In Revenue Procedure 2015-31 the IRS has made permanent, with some changes, the pilot program it created in Revenue Procedure 2014-32 for a late reporting relief program for certain retirement plans not eligible to participate in the Department of Labor’s Delinquent Filer Voluntary Compliance (“DFVC”) program. Generally these plans are “one-participant” and foreign plans.
Federal law imposes significant penalties on retirement plans that fail to timely file required annual forms. As the Revenue Procedure notes:
Section 6652(e) generally provides, in part, that in the case of any failure to timely file a return or statement required under § 6058 (annual return of employee benefit plans) or § 6047(e) (returns and reports for employee stock ownership plans), the late filer shall pay, upon notice and demand, a penalty of $25 for each day the failure continues, up to $15,000 per return or statement. Section 6692 generally provides that, in the case of any failure to timely file a report required by § 6059 (actuarial report for employee benefit plans), the late filer shall pay a penalty of $1,000 for each failure. No penalty is imposed under these sections if it is shown that such failure to timely file is due to reasonable cause.
Generally, retirement plans are subject to joint supervision by both the IRS and the Department of Labor. For plans subject to the oversight of the DOL, the DFVC program established in 1995 offers a way for a plan to “come clean” and file delinquent returns while paying a lesser penalty. In Notice 2002-23 the IRS determined that it would not impose its penalties, noted above, on a plan that completed the DOL DFVC program.
However, some plans are exempt from the oversight of the Department of Labor and, thus, not eligible to participate in the DOL program. Those plans had no way to avoid the above penalties for a failure to file unless the plan could demonstrate reasonable cause for the failure. If the reasonable cause test isn’t met, the $15,000 per year maximum penalties for each affected year can present a huge liability to the plan sponsor.
Such exempt plans include “one-participant” plans which also are exempt from any filing requirement for any year aside from the final year of the plan if the assets in the plan at the end of the plan year is less than $250,000. Unfortunately, all too often such plans continue to fail to file a return after their assets exceed $250,000, as the owners don’t realize that there is filing requirement at that time. Similarly, the requirement to file the final year return is also missed all too often.
In 2014 the IRS established a temporary pilot program for such plans to file their delinquent returns at a reduced cost.
The program has now been extended, though the IRS has done what it had noted it was likely to do when the program was made permanent—now submissions under the program must be accompanied by the appropriate payment.
The payment due is set at:
- $500 per delinquent return
- Capped at a $1,500 maximum for each plan.
Thus a plan that missed filing single year would pay $500, while a plan that missed 20 years of plan filings would pay $1,500. But if the sponsor had multiple plans (say a profit sharing plan and a money purchase pension plan), then each plan would be subject to its own fee and separate maximum fee.
For now, the applicant must submit a completed paper Form 5500-EZ from the appropriate year for each delinquent return. However, for plan years prior to 1990, the applicant may use a current year Form 5500-EZ and simply cross off the year shown, replacing it with the current year.
An applicant is not allowed to electronically file a Form 5500-SF even if the applicant would have been allowed to do so had the return been filed timely.
If a single plan has multiple years that need to be filed, they are all to be submitted as part of a single submission since the appropriate fee (subject to the $1,500 maximum) needs to be submitted with the application. However, if the sponsor has more than one plan, then each plan must be submitted separately since each plan is subject to it own fees.
Each submission must be accompanied by a completed Form 14704:
The Form 14074 is to be attached to the top of the oldest delinquent return for the plan.
Under the final program the IRS will generally not contact the applicant unless there is a problem with the submitted information—thus taxpayers will need to obtain confirmation of delivery of the application to the IRS by use of a tracking system of the USPS or private delivery service) as well as check with their financial institution to confirm the payment has been processed by the IRS.
The IRS will contact the applicant in certain cases. The cases for IRS contact outlined in the ruling are:
- 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.
The program is only open to plans that are not subject to Title I of ERISA. Plans subject to Title I of ERISA must look to the Department of Labor’s DFVC program for potential relief. Also, a plan that has already been assessed a penalty with respect to a delinquent return may not participate in the program. Such a penalty is assessed via a CP 283 Notice issued to a plan sponsor or plan administrator.
A complete Form 5500EZ along with required schedules must be supplied for each year for which a return was required but not filed. This is true even though the penalty is capped at $1,500—that doesn’t mean only three returns must be submitted. A plan that fails to submit all delinquent returns will not have complied with the requirements of this program.
The Forms 5500-EZ for years after 1989 can be found at:
Applicable schedules for years after 1994 can be found at:
The applications are to be mailed to the following address in Ogden, Utah:
Internal Revenue Service
1973 North Rulon White Blvd.
Ogden, UT 84404-002