5500-EZ

[Guest Angela B]

A 401(k) plan covers an owner and his spouse. The owner also owns a second company with zero employees. The 5500-EZ instructions state that an EZ can be filed if the plan does not cover a business that is a member of a controlled group. However, it does not make sense to me that the plan would have to file a regular 5500 just because the owner happens to own another company (since the company doesn't have any employees). Is there any official IRS guidance or clarification on this issue?

[K2retire]

Many IRS rules do not make sense and you have accurately described one of them.

[Guest Angela B]

I was able to find the answer to my question and wanted to post it in case anyone ever runs across this in the future.

However, it is important to note part of my situation that I left off of my original post which is this: How do you correct a plan when you haven't filed a 5500 at all because you thought the plan qualified under the EZ instructions and the assets were less than $250,000? Then you discovered that the business covered by the plan was part of a controlled group and therefore not eligible for the EZ filing.

The answer is this: Since the plan is a one participant plan, it is not eligible for the DFVC program to correct the late filings. However, one participant plans are also not subject to ERISA, and therefore the DOL would not be able to assess any penalties on the late filings. To correct, you just file the 5500s even though they are late and attach a cover letter explaining the confusion in not filing on time. If the DOL sends a letter trying to assess penalties, you respond and explain that the plan is a one participant plan and therefore not subject to ERISA.

[Belgarath]

I don't think it's quite that simple. You still have IRS penalties to consider under IRC 6652©(1)(d) and (e) and 6692, I believe, so you aren't home free.

[Guest Sieve]

Belgarath hit the nail on the head. You cannot correct a late filing under the DOL's DFVCP for an owner-only plan, and therefore the IRS does not waive its penalties for failing to file an EZ timely (as it would for filing a delinuent Form 5500 for a plan with employees).

FWIW, very early on I filed under DFVCP for an employer's owner-only plans--PSP & MPPP (EZ filings). The DOL returned the filings (including the employer's voided check) with a note that the plans were not eligible for DFVCP, and arriving soon afterwards was an IRS penalty letter for the late filing of the EZs. Luckily, the subsequent request for abatement of the penalties ($25,000 for each of the 2 plans) was successful.