Delinquent Filer Program available?

[Barbara]

Client sponsors a calendar year 401(k) Plan effective 5-1-21. The first two Forms 5500-SF were already filed, but filed late. Subsequent filings were timely.

Client receive Notice CP220 from IRS with huge proposed penalties. (An IRS Notice CP220 tells you that the IRS made changes or corrections to a tax return you or your business filed, resulting in a balance due or an adjusted refund.) No information was provided as to the changes made on the filings, and the filed versions of the Form 5500 matches exactly the version the client signed.

Since this Notice does not refer to late filings, I'm hoping this means that we can still file under DFVC?  What do you all think? There is no indication of any changes IRS proposes to make to the already-filed returns.  I have 3 questions:

1-are we still eligible for DFVC?

2-assuming yes, do we show the original filing dates on the first two filings, or use a current date?

3-how do we respond to the Notice CP220 to get the proposed penalties waived?

[WCC]

The above thread may help. 

Below is information from the DOL. I know the website is not official guidance, but note my highlight, which states that amended filings are not eligible for DFVCP. I am not saying I agree with this position; I am simply pointing it out because I believe this is a new addition to the webpage, or I may not recall seeing it previously.  

https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/dfvcp

[BG5150]

Wouldn't it be best to ask what changes they made first?

[Barbara]

to BG5150 -yes, but we see no changes in the forms filed with EBSA and there is no one to contact at IRS to ask.

[Artie M]

In my experience, a cp220 for a retirement plan includes the late filing penalty and not just corrections or changes to the form 5500.  The notice should state the tax period to which it relates.  It is my understanding the IRS processes account adjustments on a per-year basis meaning they don't combine multiple calendar years into a single notice cp220.  Bottom line... if your client received only one cp220 it should be tied to one specific year.  Look at the tax period on the top right.  This likely won't make your client feel better because if the first two years were late, the client should expect to receive another notice cp220. 

First thing I would do is call the IRS to get the facts.  Usually there is a number in the right hand corner of the cp220.  If you're a CPA, enrolled agent (I think that is the term) or attorney with a signed 2848 on file for this client, call the practitioner priority service (if you do this, have your 2848/8821 ready and say you are calling about an employee plans master file Form 5500 penalty assessment and they will route you to the right person).  Otherwise, call the IRS Employee Plans customer account services line.  Sorry, I have the numbers somewhere in my emails but I am not finding them.

As far as DFVC... I would argue that the client is still eligible for the DFVC.  Eligibility is only cut off if the DOL sends a written notice of intent to assess a penalty.  Receiving a penalty notice or letter from the IRS (such as a cp220) does not disqualify the plan from using the DFVC.  We did this recently.

Note that strictly speaking the DFVC was designed for unfiled forms.  To retroactively apply DFVC protection to a return the IRS already has, you must submit an amended filing through EFAST2.  When you prepare the amended Form 5500-SF to correct the situation, you actually have to deal with two different dates:

• The Plan Year Dates (Part I, Box A): These should be exactly the same as the original late filings (e.g., May 1, 2021 – December 31, 2021). This tells the system exactly which historical period you are correcting.
• The Transmission / Execution Date: When you electronically sign and submit the amended form via EFAST2, the system automatically stamps it with today's current date.

Then, when you log on to the online DFVC Penalty Calculator, it will ask for the Date Filed.  Here, you must enter the date you are submitting the amended DFVC return, NOT the original late filing date from years ago.  Entering the original date will confuse the system because it calculates the late fees based on the day you are actually submitting the correction and paying the fee.  By submitting the amended return with Box B (Amended Return) and Box D (DFVC Program) checked, you are effectively telling both the DOL and IRS: "We know we filed this late before, but we are now retroactively pushing it through the amnesty program and paying the proper capped fine."  Once EFAST2 accepts the new, current-dated amended transmission, you will get a new electronic filing receipt. Use that brand-new receipt as your primary evidence to send to the IRS to request they wipe out the cp220 notice.