Form 5330 / E-Filing

One of the major providers who is not yet ready to offer e-filing a form 5330 told us that their lack of ability to provide this service meant that the employers would be able to rely on the following exemption posted on the IRS's website and file on paper. Do people agree with that? My assumption is that the IRS told somebody at this major provider that that was the case. Otherwise, they would never tell me that it was an option.

https://www.irs.gov/retirement-plans/mandatory-electronic-filing-for-certain-form-5330-filers-using-the-irs-modernized-e-file-system-mef

"If the IRS's systems do not support electronic filing, taxpayers will not be required to file electronically. In general, the filer should maintain documentation supporting the undue hardship or other applicable reason for not filing electronically."

Perhaps it is a stretch to suggest that the provider's inability to process and e-filing of the 5330 is part of the IRS's systems, but again, I find it hard to believe that the provider would've told us this if they hadn't received that response from the IRS. The "undue hardship" provision does seem to leave the door open towards a response of "my vendor was not able to do the e-filing".

Thanks Austin. Have you asked this provider if they had such a conversation/communication with the IRS? Seems like at this late date, if the IRS was accepting this, they might just publicly provide a blanket exemption for this year?

Well I received this message from customer support who was clearly copy/pasting. I probably don't have enough leverage to get to the senior exec who provided that message.

Ok, thanks.

This is not official, but for the purpose of this conversation:

Industry groups have reached out to IRS regarding the e-filing issue looking for a a resolution like "you can file on paper until...".  It has been pointed out that website already has language to accommodate exceptions.  The IRS is well aware of the issue and the number of providers who can provide e-filing services.  If you rely on this and file on paper, save everything just in case.  Someone recently told me that there is probably little risk here even if they reject your paper filing since you paid the penalty on time.  You can also extend the due date of the filing.

Several of the big software providers have said that they are very unlikely to be able to get IRS approval by 7/31/24. 

Honestly knowing that the IRS has to approve the providers filings, I feel a lot better making the connection to "If the IRS's systems do not support electronic filing."  I.e., if the IRS has not approved the vendors files, then the IRS systems do not support electronic filing.  I wish the line was a little bit straighter but it does seem straight enough... 

I may be the origin of the above response you received.  The process to enable electronic filing of the Form 5330 has been difficult to say the least and at present there is only one vendor who is capable of doing so.  This is a problem vexing our whole industry and industry groups from ASPPA to SPARK (and others) are all approaching the IRS for relief. 

At the ASPPA Spring Virtual Conference last month, Kelsey Mayo (ASPPA's Gov't Affairs counsel) mentioned that she raised the issue with the IRS and the IRS's response was that their website (link referenced above) includes language adequate to claim relief.  Unfortunately, thus far, the IRS has been hesitant to provide a more formal statement of relief, IMO but that language does provide a path for relief.  Paper file and retain documentation as to why it was necessary.

I will also note that the electronic filing requirement is not entirely new.  Prior to this year, the requirement applied to taxpayers filing at least 250 forms per year.  In light of what counts as a form, this requirement has applied to many plan sponsors for years, but - to my knowledge - no one was filing the 5330 electronically, and the IRS has taken no action against paper filers.  

What I do strongly recommend is that plans pay any excise tax due on a timely basis - but, of course, I must note that I am not providing legal advice.

I agree that plans should pay the excise tax on a timely basis. File the 8868 (requesting 6-month extension) with the payment by paper and hope this is all worked out by January 2025!

We agree the earliest due date for a late ADP refund (Calendar year plan) is March 31, 2025, right? We've never waited very long but that's how I'm reading the instructions. That means we would need to file an extension with payment until  March 31, 2025?

i.e., presumably this will be worked out by then...

Not everyone in my office was comfortable filing on paper in light of the less than clear "permission" the IRS was granting.

Bumping this topic - Looks like FTW is a valid MeF for the IRS. Does that mean those who use FTW have to file electronically? I haven't heard much on this issue so I'm curious what others are doing in light of only 2 providers allowing electronic filing for the Form 5330 for 2024 (due in 2025)