Failure to report late deposits, failure to file 5330

DOL initiated audit of a 401k plan.  We have a resolution letter from the DOL.  The DOL calculated the lost earnings on the delinquent deposits and determined that the plan still needs to deposit $2,500 in unpaid contributions.  The delinquencies span several years. The employer (a non-profit) will make the deposits by the end of this week.

(1) The IRS hasn't knocked on the door yet.  Can the plan go through VCP?  The plan is not under IRS investigation but just completed the DOL investigation

(2) Can one VCP filing cover multiple years or do you have to file an application for each year?

(3) Failure to file 5330 - is this eligible for VCP?

(4) Late deposits - is this eligible for VCP?

(5) There is an option on Form 8950 to request a Pre-submission conference request.  Is this more trouble than it's worth?  Should a VCP application and proposed correction be submitted along with the fee and skip the conference? Could the IRS decline a conference and come after the client?

Thank you!

If it is a nonprofit, does the 5330 apply? I honestly don't know but I think it's a question worth asking.

The Form 5330 is a separate matter from whether you can or cannot use VCP to address your delinquent contributions.  Any employer who fails to timely deposit contributions resulting in a prohibited transaction must file a Form 5330 and pay the requisite excise tax.  A failure to file the Form 5330 results in the continued accumulation of the excise tax - you must file a Form 5330 for the year of the failure and for each year thereafter until you've paid the tax. 

Look here for more guidance. https://www.irs.gov/retirement-plans/form-5330-corner

You may be able to do a self-correction instead of a VCP.  

Self-correction is available for insignificant failures and certain significant failures. The Revenue Procedure states

Insignificant failure - The requirements of this section 8 are satisfied with respect to an Operational Failure if the Plan Sponsor of a Qualified Plan, a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan corrects the Operational Failure and, given all the facts and circumstances, the Operational Failure is insignificant. This section 8 is available for correcting an insignificant Operational Failure even if the plan or Plan Sponsor is Under Examination and even if the Operational Failure is discovered on examination

Significant failure - The requirements of this section 9 are satisfied with respect to a significant Operational Failure or a Plan Document Failure if the Plan Sponsor of a Qualified Plan or § 403(b) Plan corrects the failure, and the correction is either completed or, in the case of an Operational Failure, is substantially completed (in accordance with section 9.03) by the last day of the correction period described in section 9.02

Look here for more guidance, including a link to the Revenue Procedure  https://www.irs.gov/retirement-plans/epcrs-overview

A failure to deposit deferrals timely is not a qualification failure that can be corrected under VCP.  There's nothing in 401(a) that says that you need to make timely deposits.  It's not a qualification error unless it rises to the level of being a misuse of plan assets or embezzlement.  The fact that the amount of money involved is $2,500 would indicate it is not that.  

You cannot get excise taxes waived under VCP.  And, the IRS cannot generally waive excise taxes anyway.  So, what I would do is file the late Forms 5300 with the excise tax amounts, which should not be very large if the principal amount is $2,500, since the excise tax is based on the interest, not the principal, of the late payment.  File the Forms with a letter explaining why the forms are late and requesting waiver of late filing penalties.  If you are assessed penalties, they are (a) interest on the unpaid tax balance at IRS rates, (b) a late filing penalty of 5% of the unpaid tax for each month up to a maximum of 25% of the unpaid tax.   This can be waived if the IRS gives you the waiver for reasonable cause, and (c) a penalty for late payment of the tax, which is 1/2 of 1% of the unpaid tax per month, up to a maximum of 25% of the unpaid tax.  This is also waivable for reasonable cause.

There is also some chance that the IRS would assess the second level excise tax of 100% of the amount involved (i.e., the interest on the late payments).

So, you can see form this that the penalties for late filing of the Form 5330 are not gigantic.  Just do it, hope for the waiver, but know that it's not going to be ridiculous even if the waiver isn't granted.

This is, of course, just my thoughts as an accommodation for those on BenefitsLink and should not be construed as legal advice.