EPCRS and DFVCP

[waid10]

Hi. I am working with a profit sharing plan that was not updated/amended to comply with changes in the law over the last 10 years. Upon preparing the EPCRS filing (VCP), we discovered that 5500s were not filed during that 10 year period either. I am torn about whether to go to the DOL first (using their DFVCP program) to get the 5500s straightened out, and then file the VCP with the IRS. Or whether I should skip the DOL and just file the VCP filing with the IRS and ask for the mercy of the IRS on the 5500s.

Any thoughts?

[Kevin C]

The late penalties on 10 years worth of 5500's will be astronomical if you don't do the DFVC.

I should find out in the next few weeks what the non-amender penalties will be for a plan caught in audit. We just picked up a client with a one person plan that wasn't amended since 1985. He got audited and the agent told him to find someone to update his plan document. He hired us to help him. The agent hasn't done one of these in a long time, so he wasn't sure what the penalties would be. He is checking with his supervisor to find out. Based on what other agents in his office told him, the penalties will be significantly more than the non-amender VCP filing fee.

[Guest Sieve]

Filing under either program is not contingent on not filing under the other. And, I believe DOL or IRS audits are based on receipt of a Form 5500, which forms the basis of their database. So, if the client hasn't received notice of a delinquent Form 5500 in 10 years, then the likelihood of an audit is miniscule (unless DOL becomes involved on a participant complaint of some kind). What I've done in these circumstances is have the Forms 5500 completed ASAP--it may take a few weeks or so--then go in under VCP after filing the 5500s under DFVCP (so that I can include an up-to-date Form 5500 with the VCP filing). You always take a chance delaying VCP, but you also take a chance delaying DFVCP. But I think, in this situation, your potential for audit is much lower than usual, so the delay in filing should not be a problem (hopefully). [The above advice should not be a subsititue for legal advice given by . . . . . )

[Guest BuckyBadger]

In reference to Kevin C's reply on 9/5/08:

We have a similiar situation, the owner only SC has not updated their document since TEFRA. Has also never filed a Form 5500EZ in 27 years!! (we are doing VCP to get document up to date).

When I called the IRS they could give no real guideance on the issue of filing 27 years worth of 5500's.

The account balance is over the 250k and has been over the 100k for many many years.

Since it is an owner one person plan can not use the DFVC....does anyone have any thoughts/suggestions on how to handle this 5500 situation?

Any thing will help.

[Kevin C]

I'll update my prior post. The IRS late amender penalty was $6,500 for the 1 person plan with about $600K in assets. Fortunately, the owner was filing his 5500-EZ's so we did not have to deal with that issue.

The IRS has other ways of finding plans for audit. They look at W-2's with deferrals listed. That's how they find non-ERISA 403(b)'s and governmental plans to audit. If the employer gets audited and there is a deduction for a retirement plan contribution, they may want information on it, too.

I doubt the IRS really wants to waste their resources processing 27 years worth of filings. But, I don't know how you would get to someone at the IRS who could give you an answer you could count on. You might try contacting an IRS agent who has audited one of your other plans. The agent (or his/her manager) may be able to point you towards someone at the IRS who can help you.

[Spencer]

I have a similar situation to BuckyBadger. Owner one person plan established in 1998. Assets have been over $100,000 for at least five years, never filed a 5500-EZ. How we correct this since DFVC isn't available?