CP283 for $150,000 penalty after entering the wrong tax year on form 5500-EZ and I'm having no success resolving the mistake

In March I filed my 2021 solo/individual 401k's 5500-EZ through the EFAST DOL website. 3 weeks later in April I received the CP283 notice with the $150,000 penalty. It turns out I read the form wrong and entered the year 2017 and not 2021. In 2017 I was below the $250k threshold and was not obligated to file the form 5500-EZ. My first year filing was 2020.

After received the CP283 I immediately phoned the IRS and an agent suggested I amend the 2017 5500-EZ with the correct numbers and the penalties would be removed. I did amend immediately but in August received a notice of interest on the original $150k. Just in case there was some error that I was not made aware of, I mailed form 4506 today requesting a copy of my 2017 form 5500-EZ but there was no way to say I want the amended copy.

I've been working with the IRS's Taxpayer Advocate Service (TAS) for a few months now to resolve the mistake. My latest phone call with TAS was that the IRS was still making a determination but we would likely need to go through appeals. I've read online that I need to wait to appeal until after receiving a "statutory notice of deficiency". But everything I read online associates this with 1040's... I plan to work with a firm to represent me in appeals if the IRS determines against me. 

• Should I still mail form 843 like it shows on the IRS page? (https://www.irs.gov/individuals/understanding-your-cp283-notice)The TAS never mentioned this form to me.
• Was the fact that I accidentally, but voluntarily, filed 2017 late still subject me to the late filing penalty, even if I was not obligated to file?
• Does anyone have any other suggestions?

I'm hitting walls at every turn. I don't understand how entering the wrong year can result in owing $150,000. It's easily proven that it was a mistake... the numbers I entered match my statements for 2021 not 2017. Actual people at the IRS have read my letter of the facts and received 401k statements. It's still possible they rule in my favor but my TAS agent didn't sound hopeful. Thank you for any advice.

EDIT January 2023: It is with extreme gratification that I can report back and say the IRS abated the penalty and interest. What a weight off my chest.

A few things stand out in this mess.

1. You will NOT owe $150,000.  Even if the IRS is firm on treating this as a 2017 return filed on the 2021 Form 5500-EZ, they can't penalize you $150,000 because the penalty for a 2017 return is $25 per day up to a maximum $15,000.  The penalty went up to $250 per day for a maximum of $150,000 for returns required to be filed AFTER 12/31/2019. 

2.  When you say "amend the numbers" do you mean the date on the form to remove 2017 or change the 2021 amounts and counts to the 2017 number?  That is a big difference.

3. Stop referring to this as 2017 return.  It's the 2021 return that you (hopefully) amended to have the correct plan year.

4.  Breathe.  The IRS still has alot of people working remotely and they are understaffed.  These things take time to get fixed and you will probably get several notices in the mail while it's being worked on.  If I was a gambling man, I'd like your odds of getting the penalty removed.  You filed timely with an typo on the form. 

5.  When the dust settles, consider hiring a professional for your retirement plan rather than the DIY route.  

19 hours ago, RatherBeGolfing said:

A few things stand out in this mess.

1. You will NOT owe $150,000.  Even if the IRS is firm on treating this as a 2017 return filed on the 2021 Form 5500-EZ, they can't penalize you $150,000 because the penalty for a 2017 return is $25 per day up to a maximum $15,000.  The penalty went up to $250 per day for a maximum of $150,000 for returns required to be filed AFTER 12/31/2019. 

2.  When you say "amend the numbers" do you mean the date on the form to remove 2017 or change the 2021 amounts and counts to the 2017 number?  That is a big difference.

3. Stop referring to this as 2017 return.  It's the 2021 return that you (hopefully) amended to have the correct plan year.

4.  Breathe.  The IRS still has alot of people working remotely and they are understaffed.  These things take time to get fixed and you will probably get several notices in the mail while it's being worked on.  If I was a gambling man, I'd like your odds of getting the penalty removed.  You filed timely with an typo on the form. 

5.  When the dust settles, consider hiring a professional for your retirement plan rather than the DIY route.  

1. Very interesting first point and good to know. I will keep this in mind.
2. After realizing the error, I submitted form 5500-EZ again but checked the amend box, intentionally entered 1/1/2017 to 12/31/2017 and entered the numbers using 2017 statements. This was the IRS agent's advice to show my 2017 numbers were below the $250k threshold. I then also correctly submitted the 2021 5500-EZ with identical numbers to the accidentally 2017 numbers.
3. Unfortunately, I've now submitted both 2017 and 2021 correctly. (I have not filed 2018 or 2019) Although, like I said above, this was the phone advice the IRS agent gave me. It "should" have automatically removed the penalties. I did not write his ID number down or record the call.

I appreciate your reply. I remained calm all the way up to learning I may need to go to appeals and hire a firm to help me out. But you are correct that I should take a few breaths and keep working the problem. I do far too much DIY work that I should hire out, even in my regular business operations, so I agree that I need to start paying a professional.

3 hours ago, RandallM said:

1. After realizing the error, I submitted form 5500-EZ again but checked the amend box, intentionally entered 1/1/2017 to 12/31/2017 and entered the numbers using 2017 statements. This was the IRS agent's advice to show my 2017 numbers were below the $250k threshold. I then also correctly submitted the 2021 5500-EZ with identical numbers to the accidentally 2017 numbers.

I think this was the wrong thing to do. You weren't filing a 2017 return. This was bad (stupid?) advice and you were wrong to take it.

1 minute ago, Bill Presson said:

I think this was the wrong thing to do. You weren't filing a 2017 return. This was bad (stupid?) advice and you were wrong to take it.

Yep.  Now there is clear intent to file a 2017 years after the due date, which could end up costing $15k.  Hopefully the IRS rep made a note of it since OP cant identify the rep.

3 hours ago, RandallM said:

1. Very interesting first point and good to know. I will keep this in mind.
2. After realizing the error, I submitted form 5500-EZ again but checked the amend box, intentionally entered 1/1/2017 to 12/31/2017 and entered the numbers using 2017 statements. This was the IRS agent's advice to show my 2017 numbers were below the $250k threshold. I then also correctly submitted the 2021 5500-EZ with identical numbers to the accidentally 2017 numbers.
3. Unfortunately, I've now submitted both 2017 and 2021 correctly. (I have not filed 2018 or 2019) Although, like I said above, this was the phone advice the IRS agent gave me. It "should" have automatically removed the penalties. I did not write his ID number down or record the call.

I appreciate your reply. I remained calm all the way up to learning I may need to go to appeals and hire a firm to help me out. But you are correct that I should take a few breaths and keep working the problem. I do far too much DIY work that I should hire out, even in my regular business operations, so I agree that I need to start paying a professional.

If I was in your situation with both a 2021 and 2017 return on record, I would engage a professional NOW.  My argument would be that I never intended to file a 2017 return, and only did so on the misguided advice of an IRS representative.  I think your problem is that you need someone who speaks the same language as the IRS and knows which arguments are valid.  Perhaps even more important, they know what not to argue.   

RandallM, I'm puzzled by at least one thing, here. You indicate that the plan is a calendar year plan. The year for a calendar year plan is pre-printed at the top of the form. You don't have to fill in anything unless you are on a non-calendar year plan year.

12 hours ago, Luke Bailey said:

RandallM, I'm puzzled by at least one thing, here. You indicate that the plan is a calendar year plan. The year for a calendar year plan is pre-printed at the top of the form. You don't have to fill in anything unless you are on a non-calendar year plan year.

The form says "For calendar plan year 2021 or fiscal plan year beginning XX/XX/XXXX and ending XX/XX/XXXX". I remember reading this line and thinking the form was asking me what year I started the 401k plan. I thought it was asking for the creation year because I didn't have to file in the original creation year. I saw the big bold 2021 in the corner and assumed the year I was filing was already known. I read everything wrong. It's clear to me now what each line/section mean.

Yeah.