Form 5500 Sans Audit Report

[austin3515]

We had a 6/30/2021 filing sent in without the audit report around April 15, 2022 and within 45 days the IRS had sent a penalty assessment letter (around $20,000) which appeared to us be a significant change in approach.  Can others indicate whether or not they had similar experiences?  We used to just file without the audit and amend when it was available.   But now I'm wondering if a change in approach would be to not file at all and use the DFVC.

Has anyone else had to deal with this?

[RatherBeGolfing]

Hey Austin,

So they sent a CP-283 right off the bat?  Or a 403/406 notice?

[EBECatty]

I'm assuming you mean a 6/30/21 PYE timely filed on 4/15/22?

In my experience, the DOL usually sends the 45-day correction notice for a timely filed 5500 with no audit attached. While I understand either IRS or DOL can penalize for an incomplete return, the IRS going directly to penalties does seem like a deviation from prior practice and might rule out one of the "standard" options for a late audit that it sounds like was used here. In that case, DFVC for the whole filing may be safer, particularly if DFVC can avoid IRS penalties as well.

We usually end of up with a small handful of these situations each year, and will this year, so would be curious to hear others' input as we get close to the filing deadline.    

[austin3515]

1 minute ago, EBECatty said:

I'm assuming you mean a 6/30/21 PYE timely filed on 4/15/22?

yes

1 minute ago, EBECatty said:

In my experience, the DOL usually sends the 45-day correction notice for a timely filed 5500 with no audit attached. While I understand either IRS or DOL can penalize for an incomplete return, the IRS going directly to penalties does seem like a deviation from prior practice and might rule out one of the "standard" options for a late audit that it sounds like was used here. In that case, DFVC for the whole filing may be safer, particularly if DFVC can avoid IRS penalties as well.

100% on the same page. Sort of annoyed it was a 6/30 because it was a population of just 1... 

[austin3515]

17 minutes ago, RatherBeGolfing said:

So they sent a CP-283 right off the bat?  Or a 403/406 notice?

CP-283, penalty was $18,250.  Letter dated May 16, ie. 30 days after filing.

[RatherBeGolfing]

18 minutes ago, austin3515 said:

CP-283, penalty was $18,250.  Letter dated May 16, ie. 30 days after filing.

Ok. So you aren't disqualified from DFVCP (CP-283 would disqualify a one participant plan from relief under the IRS late filer program) but its a big change from a "hey your filing is incomplete, fix it within 45 days" letter.

I just had this conversation with someone in my office this morning, and I may need to revisit that discussion if this is the new normal...

[austin3515]

32 minutes ago, RatherBeGolfing said:

Ok. So you aren't disqualified from DFVCP (CP-283 would disqualify a one participant plan from relief under the IRS late filer program) but its a big change from a "hey your filing is incomplete, fix it within 45 days" letter.

Right but the question is if they are doing this automatically, do you just not file based on the notion that it will take them a lot longer to catch up with the non-filers as opposed to the incomplete filings (which they know immediately).  Then you do the DFVC anyway and just avoid that $18,000 penalty letter.

[austin3515]

So far no one else has said "it ahppened to me too" so I'm wondering if it was just a fluke too.

[RatherBeGolfing]

5 minutes ago, austin3515 said:

Right but the question is if they are doing this automatically, do you just not file based on the notion that it will take them a lot longer to catch up with the non-filers as opposed to the incomplete filings (which they know immediately).  Then you do the DFVC anyway and just avoid that $18,000 penalty letter.

 

4 minutes ago, austin3515 said:

So far no one else has said "it ahppened to me too" so I'm wondering if it was just a fluke too.

Well, I'm not sure that it will take them a lot longer to catch up.  The DOL has been systematically looking at filing about 30 days after the due date.  If you haven't filed, they send an email saying something along the lines of "your last 5500 had participants at year end and wasn't final, so you should have filed your 5500 month" .  You have a few weeks to file DFVCP.  This might give you longer than your current example though.

There is a webinar on retroactive corrections later today, I'll float the question there to see if anyone else has had this experience.

[EBECatty]

I wouldn't be terribly surprised if this was intentional to curb the use of the automatic 45-day extension. Maybe we'll see more of them around November/December this year. The 45-day correction period is statutory, so the DOL can't simply eliminate it, but it certainly wasn't intended for the purpose at issue here.  

[RatherBeGolfing]

7 minutes ago, EBECatty said:

The 45-day correction period is statutory, so the DOL can't simply eliminate it, but it certainly wasn't intended for the purpose at issue here.

That's what I'm thinking too.  The DOL seems to be more efficient at finding late/incomplete filers early on, so it wouldn't surprise me if they are sharing with the IRS...

[Belgarath]

Might be useful

https://retirementlc.com/filing-form-5500-without-an-audit-report/

[Luke Bailey]

austin3515, I assume the client did file the IQPA by the end of May, so you are good with DOL, and your issue is that although you are not delinquent with DOL, the IRS penalty could apply since you didn't use DFVCP?

[austin3515]

3 minutes ago, Luke Bailey said:

austin3515, I assume the client did file the IQPA by the end of May, so you are good with DOL, and your issue is that although you are not delinquent with DOL, the IRS penalty could apply since you didn't use DFVCP?

Not really.  The issue here is more global.  Is the DOL/IRS chaging it's approach for enforcing the deadline for having audits complete?  If so, then we need to change our approach accordngly.  The issue with this client is resolved and not at issue.

[Sabrina1]

Could it be the fact that the plan only covers one participant?  One-participant plans are not required to file a 5500 under the DOL, only the IRS?

[EBECatty]

My understanding - someone please correct me if I'm wrong - is that the plan can only file a 5500-EZ as a one-participant plan if there are no other participants during the entire plan year. Here, there clearly were over 100 participants at the start of the plan year, or else they would not have needed an audit. Maybe if the final filing listed one participant all year the DOL would not get involved, but that would seem contradictory to the audit requirement for the same plan year. Perhaps there are further facts that would be helpful.

[Luke Bailey]

5 hours ago, austin3515 said:

The issue here is more global.

austin3515, I'm not good with global issues. Is this a small plan that needs an audit because of its assets, or a large plan?

Someone please correct me if I'm wrong on this, but it would seem that a plan that qualifies to file a 5500-EZ (which may not be involved with austin3515's question at all; I'm just asking) would not need to have an audit, even if it's assets did not qualify for the audit exemption for a small plan under 29 CFR 2520.104-46. Such a plan would not be subject to ERISA (which is the source of the audit requirement) and the 5500-EZ instructions make no mention of an audit.

[austin3515]

I decied not to address the bit about 5500-EZ but I will now.  Not sure where that came from.  This is just a plain vanilla large company with a 401k.  It could be any company.  Not sre what you mean about not being good with global issues.  The question is global. Has the DOL changed it;s approach for plans that don;t file audits?  That's the question.  From what I can tell others are interested in knowign the answer too.

To be more clear I'm not looking for any advice on how to handle a unique client circumstance.  I'm trying to determine if we need to change our approach in response to a POSSIBLE change in approach by the DOL.  I need to know if the DOL changed its approach.  That's it.

I definitely am noting that no one else has responded and said "me too" so perhaps ours was an odd-ball one-off.

Edit: As of this posting there are 193 views.

[RatherBeGolfing]

9 hours ago, austin3515 said:

To be more clear I'm not looking for any advice on how to handle a unique client circumstance.  I'm trying to determine if we need to change our approach in response to a POSSIBLE change in approach by the DOL.  I need to know if the DOL changed its approach.  That's it.

Yea this is the answer I'm looking for as well.  I have never been a fan of the "attach a statement saying the audit isn't ready just to get it through EFAST" approach, but the fact that DOL has to give you 45 days to fix it has had me use it on occasion.  If the DOL is sharing their data with IRS (who is not required to hive 45 days) that really does change things up a bit.  I don't mind a change, I just want to know best practice of addressing the issue going forward.

[austin3515]

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

[Luke Bailey]

2 hours ago, austin3515 said:

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

austin3515, I had a similar experience a few years ago. The 45 days is statutory and also in the regs. DOL has to give it to you for purposes of its penalties. I think the 45 days runs from the date of their letter, not the date the 5500 should have been filed. Does the letter make this clear one way or the other?

[RatherBeGolfing]

14 hours ago, austin3515 said:

FYI, we received our first correspondence from the DOL on a missing audit report.  It was just a nice email from your very friendly DOL Chief Accountant that the filing excluded the audit report. 

So no $18,000 penalty from the IRS, so that was nice to see.  An auditor friend of mine received a similar correspondence so it seems as though they have replaced their draconian whack you over the head approach with a more practical position. 

We got some of them as well, all sent on 12/1.  The interesting thing is that all the emails mention possible penalties if you fail to revise your filing, but they do not address a due date or the 45 days.

[Sabrina1]

We got one as well sent on 12/1.  The email mentions possible penalties if you fail to revise your filing, but they do not address a due date or the 45 days.

[Luke Bailey]

Per the regulation (See 29 C.F.R. 2560.502c-2(b)(3)), you've got 45 days from the date of the notice, and penalties will begin accruing as of the day following the end of the 45-day period if you don't file the IQPA by the end of the 45-day period. I doubt the DOL will not follow that rule. My guess is they should have told you that in the letter, but maybe they have decided to be more generous than their reg. Seems very unlikely.

Does the letter cite the reg? If so, that may be their way of informing you of the deadline.

[RatherBeGolfing]

45 minutes ago, Luke Bailey said:

Does the letter cite the reg? If so, that may be their way of informing you of the deadline.

No reg cited in the emails

[austin3515]

The more I think about it, the email seems like a courtesy. I wonder how many of those emails that are sent relate to the sponsr at Bundled Provider, Inc. who just submitted without realizing the pdf needed to be attached.  I'll bet it;s a fair amount.  And then there are those that were legitimately late, but now that the audit is finished, the amended was never done.  That's also common.  We have definitely followed up with the auditors and gotten the response "oh we finished that 6 weeks ago!"

[Luke Bailey]

41 minutes ago, RatherBeGolfing said:

No reg cited in the emails

Interesting. Hmmh....

[RatherBeGolfing]

@Luke Bailey I have removed identifying and DOL contact information.  the below is the body of the email

Dear Plan Administrator

Our records indicate that you have failed to attach an Accountant’s Opinion, audited financial statements and accompanying footnotes to the above referenced 2021 Form 5500. Your Plan contains assets, liabilities and/or income and does not meet any of the exceptions to the requirement of attaching a report of an Independent Qualified Public Accountant. 

To avoid the U.S. Department of Labor’s rejection of this annual report and possible assessment of civil penalties against the Plan Administrator, you must amend the 2021 Form 5500 Annual Report and attach the required Accountant’s Opinion, audited financial statements, accompanying footnotes and required supplemental schedules.

[RatherBeGolfing]

3 hours ago, austin3515 said:

The more I think about it, the email seems like a courtesy. I wonder how many of those emails that are sent relate to the sponsr at Bundled Provider, Inc. who just submitted without realizing the pdf needed to be attached.  I'll bet it;s a fair amount.  And then there are those that were legitimately late, but now that the audit is finished, the amended was never done.  That's also common.  We have definitely followed up with the auditors and gotten the response "oh we finished that 6 weeks ago!"

That has been my interpretation of the email, its just a courtesy.  Very similar to the DOL emails that let you know the DOL expected a return but do not have a record of one being filed.  When those started going around, ARA had to confirm with DOL that the emails did not count as being notified in writing by DOL of a failure to file a timely report (which would make you ineligible for DFVCP)

 

[RatherBeGolfing]

21 hours ago, Luke Bailey said:

austin3515, I had a similar experience a few years ago. The 45 days is statutory and also in the regs. DOL has to give it to you for purposes of its penalties. I think the 45 days runs from the date of their letter, not the date the 5500 should have been filed. Does the letter make this clear one way or the other?

You can find some good info in the Reporting Compliance Enforcement Manual.  That said, there is a disclaimer on an earlier page that states that the manual is for internal use only and does not confer on any person a right to rely on any policy or procedure therein.  So, its strictly for our reading pleasure.

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement/oca-manual/chapter-8

Chapter 8 lists letter types and I believe what we are discussing is a notice of rejection.

Notice of Rejection

NOR Defined

Which Cases	The NOR is used on deficient filer cases.
Analyst Action Period	If first correspondence: Within 15 days of assignment if a merge file for automatic letter generation has been created. If no such file exists, then 30 days from assignment. If Inquiry was issued: Within 30 days from the receipt of a response or the expiration of the response period, whichever is less.
Preceded By	The NOR can either be preceded by an Inquiry letter, or be the first correspondence.
Followed By	A closing memo and Notice of Satisfactory Filing if the issues are resolved. Otherwise, a Notice of Intent to Assess a Penalty.
Response Period	The filer has 45 days from the date of the letter.
Closing Reasons	Administrative, Bankrupt/Terminated, Undeliverable, No Deficiency, Filer Has Demonstrated that the Filing Was Satisfactory, A Filing Was Not Required.
Certified?	The NOR is ALWAYS mailed certified or overnight delivery. The green card or other proof of delivery must be attached to the letter.
Dated?	The NOR is not dated by the analyst, unless instructed otherwise.
Signed By	The analyst
Review Block?	Yes

As with all letters, the official template is located on the L drive. It is required that this version be used. Usage of different versions may result in the case being returned to the analyst.

The purpose of issuing the NOR is to notify filers of deficiencies in their annual report filings submitted to the Department and to afford them the opportunity to voluntarily comply with the required rules and regulations. The goal is to receive an acceptable amended annual report filing without advancing to the next level of correspondence, which may result in penalties.

If an Inquiry letter was issued on a Deficient filer case, and a satisfactory response is not received within the required time period, the next step is the issuance of a NOR. The NOR includes all the reporting and disclosure deficiencies noted by the analyst.

The NOR requires a response from the plan administrator within 45 days of the date of the NOR. The 45-day period is statutorily required pursuant to Section 104(a)(5) of ERISA which provides the plan administrator 45 days to submit a revised annual report filing satisfactory to the Department of Labor before any further enforcement action can be taken.

Upon receipt of a response to the NOR, the analyst shall perform a review of the information submitted to determine whether:

• The plan administrator has corrected all of the deficiencies cited in the NOR and submitted an acceptable amended annual report filing; and
• The response was received timely, within 45 days of the date of the NOR. It is the policy of OCA to use the postmark date of the response to the NOR as the receipt date.

If all of the deficiencies cited in the NOR have been satisfactorily corrected, the analyst will close the case and prepare a Notice of Satisfactory Filing and a Case Closing Memo.

If the plan administrator fails to respond to the Notice of Rejection within the 45-day period, or fails to provide a revised annual report filing satisfactory to the Department, the analyst will issue a Notice of Intent to Assess a Penalty. This also applies if the filer sends the correction after the 45-day response period but before the NOI has been issued.

 

[Peter Gulia]

Another retirement plan’s administrator that filed a Form 5500 report on 2021 without an independent qualified public accountant’s opinion is Trump Payroll Corp., the sponsor and administrator of the Trump Payroll Corp. 401(k) / Profit Sharing Plan.

See pdf page 22 of 23.

(I didn’t look for this; I stumbled across it while searching for a different plan.)

Trump Payroll Corp 401k 2021 5500 20221017112257NAL0029732609001.pdf

[Kansas401k]

I'm jumping on this thread because it's the most similar situation I can find already addressed on benefitslink. 6/30 PYE 5500 is due April 15. Audit is not complete - only because the TPA's SOC-1 is not complete. Any relief here for the plan sponsor when it's out of their control? I'm assuming no but throwing this out there for input. Thanks. 

 

[RatherBeGolfing]

8 hours ago, Kansas401k said:

I'm jumping on this thread because it's the most similar situation I can find already addressed on benefitslink. 6/30 PYE 5500 is due April 15. Audit is not complete - only because the TPA's SOC-1 is not complete. Any relief here for the plan sponsor when it's out of their control? I'm assuming no but throwing this out there for input. Thanks. 

 

So 6/30/22 PYE and most recent TPA SOC covers 1/1/21-12/31/21?

1.  TPA can get gap letter to cover 1/1/22-6/30/22

2. IQPA can make a note that it wasn't available yet

3. Question why the IQPA requires the TPAs SOC. Plenty of small TPAs don't have a SOC audit and work on large filers.

[Bill Presson]

15 hours ago, RatherBeGolfing said:

So 6/30/22 PYE and most recent TPA SOC covers 1/1/21-12/31/21?

3. Question why the IQPA requires the TPAs SOC. Plenty of small TPAs don't have a SOC audit and work on large filers.

If the TPA is running the daily val platform, that would be the reason.

[austin3515]

Not having a SOC1 in and of itself doesn't mean they cant finish the audit.  It just means they can't place any reliance on the recordkeepers controls and have to do more testing.  Obviously no one wants to do that, but that's an important distinction in terms of why the client isn;t able to file the audit report.  

Not to be confused with the fact that I would not finish the audit either (if I was the auditor), I would want to wait for the SOC1 to be finished. If the DOL comes calling, I would not hesitate to throw the recordkeeper under the bus.

I agree a traditonal TPA (such as yours truly) doesn't have a SOC1 (we're not doing high volume/systems heavy work).  So if they are waiting for a plain vanilla TPA to produce a SOC1 they'll be waiting a long long time!  We definitely get asked for our SOC1 all the time so it's a common question.