David J. Kupstas, FSA, EA, MSEA Chief Actuary
The IRS has released Rev. Proc. 2014-32 which establishes a temporary one-year pilot program for penalty relief for late filing of Form 5500-EZ.
The penalty for filing a 5500 after the due date is $25 per day up to $15,000. Think about that for a moment. Fifteen thousand dollars for not filing a form that can be as little as two or three pages long. Granted, the return has to be 600 days late for the penalty to be that high, but still.
The DOL has long had a program under which plan sponsors could “fess up” upon realizing a 5500 was late and pay a reduced sanction of $750 for one plan year or $1,500 for multiple plan years for small plans. Unfortunately, this delinquent filer program is available only to plans that are subject to Title I of ERISA. One-participant plans, which aren’t covered under Title I of ERISA and which file the simplified Form 5500-EZ, have had to file a reasonable cause letter (“sob story”) in order to get penalty relief. Sometimes the penalties were waived, sometimes they weren’t. Regardless, not knowing whether the IRS would find the reason for the late filing acceptable caused plan sponsors great uncertainty and anxiety.
Under the temporary pilot program, plan sponsors with a late Form 5500-EZ who have not yet received a penalty notice may file the return between June 2, 2014 and June 2, 2015 with no penalty and no fee for using the program. The revenue procedure indicates that, if the program is made permanent, there will be a fee or some other payment required. That’s okay. We understand that late filers shouldn’t necessarily get off scot-free, but the penalties shouldn’t be unconscionable, and it is great to see Form 5500-EZ filers be moved to an equal footing with their Form 5500-SF and Form 5500 brethren.