Late Filing Penalty for Late Deposit Form 5330

We prepared a 2021 Form 5330 for a client who had late deposits.  For several reasons, we did not prepare it until December 2022 but we calculated the interest/excise tax through 12/31/2022.  They will also need a 2022 Form 5330, which I believe we could have included the 2021 info on that for only one filing, but we elected to do two separate filings.  

The client remitted the form (along with excise tax payment) fairly quickly; the IRS apparently received these on Jan 9, 2023.  I know this because they actually sent our client a letter assessing penalties.  Granted, the amount is quite small (< $10) but I have never heard of a late 5330 letter being sent by the IRS. 

Has anyone else heard of their clients receiving a late 5330 letter, ever?  I know the IRS is beefing up their staff and perhaps now have employees eager to take action on things like this.

Also, could the client have avoided a penalty if we had done a combined reporting on one 2022 Form 5330? 

Thanks!

The only time I ever got a "hey this 5330 is late, pay us more" notice was when it was late 401k deposits from 2-3 years prior, and the original 5330 amount was around $500.  The penalty amount was around $90.  Since most of the 5330s I would prepare were usually more like the $1 to $50 range, that's when any penalty amount would be extra dinky, and maybe that's why the IRS never seemed to care to send a penalty notice.

It's the middle of the night and I'm answering partly off the top of my head, which is always a bit dangerous. 

Form 5330 instructions for Schedule C, line 1, include the following: "Transactions involving the use of money...will be treated as a new prohibited transaction on the first day of each succeeding tax year or part of a tax year that is within the taxable period."

Form 5330 instructions for Schedule C, line 2, include the following: "A disqualified person who engages in a prohibited transaction must file a separate Form 5330 to report the excise tax due under section 4975 for each tax year."

Accordingly, I believe you should file a 2021 Form 5330 and a 2022 Form 5330 and that you cannot do a combined reporting. You don't say what the date of correction is, but I'm assuming it was 12/31/22. That means you had two PTs - one in 2021 and one in 2022.*

The tax due with the Form 5330 is only the tax, not the interest and penalties due for the delinquent filing of the Form 5330. Again, from the instructions: "Any interest and penalties imposed for the delinquent filing of Form 5330 and the delinquent payment of the excise tax...will be billed separately to the disqualified person."

It sounds to me like the "late letter" may have actually been the normal assessment of interest and penalties that are billed separately by the IRS after the filing and payment of the excise tax.

When we do Forms 5330 for late payments, we advise our clients that they'll likely receive an additional bill from the IRS at a later date of a miniscule amount. Sometimes they do and sometimes they don't.

*The 2021 Form 5330 takes into account the earnings on the 2021 late deposits from the date the deposit should have been made to 12/31/21. The 2022 Form 5330 takes into account that amount reported on the 2021 Form 5330, plus the earnings on the 2021 late deposits from 1/1/22 - 12/31/22 (assuming that's the date of correction) - two separate transactions listed in #2 on Schedule C.