Timely 5500-EZ, Delinquent Schedule SB

[Dougsbpc]

We administered a 1 participant defined benefit plan for a number of years. The plan had a 30% investment loss one year and the business owner got upset with us when we gave him the minimum contribution for the year. It was, of course, somewhat higher than in previous years. In any event, he left us. A year later he came back. It turned out he prepared and filed the 5500-EZ timely and the company funded the plan properly. The only problem is no schedule SB was prepared or filed for that year.

So the 5500-EZ was filed on time but we will need our actuary to currently sign the schedule SB that should have been signed about a year ago.

I would think if the plan were audited, we would get charged the $1,000 for a late schedule SB. Do you think that because the schedule SB is part of the 5500-EZ that we would also be charged $25 per day for a delinquent filing of the 5500-EZ?

We could file under the delinquent 5500-EZ program, but the instructions indicate that they do not want the schedule SB included in the submission. This because it was not required to be filed in the first place.

 

[My 2 cents]

What do you mean "we" would be charged $1,000 for a late Schedule SB?  All 5500-related  fines are assessed against the sponsor, not the actuaries!  True,  to the extent that the actuaries would have been at fault,  the tendency would be for the actuary to make it up to the sponsor,  but that is absolutely not the case here.  If the sponsor is hit with fines, tell them it was because they did it wrong, not you, and refuse to compensate them.

[WDIK]

Wouldn't if be hard to complete line 11a of the EZ if there were no SB?

[Dougsbpc]

All good points. The client knows he did a bad thing. I think he would be perfectly willing to file under the 5500-EZ delinquent filer program if it would help. I just don't want to run into a situation where they pay the $500, we file for them and the IRS rejects the submission because they "have a timely filed 5500-EZ" on record. 

The other option is just to have the schedule SB completed and signed now. If the plan were ever audited, the late signing would probably be caught. In this case, if the penalty were $1,000 it may not be the end of the world. But if the penalty were $15,000 that would be a problem.

I suppose we could file an amended return just after the SB was signed and then go through the delinquent filer program.

[thepensionmaven]

My question is - why would you file Schedule SB with a 5500-EZ when the instructions specifically state the SB is not to be filed?

https://www.irs.gov/instructions/i5500ez/ch01.html#d0e197

 

 

[Dougsbpc]

We would not file the SB, we would just hold on to it. However, by filing an amended 5500-EZ just after the SB was signed, we may establish a separate filing. You might ask why would you want to establish a separate filing? Our explanation would be that preparation and certification of the SB is an integral part of the 5500-EZ and that we discovered the first filing was incomplete because a schedule SB was not certified as of the initial filing. Therefore, we are now filing a complete late return hopefully eligible for the 5500-EZ late filer program.

[Bird]

What part(s) of the return would you be amending?

[thepensionmaven]

I still do not see a reason for an amended return, since the Schedule SB was not required in the first place.

 

You would not be amending anything on the 5500-EE that was initially filed.

[Dougsbpc]

What I wish we could do is have the schedule SB certified now and submit it under the 5500-EZ delinquent filer program. Pay $500 and get a letter of acceptance that the entire 5500-EZ and Sch SB are considered to have been filed timely.

I woke up from that good dream and realized that may not be possible so nothing is done.

Two years go by and the plan is chosen for audit. The IRS notices the 5500-EZ was filed timely but the SB was not certified until a year later. I hear one of the following from the IRS:

1. No late penalties, after all your 5500-EZ was filed timely and we will just ignore that fact that the schedule SB was not signed until a year after the filing deadline.

2. It will cost you $1,000 for a late schedule SB.  We go back to sleep as $1,000 is not great to deal with but not the end of the world.

3. It will cost you $9,125 in penalties because we consider the entire filing to be late up to the date the schedule SB was certified. We loose sleep for a few months.

Which one do you think we will hear?

[Bird]

I think you are spending way too much time on this.  Everything that is going on here is related to the client's decision to fire you.  You (I would) tell him that if you take no further action now: 

• there is a 99+% chance that nothing will ever happen. 
• there is a .005% chance that there will be a $1000 penalty.
• there is a .001% chance that they will try to assess a humongous penalty, and a .05% chance that if that happens, we can't get it waived.

Let him decide.  (And I would present this in such a way that, while it is clearly his liability, there is no way in a million years that I would actually do anything if I were making the decision.)

[shERPA]

Agree - the Bird is the word!

[Karthik Ramasamy]

I am resurrecting this topic, so I can get some guidance. I maintain my own self employed 401k. I understand I will need to file 5500-ez when the plan gets over 250k. which happened in 2015. (the plan was established in 2012) I did not realize until last week I need to do that. I got the forms ready to do it as part of the 5500-EZ delinquent filer program.  Should I need to the schedule sb - if so who does it.  Do I need the schedule sb for each year since origin or only after it hit 250k.? Do I submit this along with 5500-ez. Any help on these questions much appreciated.

[david rigby]

401(k) plans do not have a Schedule SB (assuming this isn't a "DB-k" plan).

[Karthik Ramasamy]

Are you saying a self employed 401k plan that is not a DB(k) Plan are not required to do schedule sb. and can just do 5500 - ez

we have two owners (me and my spouse). Fidelity just provides me an annual valuation statement.

[david rigby]

From the Schedule SB portion of the 5500 instructions (emphasis mine):

"... the plan administrator of any single-employer defined benefit plan ... that is subject to the minimum funding standards (see Code section 412 and Part 3 of Title I of ERISA) must obtain a completed Schedule SB (including attachments) that is prepared and signed by the plan’s enrolled actuary..."
 

[ESOP Guy]

Are you saying you have NOT filed the required forms since 2015? 

[Karthik Ramasamy]

Thank you David that helps.