses and vice-versa). The client eventually got a $50,000 notice. They wrote a reasonable cause letter explaining how the administrator had not provided info for the audit to be completed, how they had amended as soon as it was completed, the mix-ups in responding to notices that was partly due to changes in personnel, etc.)

The DOL found "reasonable cause" existed to reduce the penalty -- but only to $5,000. The lesson I've been told is that they'll reduce the penalty for reasonable cause -- but don't expect it to be below the DFVC amount.