Should I use Delinquent Filer Program or not?

[Guest m thom]

Thanks, SLuskin. Your advice seems like a reasonable approach.

[Guest m thom]

A client started a Group Term LIfe plan in 1997 and should have filed its first 5500 by 7/31/98 but did not. They were simply unaware of the filing requirement for this plan. Because the plan is not funded through a cafeteria plan, it must file for DOL but not IRS. Question: Should I use the Delinquent Filer Voluntary Compliance program and pay the $2,500 penalty, or would the reason given above be good enough to constitue a "reasonable cause" for the late filing?

Another question: Since this client has a cafeteria plan, would it be allowable to file an amended return for that plan, adding the group term life code, and avoid the late filing penalty altogether? (I would anticipate a no answer on this, since the group term life is not funded through the cafeteria plan.)

[SLuskin]

First, you can't amend the Section 125 Plan to include the group term life as you described it. Second, I would try to file the return and wait for the IRS to send a letter asking why it was late. I would then respond to exactly whatever the IRS asked. We have had good luck getting penalties abated for legitimate reasons. We do not ask when we feel that the client knew and just procrastinated.

[Guest Dick Boever]

Are you certain there is a requirement to file a Form 5500? You didn't mention a Form 5500 for any other welfare benefit plan, only the cafeteria plan. I find it difficult to believe an employer with over 100 ee's doesn't have health insurance or other welfare benefits. If you were going to include the Group Term Life Plan on another plan's 5500, you would pick one of those.

I have had great success using the "wrap document" concept to bring multiple plans under one 5500 filing.

However, I have never had the IRS assess a penalty when I have filed a late Form 5500 and attached a Form 4571 with a reasonable explanation. I've been told the reason this is better than waiting for a response, is that the clerk processing the initial filing can waive the penalty at input. This is easier for them than to process the late notice. For whatever reason it has worked 100% of the time for dozens of clients that have come to me for help in fixing their filing problems.

[Guest Mike Kimball]

What is a form 4571?