IRS Guidance Provides Penalty Relief and Establishes Pilot Program for Late Filers of Form 5500
The Internal Revenue Service (IRS) issued Notice 2014-35 and Revenue Procedure 2014-32. Notice 2014-35 provides relief from certain IRS penalties for the late filing of a Form 5500 return. Revenue Procedure 2014-32 establishes a temporary relief program for the late filing of a Form 5500 return for non-Title I retirement plans.
On May 9, 2014, the IRS issued Notice 2014-35 and Revenue Procedure 2014-32, which provide penalty relief to late filers of certain retirement plans (IRS Notice 2014-35, 2014 WL 1869793; IRS Rev. Proc. 2014-32, 2014 WL 1869793). Specifically, Notice 2014-35 provides relief from late filing penalties for plans subject to Title I of ERISA that file a late Form 5500 series return, while Revenue Procedure 2014-32 establishes a one-year pilot program providing relief from late filing penalties for plans not subject to the reporting requirements of Title I.
ERISA and the IRC provide penalties for the late filing of a Form 5500 series return and other information. The DOL's Delinquent Filer Voluntary Compliance (DFVC) Program allows plans that fail to timely file their annual reports to admit to noncompliance in exchange for reduced penalties (see Legal Update, DOL Notice Updates Delinquent Filer Voluntary Compliance (DFVC) Program (www.practicallaw.com/8-523-8111)). Benefit plans participate in the program by filing an application and submitting the late annual reports. Under Notice 2014-35, the IRS will not impose penalties under IRC Sections 6652(d), 6652(e) and 6692 for a plan's late filing of a Form 5500 series return (including Forms 5500, 5500-SF or 8955-SSA) or an IRC Section 6059 actuarial report, for a year for which one of these forms must be filed, if the person:
Is eligible for and satisfies the requirements of the DOL's DFVC Program for a delinquent Form 5500 series return for that year.
Files separately with the IRS a Form 8955-SSA that:
meets the requirements of Notice 2014-35; and
provides the information required under IRC Section 6057 for the year at issue in the DFVC filing.
Notice 2014-35 provides relief from the IRC penalties for a late Form 5500 series return only if the applicable Form 8955-SSA is filed on paper with the IRS for the year at issue. However, the DFVC program requires that Form 5500 series returns be filed electronically using the EFAST2 system, to obtain relief from any applicable ERISA penalties.
A Form 8955-SSA filed under Notice 2014-35 must be filed by the later of 30 calendar days after the filer completes the DFVC filing or December 1, 2014. Filers need not file a separate application for relief in addition to the requirements of Notice 2014-35. The relief provided under Notice 2014-35 is only available to plans that must file a Form 5500 series return under ERISA Title I, which means that Form 5500-EZ and Form 5500-SF filers for plans without employees are not eligible for the relief in Notice 2014-35. Delinquent Form 5500 series filers that are not covered under ERISA Title I can use the temporary pilot program established under Revenue Procedure 2014-32 (see Revenue Procedure 2014-32).
Revenue Procedure 2014-32
Under the pilot program established by Revenue Procedure 2014-32, the IRS will not impose penalties under IRC Sections 6652(e) and 6692 on a retirement plan sponsor or administrator for a plan's late filing of a Form 5500 series return (including Forms 5500, 5500-SF or 8955-SSA), if the plan is subject to the filing requirements of IRC Sections 6047(e), 6058 and 6059 but is not subject to Title I of ERISA for the plan year that is delinquent. This means that relief under Revenue Procedure 2014-32 is only available to the plan administrator or sponsor of certain:
Small business plans ("owner-spouse plans") and plans of business partnerships (together referred to as "one-participant plans").
Retirement plans that are subject to Title I of ERISA for the plan year in which the filing is delinquent are not eligible for penalty relief under Revenue Procedure 2014-32. They can seek relief for delinquent Form 5500 filing under Notice 2014-35 (see Notice 2014-35).
Under Revenue Procedure 2014-32, the IRS will not impose any penalty on one-participant plans and foreign plans for delinquent filing of a Form 5500 series return if the applicant submits to the IRS:
A complete Form 5500 Series return, including all required schedules and attachments, for each plan year for which the applicant seeks relief. These returns must be filed independently of the DFVC EFAST2 filing system. Each Form 5500 Series return submitted to the IRS must be marked, in red letters at the top margin of the first page, "Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief."
A completed paper copy of the Transmittal Schedule provided in the appendix of Revenue Procedure 2014-32, attached to the front of each delinquent return.
Multiple Form 5500 Series returns covering several plan years may be included in a single submission. These forms must be mailed to different addresses, depending on whether the applicant submits a Form 5500 or Form 5500-EZ.
Under Revenue Procedure 2014-32, delinquent filers can submit an application for penalty relief from June 2, 2014 until June 2, 2015. After the temporary pilot program ends, the IRS will consider whether it should be replaced with a permanent program. Unlike the pilot program, any permanent program will include a fee or other payment.
By linking the IRS' penalty relief procedures to the DOL's DFVC Program, Notice 2014-35 gives late filers of Form 5500 Series returns an incentive to participate in the relief programs of both agencies. However, plan administrators and sponsors participating in both programs should be sure to submit Form 8955-SSA on paper with the IRS for the year at issue, even though the DFVC program requires Form 5500 series returns to be filed electronically using the EFAST2 system.
The IRS invites comments on the pilot program established by Revenue Procedure 2014-32. Plan sponsors and administrators of one-participant plans and foreign plans should follow the development of this program to see if it becomes permanent for late filers of Form 5500 Series returns.