In Revenue Procedure 2015-32 , the IRS established a permanent program for owner-only plans that failed to timely file plan’s annual report, Form 5500-EZ.
The permanent program mostly mirrors the pilot initiative announced on May 9, 2014 and available from June 2, 2014 until June 2, 2015. There are a few modifications:
No longer free: There is a $500 fee for each delinquent return for each plan, up to a maximum of $1,500 per plan. To keep the fee calculation simple, payments are not based on the number of days the return is late. Applicants may petition for penalty relief due to a reasonable cause at the time when the return is filed or separately.
A separate submission per plan: Because the program requires a payment based on the number of delinquent returns for each plan, returns for each plan must be submitted separately even when sponsored by the same employer.
Problems with a submission? IRS will contact: Unlike under the pilot program, the IRS will contact the applicant if there are problems with the submission package, a required signature is not provided, or the amount of payment is incorrect.
As under the pilot program, the permanent program requires that a Form 5500- EZ return be filed on paper even when the plan could have filed a Form 5500-SF return electronically if the return had been timely filed.
Who is Eligible: Plan sponsors and administrators who…
- were required to file the Form 5500 or Form 5500-EZ late, i.e. non-ERISA plans that cover only a business owner or one or more partners, and their spouses; or
- maintained a plan outside the United States primarily for non-resident aliens but are subject to IRS annual reporting requirements; and
- have not received a CP 283 Notice, “Penalty Charged on Your 5500 Return,” for a delinquent return.
Benefit: This program offers a substantial advantage to plan sponsors to bring their plan(s) to compliance as penalties arising from failure to file a return may reach up to $15,000, plus interest, for each late return.
Effective date: submissions under the new program may be made effective June 3, 2015.
We are Here to Help
Failure to file Form 5500 is a common mistake, especially among small businesses. Unfortunately, the issue does not go away on its own. Regulators may easily uncover this issue when plans process distributions or begin their termination processes. This new program provides a significant opportunity to bring plans into compliance.