late 5500s for KEOGH money purchase plan

[Guest ichibondaughter]

Please help, I'm trying to help my elderly mother address an issue with late filed 5500s for 2006-2009.

My father passed away unexpectedly in 2007 from an injury just before the 7/31 filing deadline for 2006. My mother didn't know what she needed to do, and turned it over to their CPA who failed to file timely for 2006 and 2007.

My mother filed 2008 herself on an incompatible form (not machine readable).

2009 is now late as the business was discontinued and mother converted the plan to an IRA, didn't know that she had to file with in a certain time period from conversion, she thought she had until 7/31/2010 for the 2009 year. CPA didn't advise her on the filing deadline for conversion.

CPA is being unresponsive and penalties are mounting. The CPA did responded to a notice from DOL for the 2006 filing and has not heard anything back yet.

My mother received a CP213N from the IRS for 2007, which I am planning to reply to for her.

Since the Voluntary Compliance program doesn't cover "no employee", plans how should we proceed?

If the CPA was made the administrator, is she personally responsible for failure to file penalties for the periods under her watch?

I would be grateful for any advice.

Liz

[Andy the Actuary]

My sympathies both for your personal loss and pension discombobulation.

Rely upon this: You cannot rely upon advice from a message board to help you work through this nasty problem.

You need competent help, in particular, for someone who can connect with the right government parties. I suggest you look to a benefits consulting firm as opposed to a CPA. They are likely to be more experienced in dealing with late filing pension form problems. You would want to retain their services prior to your responding to the DOL and IRS. It is certainly appropriate to ask them to qualify their experience in this area.

The good news is you may be able to get this resolved without penalty or fine. The bad news is it may cost a bit for the consulting. Please keep in mind that someone is going to have to spend some time to determine the situation's history as well as possibly researching how the IRS/DOL has dealt in similar situations. Then, they will have to contact agencies and argue your position. Given this will be a one-time consulting job, they may request a retainer.

You may be able to identify consulting possibilities in your area by contacting the American Academy of Actuaries. You may anticipate that the Academy members are likely to hold high professional standards.

American Academy of Actuaries

1850 M Street NW, Suite 300

Washington, DC 20036

Phone: 202.223.8196

Fax: 202.872.1948

Website: www.actuary.org

Web questions:

Michael Roberts

roberts@actuary.org

Again, these are one persons thoughts and others may be able to offer alternative paths.

Best of success,

a.t.a.

[goldtpa]

check out the other posts on this issue

late 5500-EZ

Late 5500-EZ 2

Late 5500-EZ 3

They all look to have the penalties abated for reasonable cause. Write letters to the IRS and tell them your mother had no idea that she was supposed to file. Plus your dad may not have had to file depending on how mch he had in the plan. If your dad had less than 100,000 through 2006 he did not have to file. In 2007 that number increased to 250,000.

[Guest ichibondaughter]

Thanks to both goldtpa and Andy the actuary. It has been a rough couple of years.

It seems that the assets in the plan exceeded the minimums and that the 5500, not the 5500 EZ, was required.

I have drafted a short letter with a Statement of Reasonable Cause (Dad's death and Mom not knowing the need for filing) for the 2007 plan year as she already has a notice CP213N with a deadline of 4/28/10.

The IRS penalty for 2007 alone is proposed at $12,425.00. I deal with federal excise taxes in my line of work, and have never seen a case when there is no tax consequence and no exposure to the public carry these kinds of penalties.

At least the request to waive 2007 penalty and the statement of reasonable cause will stall them off for a while until we can convince the CPA to step up. The CPA claims that the IRS and the DOL will not waive penalties due to funding shortfalls. I find this incredible. I think ske told Mom that because she was too busy with tax time to deal with it.

Thanks again for your input

[Bird]

Good luck with this; here are some thoughts/questions...

your first post says it is a "no employee" filing (5500-EZ) but later you say a 5500, not 5500-EZ was required - why do you say that a 5500 was required? The rules are (generally) that a one-man plan doesn't have to file if under $250K, a one-man plan files a 5500-EZ if over $250K, and all other plans file a regular 5500. If it's a 5500-EZ filing then you're only dealing with the IRS; if it's a regular 5500 then you have to deal with both the IRS and DOL (Dept of Labor) and that makes it more difficult. Most of us have seen the IRS abate any and all penalties for late 5500-EZ filings (eventually).

The CPA claims that the IRS and the DOL will not waive penalties due to funding shortfalls.

What's that all about? Was this a plan with a required contribution that wasn't made, or are we simply talking about a late filing?

You probably should get a pension professional to help you finish this off. It's pretty clear that the CPA doesn't have specific knowledge in this area and you're just going to be spinning your wheels if you try to get her to take care of it. If you otherwise have confidence in the CPA, you can ask her if she knows of a good pension professional who could assist further, but it seems like she should have gone in that direction already (although "tax season" could be a legit excuse for not giving it full attention). You could check your local business listing under "pension and profit sharing plans" - try to find someone who provides "consulting" services; the letters "QPA", "CPC" and/or "MSPA" after a name is an indicator of some higher level of experience (they happen to be designations from an organization I belong to, the American Society of Pension Professionals and Actuaries, and there could be others without those designations who are just as knowledgeable).

Again, good luck, and feel free to write back.

[Guest ichibondaughter]

Thanks Bird. I am seeing that we really do need to get a pension consultant. I said the 5500 not the EZ because that's what the CPA told mom was required. We have dealt with her for many years, 30+, but she has not delivered the same level of service in recent years. I think it's time for her to retire also.

Are there any circumstances where a sole proprietor and spouse would be required to file the regular 5500? There are definitely no employees other than Mom. She was an employee for Social Security purposes, after they did away with the spouse of the sole proprietor exemption. If it really is only the 5500EZ, and that means that the DOL isn't supposed to be involved, then I am more that capable of handling the IRS. I did the tear-soaked letter for her yesterday.

All required contributions were made. It's a reporting issue only. I said funding shortfall, but really meant government budget shortfall. I was dumbfounded to hear a tax professional say, "don't bother to ask for abatement of penalties, because they aren't granting any right now, because of the economy." I think SHE just doesn't want to bother. It really chaps my hide that she is taking advantage of an elderly widow after a thirty year relationship.

Anyone have a suggestion for a professional pension consultant in the San Bernardino, CA area? Am I allowed to ask that on this board? If not, please ignore the question.

thanks

Liz

[Mike Preston]

Let me first answer an unanswered question you posed in an earlier post. Is it possible that a 5500, rather than a 5500-EZ is required? Yes, but highly unlikely. If things are exactly as you describe (sole proprietor and spouse, period) then you are looking only at the 5500-EZ. Only if your dad or mom had another business that he or she or they owned or were affiliated with is it possible that you might have a 5500 filing requirement. I won't lay out all of the details as to how you determine whether a 5500 is required, unless or until you say that there was another business (typically a corporation, but not necessarily). I'm guessing there was no other business and that you should therefore limit your focus to the 5500-EZ. If you have any doubt about this, this is one of the things that a pension advisor might be able to help you with.

At one point you referred to the CPA as being appointed as the "administrator" (in our lingo, we would capitalize it and refer to such an appointment as the "Plan Administrator"). I'm guessing that never really happened because that is a function most CPA's, in fact most outside advisors of any kind, including pension firms, would not accept. I'm guessing that your mom had a discussion with the CPA and the CPA agreed to help your mom with the estate (and then dropped the ball in this area).

If my guess is correct, then the estate has a potential claim against the CPA for any late filing fees which are assessed. But as I think you have already discerned, the IRS has (knock wood) been very forgiving regarding late filing penalties in the past, as long as you have a reasonable tale of woe. You do, and I would expect, at this stage, that with a few letters (ok, maybe more than a few, but certainly less than a mountain) that the late fees for all three years would be abated. So, in a perfect world you won't have to even consider recompense from the CPA because the IRS should, in this case, reverse the penalties. I suppose it wouldn't hurt to have your mom let the CPA know that if the penalties aren't abated the CPA will be asked to reimburse the estate, but that could very well sour the relationship prematurely. I know I would probably wait before doing so and instead focus on getting those penalties abated.

If my guessing is on the mark, I'm not sure you would gain much from having the situation reviewed by a pension firm at this point. You seem quite capable of representing your mom before the IRS on this specific issue and the CP 213 is the very first notice that the IRS sends, so you are a ways away from anything that would require the estate to send money to the IRS.

If you decide you want a referral to somebody in San Bernadino, I know someone on East Carnegie Drive. Send me a private message to that effect and I'll be happy to give you full contact information.

Good luck.

[Bird]

OK, with the new info/confirmation that this really is an EZ filing, and no funding issues, I agree with Mike's comments. You can probably get this late filing issue* resolved yourself; just don't take "no" for an answer. Was the CPA seriously saying that your mom should write a check for $12,000+ without trying to fight it at all? Wow.

*Some other potential issues come to mind, like "was the document amended for current law and regs before the plan was terminated?" I'm not sure that any "fix" for that now would be effective anyway.