IRS Establishes Penalty Relief Program for One-Participant Plans and Certain Foreign Plans | Practical Law

IRS Establishes Penalty Relief Program for One-Participant Plans and Certain Foreign Plans | Practical Law

In Revenue Procedure 2015-32 the Internal Revenue Service (IRS) established a permanent program providing relief to plan administrators and plan sponsors of certain retirement plans from penalties for failing to timely comply with the annual reporting requirements.

IRS Establishes Penalty Relief Program for One-Participant Plans and Certain Foreign Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 02 Jun 2015 • USA (National/Federal)
In Revenue Procedure 2015-32 the Internal Revenue Service (IRS) established a permanent program providing relief to plan administrators and plan sponsors of certain retirement plans from penalties for failing to timely comply with the annual reporting requirements.
On May 29, 2015, the Internal Revenue Service (IRS) issued Revenue Procedure 2015-32 which establishes a permanent program providing relief to plan administrators and plan sponsors of certain retirement plans from the penalties under Internal Revenue Code (Code) Sections 6652(e) and 6692 for failing to timely comply with the annual reporting requirements. Specifically, this revenue procedure provides relief from penalties for filing a late Form 5500 series return for plans that are subject to the reporting requirements of Code Sections 6047(e), 6058 and 6059 (26 U.S.C. §§ 6047(e), 6058 and 6059) but that are not subject to the reporting requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). This permanent program replaces the temporary pilot program established by Revenue Procedure 2014-32 (see Legal Update, IRS Guidance Provides Penalty Relief and Establishes Pilot Program for Late Filers of Form 5500).
The relief is effective June 3, 2015 and will not apply to returns submitted before this date. Returns submitted prior to this date will be processed under Revenue Procedure 2014-32. The IRS intends that this program be permanent but notes that it may be modified from time to time or terminated.

Background

ERISA and the Code provide penalties for the late filing of a Form 5500 series return and other information. The Department of Labor's (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). Under Notice 2014-35 (which replaced Notice 2002-23), the IRS will not impose penalties for a plan's late filing of a Form 5500 series return for a person that is eligible for and satisfies the requirements of the DFVC program (see Legal Update, IRS Guidance Provides Penalty Relief and Establishes Pilot Program for Late Filers of Form 5500: Notice 2014-35). However, the Notice 2014-35 relief does not apply to a delinquent Form 5500-EZ filing for plans that are not subject to the annual reporting requirements of Title I of ERISA.
Revenue Procedure 2014-32 established a one year pilot program that provided relief from late filing penalties that applied to plans not subject to the annual reporting requirements of Title I of ERISA, and therefore not eligible for the relief provided under Notice 2014-35 (see Legal Update, IRS Guidance Provides Penalty Relief and Establishes Pilot Program for Late Filers of Form 5500: Revenue Procedure 2014-32). The pilot program required applicants to complete a Form 5500 series return for each year that the applicant sought relief and did not require a penalty or payment.

Revenue Procedure 2015-32

In response to comments, the IRS replaced the one-year pilot program with a permanent program in Revenue Procedure 2015-32. The permanent program provides relief from the penalties imposed under Code Sections 6652(e) and 6692 (26 U.S.C. §§ 6652(e) and 6692) for failure to timely comply with the annual reporting requirements. The permanent program is substantially the same as the pilot program, with a few significant changes.

Eligibility

The relief is available to plan administrators of plans that are subject to the filing requirements of Code Sections 6047(e), 6058 or 6059 (26 U.S.C. §§ 6047(e), 6058 or 6059) but are not subject to Title I of ERISA for the plan year that a Form 5500 series return is delinquent. Specifically, the relief is available to:
  • One-participant plans, meaning a plan with one or more participants that:
    • covers only the owner of the entire business or one or more partners in a business partnership and their spouses; and
    • does not provide benefits for anyone except the owner or partner(s) and their spouses.
  • Foreign plans, meaning a plan maintained outside of the United States primarily for nonresident aliens, if the employer that maintains the plan is either a:
    • domestic employer; or
    • foreign employer with sources of income from within the United States that deducts contributions to the plan on its United States income tax return.
Relief is not available if a penalty has already been assessed.

Procedural Requirements

To take part in the program, filers must satisfy certain procedural requirements. Specifically, filers must submit:
  • Payment. Payment of $500 per delinquent return, up to a maximum of $1,500 per submission. Checks should note the applicant's EIN and plan number, be made payable to the United States Treasury and be attached to the Form 14704. Payment is not based on the number of days the return is delinquent. Revenue Procedure 2015-32 notes that because the lowest payment is $500 some filers who file a delinquent return less than 20 days late may prefer to pay the penalty of $25 under Code Section 6652(e) (26 U.S.C. § 6652(e)) rather than file under this program.
  • Form 5500-EZ. A complete Form 5500-EZ, including all schedules and attachments, for each plan year for which the applicant is seeking relief. A Form 5500-EZ must be filed even if the applicant could have filed a Form 5500-SF if the return had been timely filed. Applicants must generally use the Form 5500-EZ that applied for the plan year for which the return was delinquent (with certain exceptions). The form should be marked in red letters in the top margin of the first page of the return with "Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief".
  • Form 14704. A complete Form 14704 attached to the front of the oldest delinquent return in the submission.
Applicants must submit separate submissions for separate plans, but multiple delinquent returns for a single plan may be submitted in a single submission.
Submissions must be submitted on paper and mailed to Internal Revenue Service, 1973 North Rulon White Blvd., Ogden, UT 84404-0020. Submissions cannot be filed through the DOL's EFAST2 filing system. The IRS suggests that filers use tracking services to determine when delivery of their submission is completed and notes that filers may also receive notification from their bank when a check has been processed by the IRS.

Alternative to the Permanent Penalty Relief Program

As an alternative to the permanent penalty relief created by Revenue Procedure 2015-32, a plan administrator can instead file for relief due to reasonable cause. If the request is denied, the plan will not be eligible for relief under this program.

Practical Implications

The permanent program created by Revenue Procedure 2015-32 offers penalty relief to plan administrators of one-participant and foreign plans, which previously had no means of seeking relief for late-filer penalties. Plan administrators of these plans should familiarize themselves with this revenue procedure and ensure that they correctly comply with the procedural requirements or risk the IRS treating the return as ineligible for relief.