Any Recourse for the 5558 Being Filed Late?

[mming]

The IRS returned the 5558 and indicated that it was rejected because it was filed after the due date of the return. The TPA who filed the 5558 claims that it was postmarked no later than July 31st (PY is 12/31), but cannot provide proof of their claim. The client also recalls the TPA mentioning months ago that the return wasn't due until 8/31, so it seems pretty obvious that the TPA filed the 5558 late.

It seems inevitable that the client will receive correspondence from the IRS after they file the return stating they must pay penalties, etc. because the return wasn't filed by 7/31 now that the 5558 is invalid. Is there a good chance that the IRS will waive the penalties, etc. if the client writes to the IRS when he receives the "penalty" letter and explains that he was reliant on the TPA who filed the 5558 late? Should he wait until the IRS contacts him, or send such an explanation now with his return? What recourse does the client have? The TPA did not have the client sign a service agreement - hopefully that will not give the TPA an "out" if the penalties can't be waived. All help is greatly appreciated.

[My 2 cents]

In my opinion, there should be no such thing as a TPA who cannot establish proof of the date on which a 5558 (or other deadline-subject filing) was sent in. Whether by certified mail or by an overnight delivery service that can verify the date it was sent, the TPA owes its client sufficient care that the proof is available. If a client wants to send a 5558 in using regular mail, that is one thing, but every practicing TPA should know better.

[Belgarath]

Kind of a mess!

I'm a big fan of DFVCP. First, it limits the penalty to a "reasonable" level. Otherwise, you are playing roulette. I'm not sanguine about the penalty being waived due to potential negligence on the part of the TPA.

Without really knowing the facts and circumstances, conversations, agreements, e-mails, whatever, it is hard to say who "should" pay the penalty. The Plan Administrator (client) is liable for late filing penalties, but if there was a valid agreement/understanding with the TPA to handle and file the extension timely, there might be support for the TPA being liable.

If I were a client, and felt that the TPA had mishandled, I'd certainly ask them to pay for the late filing penalties. If the TPA refuses, then the client can try legal action. Many States have Small Claims Courts that provide an option to file a claim for a nominal fee, and that can sometimes help in a situation where hiring legal counsel, or the hassle/time involved may be too expensive for what you get.

Might be worth asking a lawyer, if it comes to it - perhaps some of the attorneys on this board will provide you with some thoughts, which will certainly be better informed than mine, as I'm not an attorney.

[ESOP Guy]

The case for dFVCP is what Belgarath said. You know the penalty and it is limited. There is a lot to be said for that and I use DFVCP myself at times.

My experience is if you wait until you get a penalty notice and the client has a solid history or filing on time in the past the chances of a full waiver are good. But you are risking the need for IRS mercy. This part of the IRS is less revenue driven then other parts.

So the choice is a known penalty vs a chance to have a zero penalty.