Ever filed amended 5330 to try to get money back?

[Guest boberlander]

We have a client that has been a chronic late-depositer of 401(k) contributions. They are currently being audited by the DOL re: 1997 and 1998 late deposits. They have yet to file a 1999 5330 for same reason. Turns out that after 1998, they paid 15% tax on entire payroll amounts that were not deposited (about $5,000). My understanding is that, normally, tax would be paid on amount not deposited multiplied by some (lost) earnings factor.

Has anyone filed an amended 5330 and gotten money back? Is this opening the plan for more scrutiny? I'd like to wait for resolution of current audit before filing 1999 5330. How significant are penalties for late filing?

[BeckyMiller]

We have successfully filed amended Forms 5330 to request a refund for deposits made in error. But we had a strong argument that either the calculation was wrong or the event was never a prohibited transaction to begin with.

In this case, realize that though one approach to the prohibited transaction is to argue that it is a prohibited extension of credit (in which case the excise tax would only be due on the lost earnings), it is equally reasonable to say that it was a prohibited use of plan assets by the sponsor. In this case, the excise tax would be due on the entire amount, including lost earnings.

So - I am not too sure that I would take the risk of raising the bar for a chronic late payer.

[R. Butler]

Depending on all the facts & circumstances I may be inclined to disagree with Becky Miller. If you are confident that a complete correction has been made and comfortable that the plan is other wise compliant, I would try to get a refund. The excise tax should be calculated on the "amount involved", i.e. interest, rather than the calculated on the full amount of the late deposit. The alternative view Becky presents is not a widely accepted when calculating the excise tax on late deposits. It is my understanding that the alternative view is used only when there has been a "taking" of plan assets, i.e. the employer never intended to make the deposit.

If you have made a complete correction and are comfortable the plan is otherwise compliant, I don't see what you have to lose by requesting a refund. I don't agree that this somehow will raise the bar for chronic late filers; if anything it may provide a definitive answer on how the tax should be calculated.