In Revenue Procedure 2015-32 the IRS replaced the temporary pilot relief program for 1-Participant plans that was created by Revenue Procedure 2014-32 with a permanent program for relief. The revised program applies to applications submitted on or after June 3, 2015.
One participant programs, because they are not covered by Title I of ERISA, are not eligible to participate in the Department of Labor’s Delinquent Filer Voluntary Compliance (DFVC) program that provides an option for relief from penalties for those plans.
In Notice 2002-23 the IRS had provided that plans that obtained DFVC relief from the Department of Labor would automatically be exempted from penalties imposed by the IRC. Thus, one participant plans (which generally should have filed Form 5500-EZ) had no method to automatically obtain relief from IRC penalties of the sorts that plans under the jurisdiction of the Department of Labor could obtain.
Rather such plans were required to show that their failure to file was due to reasonable cause for each affected year in order to obtain penalty relief. If the plan could not demonstrate reasonable cause, a penalty of $25 for each day the return was late, up to a maximum of $15,000 per return, would apply.
In 2014 the IRS created a pilot program to provide an automatic option, in lieu of a showing of reasonable cause, for such plans. The plan was to run for a limited time while the IRS considered how the program functioned and obtained comments from parties regarding any permanent program.
As the IRS indicated when the pilot program was created, the permanent program will now come with fees. Each submission will now require a $500 payment for each delinquent return for a plan, up to a maximum of $1,500 per plan. Under the pilot program no payment was required. If a plan qualifies for relief no penalties would be applied to the plan aside from the payment to enter the program.
Filers are not required to use this plan—rather the filer can attempt to show reasonable cause for the failure. The advantage of such a showing is that no penalty will be due. But the disadvantage is that if the IRS denies relief for reasonable cause the filer will not be able to submit under this program. Nor will the IRS accept a filing that attempts to seek reasonable cause relief as part of the submission to this program.
As a practical matter, the professional fees likely to be incurred in an attempt to receive reasonable cause relief will likely be more than the $500 application fee to enter this program.
As was true with the permanent program, the filer will be required to submit a paper Form 5500-EZ for each affected year even if the filer would have been eligible to electronically file a Form 5500-SF if the return had been timely filed. The procedure states this is due to concerns the agencies (IRS and DOL) have about the ability to match electronically filed 5500-SFs with the applicable payment. The agencies are considering changes that could be made to eliminate this problem and allow for electronic submissions, but until further notice the electronic option is not available.
The delinquent returns are to be submitted on the Forms 5500-EZ for the year that was not timely filed unless the return is for a year before 1990. For years before 1990 a current year Form 5500-EZ, with the dates changed, should be used.
The final program will also no longer allow multiple returns for multiple plans to be included in a single submission—rather returns for each plan must be submitted separately (along with the applicable payment).
The IRS will contact the filer for certain errors in their submission. The procedure provides the IRS will contact the filer:
- If the Form 14704 is not included,
- The documents submitted are inconsistent with the Form 14704,
- A required signature on a delinquent return is not provided, or
- The amount of payment is incorrect
However the IRS will not otherwise contact the taxpayer—so if the application is accepted the filer will hear nothing. For that reason the procedure suggests that applicants should consider tracking their submission to determine when actual delivery to the IRS has taken place.
Section 6 of the ruling contains provisions outlining eligible filers. The general rule provides:
The relief provided by this revenue procedure is only available to the plan administrator or plan sponsor of a retirement plan that is subject to the filing requirements of §§ 6047(e), 6058, or 6059 but is not subject to Title I of ERISA for the plan year that a Form 5500 series return is delinquent. Thus, the relief under this revenue procedure is only available to the plan administrator or plan sponsor of (1) small business (owner-spouse) plans and plans of business partnerships (together, "one-participant plans") described in Section 6.02 and (2) foreign plans described in Section 6.03.
Relief is not available if the plan has already been assessed a penalty where a CP 283 Notice has been issued to a plan sponsor or administrator. Thus the program provides an incentive for a taxpayer to pay the $500 per year (maximum $1,500) fine rather than hope the plan simply is never noticed by the IRS.
The procedural requirements from Section 7 are summarized below:
- The correct payment must be included with each submission along with Form 14704.
- While a submission can cover multiple plan years, it can only include returns for a single plan. If a sponsor has more than one plan, each plan will need its own submission.
- The submission must include:
- A complete Form 5500-EZ for each affected plan year, including all required statements and attachments
- The proper Form 5500-EZ for the year in question must be used (subject to the rule for pre-1990 years described earlier)
- The required schedules for each year must be included
- For years prior to 2005, a Schedule B must be included for plans that required such information (defined benefit plans and certain money purchase plans)
- For 2005 and later years the actuarial report is not required to be attached, but a statement must be attached indicating that the form has been prepared even though it is not being submitted to the IRS
- For years prior to 2005, a Schedule E (ESOP Annual Information) must be submitted for any employee stock ownership plan.
- The delinquent return must be marked in red letters in the top margin of the first page of the return “Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief”
- Each submission must include a properly completed IRS Form 14704 attached to the front of the oldest return in the submission for the plan
The submissions should be mailed to the Internal Revenue Service, 1973 North Rulon White Blvd., Ogden, Utah 84404-0020. Approved private delivery services can be used in lieu of mailing the form.