IRS Extends Program for Late Filers of 401(k) Plans

You have probably seen a significant number of blogs on this site related to IRS requirements for individual 401(k) plans that must file an annual 5500-EZ.  This requirement is in place due to Fair Market Value (assets in the plan that are valued in excess of $250,000) or as a result of terminating their business (and, therefore, the 401(k) plan).  Hopefully, pe0ple take this responsibility seriously because even if their account balance never approaches $250,000 at some point in time their business will most likely terminate due to their business closing down.  Also, don’t forget that one should conduct an FMV each year as the IRS expects the Trustee to perform this activity even if the account balance of the plan is not even close to the $250,000 threshold.

But, over the past year, individuals have had the ability to participate in an IRS pilot program which, in effect, allowed individuals to file 5500-EZ forms from previous years which were delinquent in being filed.  This was a wonderful opportunity for individuals to participate in the program and submit these late 5500-EZ forms without penalty (with some noted exceptions).  Did people participate?  Who knows…as the saying goes, “you can bring a horse to water, but you can’t make him drink it.”

Popularity of Pilot Program

Due in part to the success of the pilot program which concluded June 2, 2015, the IRS formalized the program continuing this relief program with Rev. Proc. 2015-32.  While very similar in nature to the pilot program, relief is provided to delinquent filers who are required to submit the 5500-EZ.   If the taxpayer meets the requirements, they will not incur any penalty for the late filings BUT will pay an administrative fee for the late filing(s).  While this is good news, please note that a late filer will still incur a financial cost of $500 per delinquent return, up to a maximum of $1,500 per plan.  Finally, Rev. Proc. 2015-32 requires that a delinquent return be filed with Form 14704.

Important Note…and Please Take Note

In contrast to the pilot program which had not fees or penalties, the new program will still have a payment due for the delinquent filing.  Before we collectively complain, part of the administration of the plan is knowing when and if this reporting applies to you and, if so, when is it due.    But, what is nice is that the maximum late filing fee is much less than maximum penalties that could be imposed.  These penalties MAY be assessed by the IRS IF they notify you of the late filing delinquency BEFORE you (taxpayer) voluntarily complies with the relief guidance.  Obviously, one should always consult with their tax professional in complying with this procedure.

As always, the information provided is intended to be educational in nature. It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice.  Please always consult with your respective professional before taking action.