late filing of form 5330

[Guest Jane Freeman]

I am just curious if anyone has come across this situation and how you handled it. Plan sponsor made late deferrals to the plan in the 2003 plan year (calendar year) but did not correct the late deposit until March, 2005. The 2003 form 5500 was completed by answering "yes" to question 4a on the schedule I but no amount was listed as the plan sponsor did not provide the information to the recordkeeper that was completing the 5500. A 2003 form 5330 was never completed.

The plan sponsor received a letter from the DOL indicating that the schedule I was not complete and to inlude an amount in 4a. That was done and the plan sponsor submitted the corrected schedule I to the DOL. My question is now that the plan sponsor has provided the amount of the late deferrals and the earnings on those deferrals were calculated and deposited into the plan, should a form 5330 for 2003 be completed even though it is considered late? Also, I would think a 2004 form 5330 should be completed and filed by July 31, 2005. My second question is: On the 2004 form 5330 should the amount of the lost earnings be listed in 6b since the lated deposits were not corrected timely?

Any thoughts on this situation would be greatly appreciated.

[Archimage]

Yes, you should go ahead and file a 5330. In my experience the IRS doesn't assess late penalties that often. When they do, they are fairly minimal.

Yes, you should file a 5330 for 2004. You will list the amount of lost earnings for 2003 and then list the amount of lost earnings for 2004. You basically keep paying the 15% excise tax every year until you correct the situation.

[Guest philc]

And I assume that if there is a correction under EPCRS the plan must use the adjustment for earnings methods (reasonable methods) specified under that program.

[Guest philc]

Sorry, above response added to wrong message.

[Guest Jane Freeman]

Thanks for the response. I have one more question regarding the 2004 form 5330: On the 2004 5330 is the amount of the total lost earnings listed in 6b (taxed at 100%) as a penalty for not correcting the late deposits timely or is the total amount listed in 6a and only the 15% tax paid? Thank you.

[Archimage]

You would only list the excise tax, not the lost earnings on line 6a. The lost earnings is listed in Part IV of the 5330.

Line 6 is new to the form. If my understanding is correct, this is only used if the IRS actually comes in and assesses this penalty due to an employer's failure to correct.