Case of the Week: Relief for Delinquent Form 5500-EZ Filers

Responding to a question from a financial advisor in Colorado, the ERISA consultants at the Retirement Learning Center Resource addressed a common inquiry involving plan reporting requirements. 

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Colorado is representative of a common inquiry related to plan reporting requirements. The advisor asked: 

“I have several clients who run owner-only businesses that have 401(k) plans that cover themselves and their spouses. I believe at least some of them should have been filing Form 5500-EZ, Annual Return of a One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan, but have not. Is there a way for them to correct this error without penalty?” 

Highlights of the Discussion

An owner-only business with a qualified retirement plan that covers the owner, partners and spouses, such as a “solo (k)” or “individual (k),” must begin filing an annual Form 5500-EZ when the total value of the plan assets exceeds $250,000 at the end of the plan year. Regardless of plan asset value, an owner-only business must file a Form 5500-EZ to report the final plan year of the plan (See the Instructions for Form 5500-EZ.)

Initially, the IRS did not provide any penalty relief for delinquent Form 5500-EZ filers. That changed with the IRS’s release of Revenue Procedure 2015-32, which made permanent a 2014 pilot program that allowed owner-only businesses to correct late Form 5500-EZ filings. Without the program, a plan sponsor faces late filing penalties of $25 per day, up to $15,000 for each late Form 5500-EZ, plus interest, and $1,000 for each late actuarial report (for a defined benefit plan, if needed). 

The IRS’s Form 5500-EZ Later Filer program is separate from the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP), which is available to late filers of Forms 5500, Annual Return/Report of Employee Benefit Plan. Form 5500-EZ filers do not qualify for the VFCP. 

In order for late filers of Form 5500-EZ to qualify for penalty relief, the business owner must meet the following criteria. He or she: 

1.   has not been informed of a late filing penalty (i.e., the business owner has not received a CP 283 Notice from the IRS);

2.  submits all delinquent returns for a single plan together;

3.   prepares a paper Form 5500-EZ for each delinquent year, including any required schedules and attachments, if any. Use the Form 5500-EZ return that applied for the delinquent plan year. However, if the return is delinquent for a year prior to 1990, use the Form 5500-EZ for the current year. (See prior year Forms 5500-EZ);

4.   writes in red letters at the top of each paper return: “Delinquent Return Filed under Rev. Proc. 2015-32, Eligible for Penalty Relief”;

5.   attaches a completed one-page transmittal schedule (Form 14704) to the front of each late return;

6.   pays the required fee of $500 per delinquent return, up to $1,500 per plan. Make checks payable to “United States Treasury”; and

7.   mails the returns to the following address (Note: Electronically filed delinquent returns are not eligible for penalty relief):

First class mail:

Internal Revenue Service

1973 North Rulon White Blvd.

Ogden, UT 84404-0020

Private delivery services:

Internal Revenue Submission Processing Center

1973 North Rulon White Blvd.

Ogden, UT 84404