Urgent Question re IRS Response re 2005 Form 5500

[ERISAatty]

I'm wondering if anyone can confirm that (a prompt) filing under the DFVC program is the correct approach given the following circumstances:

-Client recently received a letter from the IRS inquiring about a 2006 Form 5500 filing for "Pension Plan A".

-In fact, no 2006 Form 5500 was filed, because as of 12/31/05, "Pension Plan A" was merged into "Pension Plan B".

The problem is that the "Pension Plan A" 2005 Form 5500 filing was not marked as a final return, and did not show zero assets. (It should have, as the merger date was 12/31/05; the Form Preparer apparently did not follow the correct procedure).

The IRS inquiry letter provides a check box to be checked if the recipient (Client) is eligible for DFVC, and asks for the date on which a DFVC submission was made.

Client is currently talking with their Form 5500 preparer about having a corrected 2005 Form prepared.

What I'm not clear on is whether a corrected Form 5500 (marked final and showing zero assets) can just be submitted (with no penalty) or whether a DFVCP filing (and penalty) are necessary.

My assumptions are that:

1. Client needs to submit a corrected 2005 Form 5500 under DFVCP (with $2,000 penalty) [i'm not certain DFVCP is really required, but I can also certainly see the case that it is; i.e. that an incorrect 5500 is treated as a failed 5500 and must be corrected];

2. That having received the IRS inquiry letter does not make Client ineligible for DFVCP as, per the regulations, it is notification from the Department of Labor that could render an applicant ineligible; and

3. That the DFVCP should be submitted before, or by, the date on which a written response is due to the IRS. (Any idea what might happen if the DFVC submission goes in a few days later than the response to the IRS, so long as that proper date is provided in the response?)

Can anyone confirm that these assumptions are correct?

Of course, IRS response is due soon, so I'm hoping to finalize the response on this asap.

Thanks to anyone with insights and/or who may have faced a similar situation.

[Bill Presson]

If a 2005 return WAS filed for Pension Plan A, then no DFVC is needed. Just file an amended return. No penalty, no fee.

[Guest Sieve]

A agree with Bill 100%. All that happened here was that the preparer neglected to check a box, which is correctable by filing an amended return. Plain & simple. (An issue to confirm, however, is whether the original return was filed timely. The deadline for filing a final return begins to run when assets are $0.)

As an aside, DFVCP is not available, to the best of my knowledge, after a return already has been filed--unless the return was rejected as being grossly incomplete (which your client's was not). So, for example, if this return had been filed 2 months late, and you then received an IRS notice to pay a fine for the delinquent return, DVFCP could not be used to wipe out the late filer penalty. Does anyone agree/disagree with this particular proposition?

[Bird]

I agree that filing a corrected return showing it as final (including financial transactions resulting in $0 net assets) should be all that is needed.

Sieve, I think it is fairly common practice to file a return late*, get an IRS notice about it, and file under DFVC before the DOL sends their notice. I have a vague understanding about the different agency/department roles but not well enough to explain it. But if you get the DOL letter it is too late to use DFVC.

*That is, to have an inattentive client file a return late...if it is known to be late when filed it is best to use the program up front.

[ERISAatty]

Thank you all for your comments.

And I'm happy to report that I just received a response to a blind call I had put into the DOL with their DFVCP department.

They confirmed what you all already knew - no DFVCP or penalty is required here. Just an amended Form 5500 (since a Form 5500 WAS filed for 2005).

They said that the amended Form 5500 should go to Lawrence, KS, as per usual procedure, and that a copy of the amended Form 5500 be sent to the IRS office that sent the inquiry.

Always a good day when there's no penalty to pay!

Thanks, so much, again, everyone. I appreciate your insights and your assistance!!!

[Guest Sieve]

Bird --

So, here's what I think you're saying:

• employer signs 5500 late, and mails it 4 months after the due date (i.e., employer does not inform the preparer that the return is going to be late, and therefore DFVCP is not used);
  
• IRS notice is then received, after the initial filing, that the return was filed late (i.e., it is not a notice that the return has not been received); and
  
• the already-filed 5500 is then re-filed, this time using DFVCP.
  

Have you had that process work successfully?

What I've been doing in these circusmtances is to ask the IRS to abate the penalty. If the employer is normally a timely 5500 filer, the IRS almost always will abate the penalty entirely (one time only). I've never considered (perhaps out of ignorance) filing under DFVCP for a delinquent return that already has been filed late.

[Bill Presson]

Bird --

So, here's what I think you're saying:

• employer signs 5500 late, and mails it 4 months after the due date (i.e., employer does not inform the preparer that the return is going to be late, and therefore DFVCP is not used);
  
• IRS notice is then received, after the initial filing, that the return was filed late (i.e., it is not a notice that the return has not been received); and
  
• the already-filed 5500 is then re-filed, this time using DFVCP.
  

Have you had that process work successfully?

What I've been doing in these circusmtances is to ask the IRS to abate the penalty. If the employer is normally a timely 5500 filer, the IRS almost always will abate the penalty entirely (one time only). I've never considered (perhaps out of ignorance) filing under DFVCP for a delinquent return that already has been filed late.

We also ask for an abatement. If we don't get it, we file under DFVCP. Works 100% of the time.

[Bird]

Sieve-yes, that's correct. (But I thought the days of abated penalties for regular 5500s were over; glad to hear that you've been successful with that.)