IRS Penalty Notice CP-283 and Approved Extension

[steverenner]

Is there any one else out there have clients receiving a 5500 late filing charge notice when they have already received an approved extension until October 15th? I received calls from 5 different clients yesterday that have received both, for extended 5500s that were recently. Should we simply send a copy of the approved extension back with the Penalty notice?

[My 2 cents]

That is a recognized problem, due to the extension and the 5500 being filed too close together. Contact the IRS, be prepared to show that the 5558 was timely filed, and, as I understand the problem, you should be off the hook.

I understand that the IRS suggests either filing the 5558 earlier than late July or waiting a bit longer to file the 5500 and 8895-SSA.

Also, no approval is necessary if the 5558 is timely filed. The IRS has already approved all 5558 filings to extend 5500 and 8895-SSA filings, provided that they are timely submitted. So "approved" is redundant.

[steverenner]

Thanks for your reply. Some of these returns were filed in late August. Seems crazy to me that the IRS can't fix this problem.

[Lou S.]

The problem is the IRS has a moronic system that requires a paper filing of Form 5558 to Utah and Electronic filing of 5500 thought the DOL and 8895-SSA through FIRE and they simply don't talk to each other quick enough.

[steverenner]

Thanks Lou...I couldn't agree more!

[chc93]

Not only what Lou says... from ASPPA Government Affairs Committee email this morning...

From IRS representative: "The Form 5500 and Form 5558 are processed through different computer programs. Because the Form 5500 has a lower number, it is processed first. Then, the Form 5558 is processed. If the Form 5500 (which was submitted in early August) is processed before the Form 5558 (which was timely submitted in late July), then an erroneous penalty notice will be produced and sent to the plan sponsor." (emphsis mine)

[Tom Poje]

FT William sent out the following blurb the other day - at least it gives a clear explanation of what is going on:

(Gotta love the IRS concept "submit your form 8955 later in August...")

Dear 5500 Customer:

We recently contacted the IRS due to several customers receiving Penalty Notices for filing the Form 5500/8955-SSAs after the original due date, even though a Form 5558 was filed timely. An IRS Representative responded with the following information:

At times when a filer submits a Form 5558 extension request and soon thereafter submits their Form 5500 or Form 8955-SSA filing, all forms will post to their account in the same cycle. Should this occur, if a return happens to post before the extension request, the return will erroneously be marked as late and the filer will receive a penalty notice. This is a programming issue that the IRS is working to resolve.

A filer experiencing this issue will have to either call the IRS Help Desk or respond to the penalty letter sending the supporting documentation. The penalty will be abated and their file will indicate that this was an IRS error.

Filers are advised that to avoid this problem in the future, either submit the Form 5558 extension request earlier in July, and/or submit the Form 5500/8955-SSA later in August to give the Form 5558 extension request a chance to be posted to their account prior to the filing.

As the IRS Representative noted, they are working on resolving the issue, but it will take some time. In the meantime, please contact support@ftwilliam.com or the IRS with any further questions you may have in regards to this issue.