DFVC Program eligibility for late Form 5500

[Guest Judy S]

We have a client that received a notice from the IRS stating that EBSA had not received their 2004 Form 5500. The plan is a calendar year 401(k) plan, and the due date for the 2004 form was 7/31/05. We sent them the form in March 2005.

They received the notice in June 2007. They found a copy of the 2004 package in their files. It had been signed on July 20, 2005, but they are not sure if it was ever filed. The company was in a bit of turmoil at the time dealing with the bankruptcy of a sister, non-controlled group company and a lot of resultant changes.

They sent a timely reply to the notice along with a copy of the Form 5500 from their files, and indicated that the form had been filed on the July 20, 2005 signing date.

In October, they received a second notice from the IRS saying that they received the form, but that it had been filed late and, unless the company has established a reasonable cause for the late filing, they will be assessed a penalty of $15,000. The notice goes on to ask if the company has filed under the DFVC program and, if so, asks for the DFVC program application date.

It is my understanding that they cannot file under the DFVC program once they receive a notice of late filing. Correct? Both the original June notice and the following October notice asked if they had filed under the program.

I am looking for some guidance on what to recommend- 1. do they insist that they had filed the form timely based on the signature date even though they are not sure that they actually did and hope that the IRS will accept that? 2. do they admit that they are not sure they filed timely and write a letter explaining the circumstances regarding the sister company bankruptcy, etc. and ask that the penalty be waived? (all other 5500 filings have been made timely). 3. can they now participate in the DFVC program by complying with all the requirements of that program including paying the $750 penalty, and indicate a November 2007 DFVC program application date on their reply?

If they truly did not file, it was definitely an oversight and not something this company traditionally does, so I would like to get the best possible result for them. I appreciate any and all comments.

[katieinny]

Judy: For what it's worth, I would go with #2 on your list. It's my understanding that they are not eligible for DFVC. I think the IRS was just asking if they had done a filing prior to getting the IRS letter. I think you can make a compelling case in your statement of reasonable cause based on the reasons you mentioned in your post.

[Bill Presson]

You can still file under the DFVC until you get a penalty assessment from the DOL. File under the program and do it right away. Respond quickly to the IRS letter as well.

[Sully]

I would also check under freeerisa.com to see if they show the form as being filed. There have been some cases recently where the IRS has said the 2004 return was not filed when in fact it was.

[Guest Judy S]

Thanks everyone for your input. Sully, I did look on Freerisa and it shows the 2003 filing and the 2005 filing so it looks like they did not file for 2004 on time.

Since they already received a notice assessing a $15,000 fine, I think we'll go the reasonable cause letter route and hope for the best.

[jpod]

I think you're making a big professional mistake if you don't reconsider Bill Presson's comments and communicate same to your client, and quickly.

[HarleyBabe]

Also, keep in mind that a recent ASPPA ASAP noted that letters were being generated in error stating that 2004 forms were not being filed. I received 2 myself. The notice stated that you should just send a signed copy even if you though they were filed.