Does anybody out there have any experience with filing late returns un

[bzorc]

Does anybody out there have any experience with filing late returns under the DFVC program?

We have unearthed a couple of clients who have never filed Welfare and Flex plans for a period of 3 years or so. (Both plans are subject to filing standards, i.e. Welfare plan has greater than 100 participants) I called the DFVC helpline in Washington, and they gave me a procedure to follow which is pretty straightforward. I'm just curious as to whether anyone has tried this, and what the result was.

In addition, has anyone tried to file a bunch of late returns without paying the sanctions ($5,000 for a 5500 filer if greater than one year late, $2,500 for a 5500-C filer) and just submitting a reasonable cause letter? I used to do a bunch of these back in the late 1980's and get away with it, but did DFVC close this possibility?

Any comments would be appreciated. Thanks.

[pjkoehler]

DFVC definitely works as a penalty abatement tool for both DOL and IRS. The IRS has publicly stated that it will not assert its late filing penalty if the deliquency comes to its attention after a DFVC filing. I had the occaision to test this when a client of mine got the standard IRS late filing penalty after a DFVC filing. When I brought the informal policy to the attention of the IRS staff, he completely backed off and withdrew the penalty notice. A "reasonable cause" statement might work if you have a persuasive (i.e. authentic) "reasonable cause." Reg. Sec. 301.6652(g)-5(B) gives you very little guidance. Ignorance of the filing requirement is probably a nonstarter and, since the statement has to be signed under penalty of perjury, it would be unwise for the employer to embellish the facts.

The DOL has no statutory authority to accept a "reasonable cause" excuse in lieu of imposing the statutory penalty for a late filing (at least that's been the Department's mantra for many years). So, taking the reasonable cause approach to avoid paying the DFVC sanction leaves the plan exposed to the risk that if the IRS doesn't accept the "reasonable cause" statement, you wont have the protection of having made a DFVC filing, so the IRS can hit the plan with the full late filing penalty, as well as the DOL.

[Alonzo]

Has the IRS position been reported anywhere?

[Guest FredReilly]

I have filed a fair amount of delinquent returns for 125 and welfare plans (around 100 or so). I have never filed a DFVC on a 125 plan as I believe the filing requirement occurs solely under 6039D of the Internal Revenue Code. Since all 125 plans that I have run into are unfunded, they seem to meet the DOL exemptions. In some cases I have filed returns for as many as seven years. All were filed directly with the IRS with a Reasonable Cause statement and I have never had a late filing penalty assessed. I have found the IRS to be very simpathetic and cooperative. I have never once had the DOL become involved.

I have filed under DFVC for 100+ welfare benefit plans were the size of the plan made the expense acceptable considering the potential exposure. My experience there was that when filing simultaneously with the IRS and indicating on the return that it was a DFVC case, no assessment occurred.

[Kirk Maldonado]

My experience has been the same as Fred's. In other words, if you file before the IRS catches you, they will accept (virtually) anything as reasonable cause for not having filed it on time.