Form 5500EZ

[Guest shirahbell]

I'm getting ready to terminate my 401K single payer plan and just discovered I should have been filing Form 5500EZ since 2002 and haven't been. My plan doesn't qualify for the delinquent filer voluntary compliance program since the only employees are myself and my spouse.Can you give me some guidance on how the IRS treats the penalties? If they follow their rules, it would be $15,000 for each of 4 years. Does it make a difference that I'm terminating the plan? Any help most welcome. Shirah

[jpod]

Consider the following approach: Prepare and file the past due EZs. Attach to each EZ a "Statement of Reasonable Cause" explaining that you are a "first time filer" (i.e., you never filed a 5500 before and never had to file before the 2002 year and you only learned recently about your obligation to file - assuming of course that all of that is true). The Statement of Reasonable Cause must be signed by you. Mail all the past due EZs under a single cover letter noting in the letter that a Statement of Reasonable Cause is attached to each EZ. Decent chance IRS will assess no penalties, but there are no guarantees.

[Guest shirahbell]

Thank you for your reply! This is the first time I've used this site. Is it possible to for you to tell me your experience from whence you are suggesting this approach? It makes sense, but something i read on an IRS site makes me think I should just file for 2006 and no prior returns. I am thinking this because I read the following on the website http://www.irs.gov/pub/irs-tege/ttt_qas.pdf which sounds like it means there is no sense in filing earlier year returns. What do you think of this interpretation?

Question #5

Is there any type of program whereby an individual who has failed to file Form 5500-EZ in prior

years can come forward and get caught up?

Over the years I have come across, more than once, a situation where the value in the one person

Keogh plan went over the $100,000 threshold several years earlier, however, the taxpayer had

never filed Form 5500-EZ. If only a current year Form 5500-EZ is filed, the entry on the form for

assets at the beginning of the plan year being greater than $100,000 would presumably trigger an

inquiry as to prior year tax returns not being filed. Since this type of plan has no filing requirement

until the asset value reaches $100,000 it is easy for things to slip through the cracks.

Answer: A taxpayer cannot correct a failure to file a Form 5500-EZ through EPCRS. The IRS also

does not have any program to correct the failure to file a Form 5500-EZ. However, IRC §6652(e)

permits the IRS to waive the penalty associated with the failure to file a Form 5500-EZ if the

taxpayer shows that the failure was due to reasonable cause.

thank you!

[jpod]

1. I have had experience with the approach I am suggesting. I cannot recall a situation in which the IRS assessed penalties. In the past there used to be some indication in the IRS' Manual (generally available on the IRS website) that a "first time filer" would be treated kindly. I'm not sure that is still in the Manual. And, as indicated, anyone who guarantees that you will avoid penalties by voluntarily filing the late EZs is going out on a limb.

2. You are reading that Q&A incorrectly. I think it is suggesting just the opposite: there is no automatic relief from failure to file EZs or late filing of EZs. However, the answer notes that the IRS can waive penalties if the failure to timely file was due to "reasonable cause." Those are the magic words, and that is why I suggested that your explanation be in the form of a "Statement of Reasonable Cause."

[Bird]

I agree with ipod: I don't see anything in the answer to imply that you should only file for one year.

The only thing I would add is to not give up if they still want to assess penalties after you send the letter. Send it again.

[Santo Gold]

I don't believe that owner-only plans are required to file a 5500-EZ. They could file the 5500 if they want, but since the EZ is simpler, that is usually the way to go. Therefore, couldn't the owner use the DOL compliance program and file Form 5500 from 2002 forward, pay the $1,500 and be done with it?

[jpod]

Santo: Interesting proposition, but I believe the answer is "no." The DOL amnesty program applies only to plans subject to Title I of ERISA, and an "owner-only" plan is not subject to Title I of ERISA (according to DOL regs and at least a couple of court opinions). The IRS has agreed to waive penalties only for plans eligible for the DOL amnesty program.

[katieinny]

I'm bringing this topic up again because we have a similar situation with one of our clients. We will be sending in the missing 5500EZs with the appropriate Statement of Reasonable Cause.

However, in addition to the IRS penalty for late filing, isn't there also a DOL penalty? How do we go about making sure that gets waived?

[jpod]

If the plan is truly eligible to file an EZ, it is not subject to DOL penalties (because it is not subject to Title I of ERISA for the year covered by the EZ).

[katieinny]

Ahhh -- exactly what I wanted to hear. Thank you.

[Guest bradfield]

shirahbell,

This is bradfield. I am in a similar situation as you and wanted to know if you had any resolution from the IRS. Thanks.

Thank you for your reply! This is the first time I've used this site. Is it possible to for you to tell me your experience from whence you are suggesting this approach? It makes sense, but something i read on an IRS site makes me think I should just file for 2006 and no prior returns. I am thinking this because I read the following on the website http://www.irs.gov/pub/irs-tege/ttt_qas.pdf which sounds like it means there is no sense in filing earlier year returns. What do you think of this interpretation?

Question #5

Is there any type of program whereby an individual who has failed to file Form 5500-EZ in prior

years can come forward and get caught up?

Over the years I have come across, more than once, a situation where the value in the one person

Keogh plan went over the $100,000 threshold several years earlier, however, the taxpayer had

never filed Form 5500-EZ. If only a current year Form 5500-EZ is filed, the entry on the form for

assets at the beginning of the plan year being greater than $100,000 would presumably trigger an

inquiry as to prior year tax returns not being filed. Since this type of plan has no filing requirement

until the asset value reaches $100,000 it is easy for things to slip through the cracks.

Answer: A taxpayer cannot correct a failure to file a Form 5500-EZ through EPCRS. The IRS also

does not have any program to correct the failure to file a Form 5500-EZ. However, IRC §6652(e)

permits the IRS to waive the penalty associated with the failure to file a Form 5500-EZ if the

taxpayer shows that the failure was due to reasonable cause.

thank you!

[Jim Chad]

I work for a CPA firm and it seems that one of these pop up about every other year. I have always filed returns for 3 years and have always seen all penalties waived by the IRS.

Note: Be sure and send to IRS not PWBA or EBSA. These are Department of Labor, (old and new)

[jpod]

Jim Chad: Where did you get the idea to file the late EZs with the IRS (and where at the IRS)? I am not doubting your statement that you have had favorable results, but aren't the instructions clear that you must mail them to the EBSA address?