Rash of inaccurate 5500 late filing penalties from IRS

[RayJJohnsonJr]

Over the last two years we have experienced a spike in the IRS assessing late filing penalties on 5500s which were filed on a timely basis. The penalties have always been in the $1,000s and a few days ago a client received a late fee letter on a plan that was never installed and has never filed a 5500 on a tax ID that was obtained 15 years ago. The penalty is $25,000. We usually get the IRS to correct these and eliminate the penalty with our first letter to the IRS, but sometimes it takes two and three letters to get the IRS to relent. 

 

Is anyone else experiencing this problem?

[cathyw]

I just heard from a client this week that they received two notices from the IRS dated the same date (Nov. 7, 2022).  The first notice was approving the request for an extension for the 2021 Form 5500, that was filed in July 2022, until Oct 17.  The return was filed electronically before the extended due date.  The second notice was a penalty assessment for late filing of the 2021 Form 5500 for $16,000!!

It seems the IRS is issuing these penalties before they have even had a chance to record the extension approval.  Still trying to get this resolved.

[RatherBeGolfing]

31 minutes ago, cathyw said:

It seems the IRS is issuing these penalties before they have even had a chance to record the extension approval.  Still trying to get this resolved.

It is the famous IRS notice generator issue.  It takes time for the extension to be entered into the system.  Last I heard, it was still mostly a manual process.  The process has been even slower the last few years.  If the return is recorded before the extension, a late notice is generated and mailed automatically.   There is also a delay between when the 5558 is entered and when the system recognizes the extension.

[Kevin C]

Unfortunately, this problem goes way back.  I had a client that had this happen two years in a row about 10 years ago.  Got a 2848 signed and waited on hold for a live person. That took care of the issue and even got an apology. But, the damage was already done.  Even if it's a mistake, no one likes getting a penalty letter from the government. After receiving the second letter, their Board started looking for a new TPA and moved the plan.  I contacted ASPPA about it at the time. They went to the IRS about it, but not much changed.

Most of our clients received the letter "approving" the extension of their calendar year 2021 returns around the first of November.  I haven't heard of anyone receiving penalty letters yet.

[NZtpa]

No Penalty letters yet but a lot of letters denying extensions this week. We mailed 12/31/2021 extensions in bulk via certified mail that show with usps tracking that they were delivered prior to the 7/31 deadline. The stamp on the certified mailer back however shows a receipt date of 8/8. The IRS appears to be rejecting them all one by one as attempted to file late. They were postmarked and delivered on time.  This appears to be a logging error with IRS where we now have to dispute timing. 12/126 have forwarded letters so far this week. Just waiting on the second wave for the late filer penalties. What a waste of time. 

[RayJJohnsonJr]

Thanks to all of you for sharing your experiences. Maybe if they assign the new 85,000 IRS agents to 5500's, they could improve their accuracy.

Thanks again.

[Hojo]

What we really need is to push to eliminate the 5558 all together and just make the deadline for 5500's and SSA's 10/15 (or the equivalent for off-calendar).

[chc93]

Well... hopefully this 5558 problem goes away by itself.  There is work in progress to allow 5558 to be electronically filed through EFAST2.

2022-21584.pdf