Failure To File Extension

I am with a small TPA firm and have found that the only February year-end plan that we have was not placed on extension for the PYE 2/29/20.  The explanation from our tech (who we employ) who developed our tracking system was that the plan was 'disregarded' by the system due to its failure to accept the extra day of the leap year (this was the first leap year since the system was implemented).  I can't say we've ever neglected to file an extension, so this is something new for us. 

It would appear that using the DFVCP would be in order, but first I wanted to see if there were any other options that should be considered.  It's tempting to file normally asap and attach a letter describing the above reason in order to ask for the penalties to be waived since the plan has never had any problems before, but I am concerned that if the IRS doesn't consider it a reasonable cause that  the DFVCP will be off the table and the plan will be assessed the typical unreduced penalties.   Are there better options to consider?

I absolutely agree with C.B.!!!

Well if the sponsor and the plan have the same year end and the sponsor has an extension to file it's tax return, I believe that extends the 5500 due date (for up to 2.5 months).  Obtain and keep a copy of the business extension.  Check the 5500 instructions for the details.

You could be Lucky.

Not that Lucky, Andy - I already checked and found out the business return was not extended (I should have mentioned that in my post).  Thank you all for your quick responses.

I've never had to pay the late filing penalty (over a dozen times caught in this bind).  They were waived with good and lame excuses.  However, the penalties then were $25/day, $15,000 cap vs $250/day, $zillion cap now.  Think I'd do DFVCP.

I would complete a Reasonable Cause Letter and attach it to the 5500 filing.  The IRS is pretty understanding when an extension was missed, if you have a good reason and can make a statement as to how the extensions will be handled going forward so this doesn't happen again.  It also makes a difference if the plan has a track record of always filing on time.  You can always call the IRS and ask them this question, without a need to tell the IRS the plan in question.  I have used a Reasonable Cause Letter in the past a few times for different issues that have occurred and they were always willing to waive the penalties.

I would absolutely do DFVC. Frankly, I'm surprised the IRS accepts any reasonable cause letters anymore.

On 12/1/2020 at 9:21 PM, Lucky32 said:

...the only February year-end plan that we have was not placed on extension for the PYE 2/29/20.  The explanation from our tech (who we employ) who developed our tracking system was that the plan was 'disregarded' by the system due to its failure to accept the extra day of the leap year (this was the first leap year since the system was implemented). 

Best practice is program for ends of months as the beginning of ensuing months minus one day.  It's easier than programming for leap years.  Besides, in 80 years we'll have techs who don't know that 2100 isn't a leap year despite being evenly divisible by 4 (nor is 2200 or 2300).