IRS letter late filing

[pmacduff]

Small plan (less than 100 participants) client filed the 2018 5500-SF this year when filing the 2019 5500-SF when it was discovered that 2018 had not been filed.   All previous filings since plan inception (1992) have been timely.  Client received a letter from the IRS with regard to the 2018 late filing and a penalty assessment of $87,000!  The IRS letter references the new penalty amount of $250 per day "effective for forms required to be filed after December 31, 2019".

The size of the assessed penalty aside (!) any idea why they would use the new penalty amount for the 2018 filing? 

As referenced in other posts, the client has filed under DFVC with the DOL and paid the $750.  Copies of same will be forwarded to the IRS and hopefully penalty will be abated.  Needelss to say $87,000 would be a great financial hardship for this small client. 

[RatherBeGolfing]

15 minutes ago, pmacduff said:

any idea why they would use the new penalty amount for the 2018 filing? 

The requirement to file the return is still there after you miss the due date, so I guess any late return filed after 12/31/19 was required to be filed after 12/31/19

[pmacduff]

Thanks RBG - semantics????

[st3rv]

Hello,

I apologize for posting in the same thread, but I am facing the same issue. Tax year 2018, required to be filed by July 31, 2019 and assessed a penalty of $89,000 based on the new $250/day fee for "forms required to be filed after 12/31/2019."

This is devastating and I have no way to pay this amount (Keogh plan has only $8,000 on it and its just me, was I even supposed to file?). I have applied for DFVCP but I am unsure if still eligible after receiving the CP-283 penalty notice from IRS (I filed a "regular" form 5500).

[JustMe]

Is it not true that a plan is still eligible for DFVC even if the plan sponsor receives a letter from the IRS or has that changed? This will reduce the penalty significantly.

Q12. May plans participate in the DFVCP if they have already received correspondence from the Department or the IRS?
Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the Department of a failure to file a timely annual report under Title I of ERISA.
An IRS late-filer letter will not disqualify a plan from participating in the DFVCP.
A Department of Labor Notice of Intent to Assess a Penalty will always disqualify a plan.

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/dfvcp.pdf

Anyone else agree? Disagree?

[Bird]

8 hours ago, JustMe said:

Anyone else agree?

Agree, but maybe not necessary.

st3rv, it might be that you triggered this by filing the wrong form (regular 5500).  If it was not required, you may be able to fix this by filing an amended return, a 5500-SF with the "one participant" box checked (or a 5500-EZ but I think the SF is better).  I strongly suggest you get some help from a local (or not so local) third party administrator - plead some mea culpas for trying to do it yourself.

Thanks for posting.  It's a poster child for how these do-it-yourself plans give you enough rope to hang yourself.

[JustMe]

Sorry, but I was somewhat trying to reignite this question to see how others have experienced success with going through DFVC once the IRS has issued a penalty. When the IRS issued the penalty, the client's attorney requested abatement of fees and the request was denied. Does the client still have access to DFVC or is the IRS penalty what is required?

[RatherBeGolfing]

6 hours ago, JustMe said:

Sorry, but I was somewhat trying to reignite this question to see how others have experienced success with going through DFVC once the IRS has issued a penalty. When the IRS issued the penalty, the client's attorney requested abatement of fees and the request was denied. Does the client still have access to DFVC or is the IRS penalty what is required?

What was the full timeline here?  When was the form due?  When was the first IRS notice received?  When did the attorney request abatement? etc

The CP-283 issue comes down to 5500/SF vs EZ.  EZ filers are not eligible for DFVCP, they have to use the Penalty Relief Program for Form 5500-EZ Late Filers.  Under the IRS penalty relief program, you are not eligible if you have received a CP-283.  If you request reasonable cause relief and it is denied, a CP-283 is issued and you are no longer eligible for the penalty relief program.

The details are going to be very important.  

[JustMe]

3 hours ago, RatherBeGolfing said:

The CP-283 issue comes down to 5500/SF vs EZ.  EZ filers are not eligible for DFVCP, they have to use the Penalty Relief Program for Form 5500-EZ Late Filers.  Under the IRS penalty relief program, you are not eligible if you have received a CP-283.  If you request reasonable cause relief and it is denied, a CP-283 is issued and you are no longer eligible for the penalty relief program.

The details are going to be very important.  

 

That's why I love this platform. You are absolutely correct, at the time of THIS filing, the plan was a "soloK" plan required to file a Form 5500-EZ and the client received a CP-283 letter.  

Yikes, this penalty is steep for this little plan. 

Thank you!

[Mike Preston]

2 hours ago, JustMe said:

That's why I love this platform. You are absolutely correct, at the time of THIS filing, the plan was a "soloK" plan required to file a Form 5500-EZ and the client received a CP-283 letter.  

Yikes, this penalty is steep for this little plan. 

Thank you!

The client's attorney has some explaining to do.

[st3rv]

First of all, thank you for your help!

I have filed the form 5500 for previous years (timely) and it appears to have always been accepted, although by reading the instructions it may have been the wrong form all along! I have submitted a DFVC application and responded to the CP283 notice by providing proof of such.

Bird- wouldn't I get a similar penalty for filing amended form 5500-SF/EZ late and still need to apply for relief from DOL/IRS?

Going back to pmacduff's original question, the penalty notice states "The penalty for failure to file is $25 per day. For returns required to be filed after 12/31/2019, the penalty is increased to $250 per day". How can a 2018 plan year required to be filed by 07/31/2019 be subject to the $250 per day penalty? Bad IRS programming for these penalty bills?

 

[Bird]

11 hours ago, st3rv said:

Bird- wouldn't I get a similar penalty for filing amended form 5500-SF/EZ late and still need to apply for relief from DOL/IRS?

You said that you only had $8000 in in the plan, so a return wasn't needed at all, unless you had employees.  My thinking was that an amended return couldn't be late since it isn't required.  But I guess they could say "gotcha - it's optional but you chose to file and your optional return was late."  (But you haven't actually filed?)  If you already did the DFVC filing then that should take care of it, but I think a case could have been made that you didn't need to file at all and just decided to stop your optional filings.  I'm a bit all over the place because I'm not sure about the fact pattern but it appears you created a problem by trying to do things yourself and are now trying to fix things yourself and maybe you are being penny wise and pound foolish.

[st3rv]

That's right, attempting to do this all by myself was definitely not a good idea! I have applied immediately for DFVC as although there is a fee it seems to have the best chance at getting an abatement ?

I'm really curious about the IRS/SECURE Act language stating "The penalty for failure to file is $25 per day. For returns required to be filed after 12/31/2019, the penalty is increased to $250 per day". How can a 2018 plan year required to be filed by 07/31/2019 be subject to the $250 per day penalty? Why would lawmakers go to the trouble of adding "required to be filed after..." and not simply write "filed after..." if older plans are also subject to the new penalty? The distinction must be there for a reason.

[Bird]

17 hours ago, st3rv said:

How can a 2018 plan year required to be filed by 07/31/2019 be subject to the $250 per day penalty? Why would lawmakers go to the trouble of adding "required to be filed after..." and not simply write "filed after..." if older plans are also subject to the new penalty? The distinction must be there for a reason.

Fair Q.  Probably a programming mistake.  Wouldn't be the first time.

[RatherBeGolfing]

If anyone has received one of these notices and is willing to share a copy without the identifying information, we can try to get an answer through ASPPA/ARA.   

Thanks

[st3rv]

4 hours ago, RatherBeGolfing said:

If anyone has received one of these notices and is willing to share a copy without the identifying information, we can try to get an answer through ASPPA/ARA.   

Thanks

Hello all - attached you will find such notice with what I believe is a miscalculation of the penalty. 

 

IRS edited.pdf

[RatherBeGolfing]

2 hours ago, st3rv said:

Hello all - attached you will find such notice with what I believe is a miscalculation of the penalty. 

 

IRS edited.pdf 563.82 kB · 4 downloads

Yep, sure looks like a calculation issue to me.  I'll update as soon as I hear anything.

[JustMe]

Just an FYI - I spoke directly to the DOL and they confirmed, so long as a client has not received a notice to assess a penalty from the DOL, the plan is still eligible for DFVC. 

[RatherBeGolfing]

It is a glitch/processing issue at IRS.  If you contact the IRS they will get it corrected.  Phone wait times are probably going to be long, but it is your quickest option.  Fax is second best, I would not send regular mail at this time.  Good luck!

On 8/21/2020 at 12:29 PM, st3rv said:

Hello all - attached you will find such notice with what I believe is a miscalculation of the penalty. 

 

IRS edited.pdf 563.82 kB · 8 downloads

 

On 8/6/2020 at 3:29 PM, pmacduff said:

Small plan (less than 100 participants) client filed the 2018 5500-SF this year when filing the 2019 5500-SF when it was discovered that 2018 had not been filed.   All previous filings since plan inception (1992) have been timely.  Client received a letter from the IRS with regard to the 2018 late filing and a penalty assessment of $87,000!  The IRS letter references the new penalty amount of $250 per day "effective for forms required to be filed after December 31, 2019".

The size of the assessed penalty aside (!) any idea why they would use the new penalty amount for the 2018 filing? 

As referenced in other posts, the client has filed under DFVC with the DOL and paid the $750.  Copies of same will be forwarded to the IRS and hopefully penalty will be abated.  Needelss to say $87,000 would be a great financial hardship for this small client. 

 

[st3rv]

Wow what a glitch considering it is a 10 fold increase! Thank you so much for all the help! I am currently awaiting the DFVC decision.

[eepl5]

I just  got a letter from the IRS.  My situation is slightly different.  I opened the account in 2015, and apparently filed the 5500 for 15, 16 and 17.  But 18 was missing.  Paychex told me they didn't generate one due to the amount in the account.  I asked them  to send me a form 5500 for 2018, and they sent it to me. they had to generate it.  I had intended to close it, but was not given any specific guidance on what to do.  There was only $62 in the account at that time.  We have no employees, just family owned business.   My husband, my self and our two boys.  So, basically we set it up, but didn't fund it.  I may have taken a salary for a short period of time which is why there was a little bit in there, but then dropped doing even that.  My husband  passed away this year.  He was the majority owner beginning 2018.  I had a person from the IRS tell me just to send in a reply that says I was not required to file due to the balance, and not to send in the 5500.  He said to wait until 2021 to send in the final.  Paychex said since they closed it in 2018, that I can't send in a final with a different date.  What do I do?

 

[st3rv]

On 8/25/2020 at 12:26 PM, st3rv said:

Wow what a glitch considering it is a 10 fold increase! Thank you so much for all the help! I am currently awaiting the DFVC decision.

After a 6 months wait, I am glad to report that the IRS sent me a letter informing me that they have waived the penalty entirely! Thank you for all the help!

 

[MikeyL]

Hi there, I am in somewhat the same boat.  I am a one person plan (my wife and I).  I have filed on time for 20 years.  In 2019, I had some personal problems but I still sent in my extension for the 2018 year. I did go online at some point and start to fill out the 5500, but never finished or submitted it.  In my mind I thought I did.  When I went online to file 2019, I realized I did not file.  I immediately wrote to the IRS a letter to try to explain with no answer, and sent it again a month later. I probably flagged them by sending the letter, but I thought it was best.   Finally I got a letter, that said “Thank you for your inquiry, we need an additional 60 days to complete action on your account”.  Then then next letter I get is the CP283 notice with a huge penalty which not only is devastating to my already struggling business, but one I cannot afford.  What is the best way to try to resolve this.  A letter of reasonable cause and any advice on how to structure that.  Thank you.

[RatherBeGolfing]

On 3/27/2021 at 1:02 PM, MikeyL said:

Hi there, I am in somewhat the same boat.  I am a one person plan (my wife and I).  I have filed on time for 20 years.  In 2019, I had some personal problems but I still sent in my extension for the 2018 year. I did go online at some point and start to fill out the 5500, but never finished or submitted it.  In my mind I thought I did.  When I went online to file 2019, I realized I did not file.  I immediately wrote to the IRS a letter to try to explain with no answer, and sent it again a month later. I probably flagged them by sending the letter, but I thought it was best.   Finally I got a letter, that said “Thank you for your inquiry, we need an additional 60 days to complete action on your account”.  Then then next letter I get is the CP283 notice with a huge penalty which not only is devastating to my already struggling business, but one I cannot afford.  What is the best way to try to resolve this.  A letter of reasonable cause and any advice on how to structure that.  Thank you.

Which Form 5500 do you file for your plan?  5500 or 5500-SF (owner and employees?) 5500-EZ (owner only or owner & spouse)

I would not go attempt to get penalty abatement for reasonable cause as you risk making a simple fix more complicated.  Instead, I would use the established correction program available for your version of the 5500.  It includes a user fee but it is worth it. 

The 5500 and 5500-SF uses The Delinquent Filer Voluntary Compliance Program (DFVCP) through the DOL.  User fee is $750 per late return.

Penalty Relief Program for Form 5500-EZ Late Filers is available through the IRS. User fee is $500 per late return.

Do you work with a TPA for your plan or do you do all plan related things by yourself?  If you have a TPA, they can certainly help you fix the late 5500.