Help - 5500EZ (Solo 401K) - $150K penalty notice CP 220

Hi All, I am new here and hoping to get some guidance.

I just received a $150K bill for 5500-EZ. (attached)

Its notice CP 220 for my Form 5500-EZ (Solo401K & I am the only employee in my company) for year ending 2020. I called the number on the notice, I was told this $150K amount due is for the penalty for late filing. But I had mailed my 2020 5500-EZ on time in 2021, but I dont have the proof of mailing. For all required years, I have always mailed on time. 

Also, earlier this year, I had received "Compliance Check Information Request letter" stating they dont have 2020 & 2021 forms (attached). So I had faxed them the form I had originally mailed. Per the agent on the phone today, for 2020, they uploaded my faxed 5500-EZ but with the filled date as the date they received my fax (May of this year). So they are treating it as filled late and $150K is penalty for the late fee.

What are my options?

- the agent suggested I write a letter and explain this and hope they remove the penalty.

- I am worried what if my letter of explanation is rejected and penalty is not waived ? Do I have any other option to pursue ?

- My company hardly makes any money, (I now work at a different company). My company does not have the funds to pay this. Would I have to pay it from personal funds ?   

- Since the notice is CP 220, and Not CP238, should I just file the "5500EZ Delinquent Filing Penalty Relief" and pay $500 ? or I am no longer qualified for this due to the notice I just received?

Where can I find right professional to represent me sorting this out. 

Appreciate any help. Thanks !

I would try the 5500EZ Delinquent Filing Penalty Relief first.  If it gets rejected, send in the request again - sometimes a different agent will grant relief.

If your business has not been late on other filings in the last 3 years, you can request the penalties be abated under the one-time penalty abatement (it says one-time but the IRS generally lets you use it every 3 years).

https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

4 hours ago, Dare Johnson said:

If your business has not been late on other filings in the last 3 years, you can request the penalties be abated under the one-time penalty abatement (it says one-time but the IRS generally lets you use it every 3 years).

Thats a risky proposition. If you request abatement and get denied, you are ineligible for the penalty relief program.  In this scenario you pay the $500 and go with the sure thing.

@RatherBeGolfing - Thank you for your response.

- Since I have already received the notice CP-220 with $150K penalty amount - do I still qualify for "5500EZ Delinquent Filing Penalty Relief" and pay $500 ? 

Few CPA's I have contacted dont seem to have expierence dealing with peanlty on Form 5500. Can you recommend any CPA or attorney services that specialize in this ? 

Also, My company hardly makes any money, (I now work at a different company). My company wont be able to pay $150K. Would I have to pay it from personal funds ?   

On 10/18/2023 at 1:33 PM, Help_5500EZ_150K said:

- My company hardly makes any money, (I now work at a different company). My company does not have the funds to pay this. Would I have to pay it from personal funds ?

If your company is a corporation and you respected its form such that the IRS cannot say it was your alter ego, and assuming your corporation was the "plan administrator," then the penalty liability belongs to the corporation, and I would certainly claim that as a defense if it comes to that. But I would use that only as a fallback and would pursue first, and immediately, paying the $500 penalty and filing for 5500EZ Delinquent Filing Penalty Relief. If that fails you can use both reasonable cause and the corporate shield as backup defenses.

Thank you @RatherBeGolfing and @Luke Bailey. Really appreciate your response.

I mailed the 5500EZ Delinquent Filing Penalty Relief today (& saved the USPS receipt). Hoping/praying that will resolve this issue.

Will IRS send me a notification that they have accepted my Delinquent Filing Penalty or just them cashing the check is the sign that its accepted ?

$150K is a very high penaly for a simple mistake of not having the mailing receipt to prove that I had mailed the form on time  . This is very stressful 

We can remark on the IRS’s difficulties in processing tax returns, information returns, and other documents—especially those filed by mailing paper, and resulting burdens for a filer to preserve evidence of what was filed and when.

But the amount of the penalty is Congress’s Act. Internal Revenue Code of 1986 (26 U.S.C.) § 6652(e), amended by SECURE 2019 § 403(a) http://uscode.house.gov/view.xhtml?req=(title:26%20section:6652%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section6652)&f=treesort&edition=prelim&num=0&jumpTo=true.

How Congress sets public policy might be attributed to representative democracy and the United States’ Constitution.

1 minute ago, Peter Gulia said:

How Congress sets public policy might be attributed to representative democracy and the United States’ Constitution.

But the IRS has discretion to reduce or remove the penalty

The penalty does not apply if “it is shown that [the] failure is due to reasonable cause[.]” But Congress set the amount.

50 minutes ago, Peter Gulia said:

The penalty does not apply if “it is shown that [the] failure is due to reasonable cause[.]” But Congress set the amount.

Thanks Peter.  So technically, that means they can only asses or remove the penalty, they cannot reduce the penalty to a lower amount, correct?

That is how the statute reads.

And the IRS’s Internal Revenue Manual describes the statute: “IRC 6652(e) provides for non-assertion of the penalty if reasonable cause can be shown.” Internal Revenue Manual 20.1.8.4.3(18) (Oct. 6, 2022) (emphasis added) https://www.irs.gov/irm/part20/irm_20-001-008r.

On 10/19/2023 at 10:34 PM, Help_5500EZ_150K said:

Thank you @RatherBeGolfing and @Luke Bailey. Really appreciate your response.

I mailed the 5500EZ Delinquent Filing Penalty Relief today (& saved the USPS receipt). Hoping/praying that will resolve this issue.

Will IRS send me a notification that they have accepted my Delinquent Filing Penalty or just them cashing the check is the sign that its accepted ?

 

$150K is a very high penaly for a simple mistake of not having the mailing receipt to prove that I had mailed the form on time  . This is very stressful 

Just wanted to provide an update incase anyone is in the similar situation. I will try to provide updates as they happen, hopefully helps people in my situation.

Latest Update: IRS has cashed the $500 check I had mailed with the 5500EZ Delinquent Filing Penalty Relief (for year 2020). I dont know what this means - hoping my $150K penalty is removed. IRS cashing the check is it a confirmation of their acceptance ??  

The 1st year I was required to file form 5500EZ was in 2017. Unfortunatley I did Not know about this EZ compliance requirement, but when I became aware of it few months after the deadline had passed (IRS had NOT sent any notice to me). I had filled the 5500EZ Delinquent Filing Penalty Relief for 2017, they cashed my check, but I never got any letter back from IRS acknowledging they had accepted penalty relief.

But for year 2020, I have a received the notice (CP-220) with $150K penalty, so I am praying that they send me a confirmation that they have received the Penalty relief form and I longer owe them the penalty.

Question: Can 5500EZ Delinquent Filing Penalty Relief program be used more than once by the plan or is it a one-time use only ? For example, since I had used it few years back (for year 2017), can I use it again now for the year 2020 ?

17 hours ago, Help_5500EZ_150K said:

Question: Can 5500EZ Delinquent Filing Penalty Relief program be used more than once by the plan or is it a one-time use only ? For example, since I had used it few years back (for year 2017), can I use it again now for the year 2020 ?

As long as you are otherwise eligible, you can use it as many times as you need to.  The purpose of the program is to allow you to fix your error and pay a user fee.  You can even correct many years at the same time, with the user fee capped. It is capped at $1,500, so in theory you could file 10 years worth of late filings for $1,500 instead of $5,000.

Hi there!  I filed my paper 5500EZ timely but got notice stating it was incomplete/late and signature could not be seen.  I resent the orginal signed form 5500EZ and I now receieved CP220 notice with 26K in penalty/interest.  I filed for the $500 one time penalty relief and am waiting to hear back.  What should I do if this is not accepted. Please Help.. Thank You

1 hour ago, 5500EZ Help Me said:

Hi there!  I filed my paper 5500EZ timely but got notice stating it was incomplete/late and signature could not be seen.  I resent the orginal signed form 5500EZ and I now receieved CP220 notice with 26K in penalty/interest.  I filed for the $500 one time penalty relief and am waiting to hear back.  What should I do if this is not accepted. Please Help.. Thank You

It takes the IRS a long time to process under normal circumstances.  They are still very backlogged, so I would expect a few months minimum.  The penalty/interest letters are autogenerated, so they will continue until resolved in the IRS system.  If  you want to make sure your stuff has been received and is in line for processing, call the IRS number on the late notice and speak to an IRS rep.  Be prepared to donate a kidney for ID verification...  Just kidding of course, but they may ask you questions like a number from your last tax return to prove that you are you.

9 minutes ago, RatherBeGolfing said:

It takes the IRS a long time to process under normal circumstances.  They are still very backlogged, so I would expect a few months minimum.  The penalty/interest letters are autogenerated, so they will continue until resolved in the IRS system.  If  you want to make sure your stuff has been received and is in line for processing, call the IRS number on the late notice and speak to an IRS rep.  Be prepared to donate a kidney for ID verification...  Just kidding of course, but they may ask you questions like a number from your last tax return to prove that you are you.

Thank you so much for your response. So if they process and cash my $500 does that mean it went through. I have been told these can be appealed with reasonable cause if the one time $500 penalty relief does not through,  This is just very stressful knowing that penalty and the interest continue to accrue. Thank you.   Dr. Menard

Hi there!  I filed my paper 5500EZ timely but got notice stating it was incomplete/late and signature could not be seen.  I resent the orginal signed form 5500EZ and I now receieved CP220 notice with 26K in penalty/interest.  I filed for the $500 one time penalty relief and am waiting to hear back.  What should I do if this is not accepted. Please Help.. Thank You

On 10/19/2023 at 10:34 PM, Help_5500EZ_150K said:

Thank you @RatherBeGolfing and @Luke Bailey. Really appreciate your response.

I mailed the 5500EZ Delinquent Filing Penalty Relief today (& saved the USPS receipt). Hoping/praying that will resolve this issue.

Will IRS send me a notification that they have accepted my Delinquent Filing Penalty or just them cashing the check is the sign that its accepted ?

 

$150K is a very high penaly for a simple mistake of not having the mailing receipt to prove that I had mailed the form on time  . This is very stressful 

I'm in similar situation. Did you ever get this resolved?