IRS 5500-EZ Program: A Brilliant Idea Becomes Permanent

By David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA Chief Actuary

When someone comes up with a good idea that works, it should be kept around.  Last year around this time, we told you about a wonderful pilot program the IRS rolled out providing relief to late filers of Form 5500-EZ.  We are pleased to report that the IRS has announced a new permanent program providing such relief.

Form 5500-EZ is the scaled-down version of the Form 5500 series filed each year by retirement plan sponsors.  It is usually one-man plans and husband-and-wife-only plans that get to file the 5500-EZs.  With no benefits or HR staff and perhaps a limited budget for outside consultants, these are exactly the kind of folks that are likely to forget filing their Forms 5500-EZ on time.  Yet, while larger plans have long had a program with reduced sanctions for voluntary correction of late 5500 filings, there was no such program available for the small plans.  Forget one filing because of illness, personal tragedy, or extenuating circumstances, and wham-o!  You could be hit with a $15,000 penalty.

Under the pilot program which ended on June 2, 2015, delinquent 5500-EZs could have been filed with no penalty and no program fee.  A company that failed to file Form 5500-EZ for 15 or 20 years in a row could have filed those delinquent returns as late as June 2, 2015 with absolutely no financial consequences.   The new, permanent program isn’t quite that forgiving.  The fee to submit one delinquent return is $500, with a maximum of $1,500 for each plan.  Still, that’s a lot more reasonable than $15,000.  Note that the penalty relief program is not available if the IRS has already sent you a letter about your late return.

Plan sponsors have always been able to submit a reasonable cause letter and hope to get the late filing penalties waived that way.  That option is still available.  However, if your reasonable cause request is denied, you lose the chance to participate in the penalty relief program.  Thus, you probably want to go ahead and pay the $500 and not risk being assessed a steeper penalty.

In conclusion, we were happy when the pilot penalty relief program came out last year, and we are happy to see a variation of it made permanent.  Now, the smallest of plans are on a level playing field with the big boys.  Better yet, the potential for a punishment that was way out of proportion with the crime has been all but eliminated.

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— Topics: 401(k), Retirement