Failure to file final 5500-EZ ... help!

[Guest winterhill]

Any input gratefully received ...

I’m self-employed, and my QRP Plan 1 (small, sole-participant, never subject to annual filings) closed in 2004, assets rolling over into a new plan (Plan 3) in January 2005. I’ve just learned that I should have filed a first+final 5500-EZ for it, so I’m panicking. In deciding how to proceed, my reading of this forum has been very helpful but leaves me still confused on some points ...

(1) Are the late penalties the same for FIRST+FINAL filings for plans in an under-$100K situation as they are for ANNUAL filings (by definition for plans over $100K)?

(2) As a sole priorietor, am I ineligible for DFVCP even if I file a full Form 5500 (though eligible to file 5500-EZ)? Or am I better off penalty-wise by throwing myself at their mercy directly rather than via DFVCP, anyway?

(3) Until now, I’ve handled 5500 filings myself. Beyond the (now) obvious arguments for using a professional, will this late filing and plea for mercy be better received by IRS / DOL if it comes from me personally or through a professional accountant? How best to beg for mercy?

Some filing history may be useful. Combined value of my plans reached $100K for the first time in August 2005 (after Plan 1 closed), and I began annual 5500 filings for Plan 3 starting with the 2005 plan year. But back in 2002 when my only other plan (Plan 2) closed, I had doubted that a first+final 5500-EZ was required (the document I’d consulted was silent about the under-$100K scenario) -- but I DID file one, purely as insurance, with a cover letter saying I didn’t think it was necessary and to please throw it out if they didn’t require it. (They didn’t reply.) More recently, a third party (it doesn’t matter who, the responsibility's mine) erroneously told me that final filings weren’t required in the under-$100K scenario, so with my doubts wrongly confirmed I didn’t file an “insurance” final for Plan 001. Which brings me to my present fix.

Thank you in advance for any thoughts!

[WDIK]

1) The same potential penalties apply.

2) You are ineligible for the DFVCP.

3) Your best hope is to present your case in writing, plead for abatement of the penalties, and hope for the best. A search of these forums using the terms "tear-stained letter" or "failure to file" may offer some additional advice.

[jpod]

I also suggest that you include in your Statement of Reasonable Cause something like the following "This plan was not subject to Form 5500 or 5500-EZ filing for any year prior to its final year." I am assuming based on your post that this is a true statement.

[Guest winterhill]

Thank you for your input, it's been very helpful ... and yes, you're correct, the plan was never subject to 5500 or 5500-EZ filing prior to its final year (thanks for suggesting that wording).

I will carefully read the entries you recommended, but remain confused on one point. Beyond the general advantages of having a professional prepare my filings going forward, is there an advantage to bringing in a professional at this point (if there's someone in the Boston area familiar with this situation, who would know how best to argue reasonable cause in this case) to submit this plea for mercy and filing on my behalf? Perhaps the fact that I brought in professional expertise at this point (reflecting my commitment to getting it right) might stand me in better stead in their eyes, than if I do this DIY? Or is a "tear-stained letter" likely to be better received if it comes from me personally, with my own (genuine) tear-stains?

Any thoughts on this? Thanks.

[Mike Preston]

Nobody really knows the answer, although I completely understand your inclinations here. Would that it were there was a franchise of sorts that held sway over the IRS in matters such as these. I would, of course, be the first to apply. Alas, the IRS plays this hand pretty close to the vest (for obvious reasons) and I have yet to find anybody who would boast of such; even through the grapevine.

However, the word on the street has always been that a gently worded request for abatement is likely to succeed. You can find such mentioned on this site with enough time devoted to searching for same.

And it matters not one whit whether the request comes from a consultant or the plan sponsor, in my opinion.

With that said, there is some comfort with the request coming from a consultant in that if the response is harsh, you can always engage another consultant or fire the first consultant and then send a second attempt at abatement to the IRS. I would think it a bit less likely to allow for two bites of this particular apple if you were to start with a letter from yourself.

But whether that is enough to sway you to hire somebody for this task is no doubt subject to debate.

Good luck.