Turn key was not so turn key

[Guest DennisT]

My firm recently began talks with a potential takeover client and found out that 5500s had not been filed from 1992 through 1997. (I'm not kidding) It seems that the naive employer simply signed on with an insurance company who promised "turn key" service. When the employer found out about the mistake the response from the insurance company was "oh yea, we don't do that part of it". The 1998 5500 was filed on time. How should the IRS be approached about correcting this mistake? Should we just send in our first born?

[Wessex]

I'm not sure that the IRS or the DOL would accept ignorance as reasonable cause not to assess penalties.

Limited (but not cheap) penalty assessments are available under the DOL's Delinquent Filer Voluntary Compliance Program. It was published in the Federal Register in April, 1995.

Filing under that Program does not take care of the potential IRS penalties, but I have not yet heard of the IRS assessing penalties on a plan using the Program.

Anyone else had any adverse IRS experience?

[Guest RK Matta]

I wouldn't be so quick to let the insurance company off the hook. Did you look at their contract?

[Guest DennisT]

We have looked at the service contract but there was no specific mention of 5500 preparation. The employer has actually had the 5500s prepared for 1992 through 1997 by a secondary administrator and is prepared to submit them to the IRS. Interestingly, there was resistance from the insurance company in providing information to the secondary administrator. After all administration was completed there were several glaring differences between the insurance company's and the secondary administrator's "numbers". My firm has had limited success getting penalties abated due to similar but somewhat lesser circumstances but we are essentially hesitant to move on this matter without knowing the range of options and possibilities.

[lkpittman]

DennisT:

We've submitted delinquent returns on behalf of a client through DOL DFVCP (along with required sanction amounts). Then, we submitted copies to IRS, with attachments which were, in effect, statements under Reg. 301.6652-3(B)(3) requesting waiver of the penalty due to reasonable cause. Be sure to cite compliance under the DOL program as a "good faith effort" to comply. I'm not guaranteeing anything, but we've had pretty good luck in general in getting IRS to waive late filing penalties this way. . . . GOOD LUCK.

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LKP

[Kirk Maldonado]

In my experience, the IRS accepts any reason as justifiable cause for late filing, as long as you complete the filings before they catch you.