15,000 Penalty for Late 5500

[goldtpa]

Company with 10 employees fails to file a final 5500 in 2013. In 2015 they receive letter from IRS stating the 2013 5500 was not received. Company responds to IRS by sending IRS a 2013 5500 EZ, signed and dated in 2015. The 2013 5500 shows $0 for the beginning of the year assets and 0 employees in the beginning of the year. Company gets letter from IRS assesing $15,000 penalty.

I was going to amend the erroneously filed 5500 and ask IRS to reduce the penalty to $750. Thoughts? Thanks in advance.

[Lou S.]

Was 2012 the final year of the plan? I don't see how they can have 0 participants and 0 assets in 2013 and need to file a return.

Or do you mean the return shows 0 participants and assets at the end of the year?

[goldtpa]

Lou

They filed an SF in 2012. Never filed 2013. After receiving the IRS notice stating that a 2013 5500 was not not received, they filed a 5500-EZ showing no assets and no employees at the beginning and ending of the year. They used the 2013 form and signed it in 15.

The question is, do you ........

1. ask IRS for a reduction in the penalty

2. amend the 5500-EZ filing to an SF. Fill in the appropriate info and ask for a reduction.

3. Try to file through DFVC (which I don't think you can do since a form has already been filed and filed late)

[RatherBeGolfing]

A few things don't add up here...

If they filed $0 BB and 0 participants beginning of rhe year for 2013, shouldn't 2012 have been your final year?

The 2013 filing, EZ or SF does not make sense.

You can do DFVC even if you already filed the 5500. What you cannot do is DFVC with an EZ (there is another program for that)

[goldtpa]

They filed a 2012 SF with 10 employees at the end of the year and with assets at the end of the year. In 2013, the plan was terminated and the money disbursed. However a 2013 5500 was not done. After the IRS sent them a notice stating that the IRS did not have a 5500 for 2013, they filed a 2013 EZ while dating it in 2015. Obviously they are not allowed to file an EZ for 2013. Why the EZ showed all zeros is also a mystery. However, the question is, whether the appropriate SF can be filed now, through the DFVC, even after an EZ was filed with the IRS and a penalty imposed.

If a 5500 was never filed, I would say that a 5500 could now be filed with the DFVC. However since a 5500 was filed in 2015 for the 2013 plan year, I am concerned that the IRS may look at this as a false filing and impose larger fines and penalties.

[RatherBeGolfing]

Get a POA and contact the IRS, I have no doubt they will work with you to get it corrected.

You will be able to do DFVC because you still haven't filed the 5500-SF for 2013.

[ETA Consulting LLC]

I don't want to appear too blunt and want to provide as much relevant information as possible. When the IRS reaches out for information, this matter should be taken seriously. When it's not, these letters start to fly (and they are automatically produced by computers). So, it would behoove the client to obtain the services of someone who actually represents clients before the IRS to provide a reasonable explanation of why the Form 5500 was not prepared and submitted.

Too often, in our industry, that cause is due to the TPA the client has hired actually not following through on ensuring the completion of the reporting. I've seen this happen toooooo many times during my career. When I'm representing a client before the IRS, I never hesitate to suggest to the IRS the extent to which Plan Sponsors rely on skilled professionals to maintain proper compliance and the tendency for many service providers to fulfill those responsibilities.

Again, not the be too blunt, but those $15,000 letters typically go out after the IRS has reached out for explanation and likely received a half-assed response. Given where you are, it's time to think seriously about showing an understanding that this report should've been filed and providing the IRS a reasonable explanation on why it wasn't. This is merely where you are in this process.

Good Luck!

[RatherBeGolfing]

I don't disagree with ETA. However, when the IRS gets a late return, their first correspondence is often "your form is late and based on the # of days the penalty is $15k." That letter also contains information on how to go through the DFVC with a small user fee rather than the 15k. In this case, the return was filed on an EZ so they obvously would not include the DFVC info, and based on the year (2013) Im not sure if its eligible for the EZ program.

In any event, it should be taken seriously and requires immediate attention.

[goldtpa]

I don't disagree with ETA either. RBG they were not eligible for an EZ filing as they had 10 employees at the end of the 2012 year.

Essentially what this comes down to is whether the plan falsely filed a 5500 EZ and whether they can still use DFVC; even after filing the EZ and getting the penalty letter.

RBG I am going to follow your advice and get a POA. Thanks.

[Earl]

I have had clients get letters from the IRS about late filings and at that time filed a 5500 with the DOL using DFVC and not had a problem.

I would send the IRS a copy of the 5500 downloaded from the IRS website saying "EZ filed in error, here is the DFVC filing."

My experience shows that would end all correspondence.

[thepensionmaven]

Similar question, but

CPA asks...

Given IRS penalty for late filing $25 per day, 5500-SF not filed by 30th day after date 5500 due by extension date, does Employer/ Plan Sponsor file under DFVC and pay $750 with 5500-SF, check appropriate box on the Form now or wait until IRS Notice (Letter) asking for the filing.

Also asked about the time-frame between filing due-date with extension and date IRS queries the filing.

I assume CPA asking what would happen if Sponsor were to file under DFVC after receipt of IRS asking for the Form as long as no DOL letter received.

[thepensionmaven]

Also, if there is reasonable cause why 5500s filed late and Sponsor does receive notice frm IRS; and no DFVC filed by due date, does Sponsor file at that time and claim reasonable cause when IRS Letter received?

[BG5150]

Side note: who prepared the obviously incorrect EZ?

[goldtpa]

BG 5150. who else would do that? The client.