Form 5500 late filing

We are a small nonprofit (with 6 employees) and we offer a TDA/403(b) plan and a SEP plan for our employees. Unfortunately, we are just now figuring out that we may have goofed up big time by not filing a Form 5500-SF on time for the TDA/403(b). Our plan years run from January 1 through December 31. So, apparently, we were supposed to file a Form 5500-SF by August 1, which we just realized yesterday. And, we just read yesterday that the penalty for late filing is an incredible $1,100 per day. We also now see that we could have filed a request for an extension of time to file the Form

5500-SF, and that we had to file that before August 1.

We have an "exclusive services arrangement" with the company that is our plan sponsor, which means that we pay them a fee and they prepare a Form

5500 every year for us. They used to do this for free, and we think that every year they sent us forms to sign regarding the Form 5500. However, we honestly never understood what any of it meant since it is so complicated, and we just signed the forms whenever they said we needed to do that. Now there is apparently a requirement to do the filings electronically and our understanding is that our plan sponsor set up an internal online system to do that. Unfortunately, we didn't understand whatever the new system is, and it now looks like we missed a deadline for doing that.

We did call our plan sponsor yesterday and explained our confusion about all of this and they said they are looking into it and we are waiting for a call back from them. And, to add to the confusion, there is even a question about whether we complied with the 2009 filing requirement. To the best of our recollection at this point, there was some issue about electronic filing last year and then we thought that was postponed due to "the system not being set up yet" -- either with the IRS system or our plan sponsor system -- or something like that.

So, we are just now trying to get this all resolved. We do know that the plan sponsor prepared a Form 5500 for us every year and we have copies of those prepared forms.

After reading as much as we could, and trying to understand what it all means, we have questions along two lines. One is, are we actually required to file a Form 5500 or are we exempt; and the second line of questions is what to do if we are required and if there is any way to avoid an incredible $1,100 per day penalty for late filing.

As far as possibly being exempt, we appear to meet all of the listed exemption criteria that we saw listed with one possible exception. That last exemption criteria says that our 403(b) Annuity Arrangement is exempt if,

"The arrangement offers a selection of two or more 403(b) annuity products (from competing carriers) that provides the employees with a reasonable choice in light of all relevant circumstances."

Our plan is through one company, but our employees have a fairly wide choice of funds (products?) to choose from, including funds that are through another company (Vanguard, which is not our plan sponsor company). So, does that mean we would meet that criteria of the arrangement offering "two or more 403(b) annuity products (from competing carriers)"? If so, that would be great because we think it would mean that we are exempt from even filing a Form 5500 for our 403(b) plan since we meet all of the other criteria (no employer contributions, voluntary for employees, etc.). Does it appear from the above wording about wide choice and "competing products" that we may meet that exemption criteria?

If we are not exempt, and we are therefore late in filing, is there any special approach we should use or try in order to get the penalties waived?

Reply to
Jay-B
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"Jay-B" wrote

One, get the return filed. You've got to do that before you can or should worry about anything else.

Two, when or if they ding you for penalties, lay out your position, provide pertinent facts and circumstances, and ask for forgiveness. It doesn't hurt, and often times helps.

But remember that this works only once. Put something in place to get that return filed on time.

They've been doing e-file on the 5500 for two years now, and the system will tell you if there is one prepared but not signed, filed, etc. I personally hate the e-file system for 5500's. It's complexly burdensome to get the signatures in place, much more so than individual or entity income tax returns.

Reply to
paulthomascpa

Thanks. We did get the Form 5500 for 2009 and 2010 electronically filed a few days ago. To get it done we had to have someone from the company where we have our 403(b) plan come to our office in person and walk us through the whole process and do the filing. I don't see how we could have ever figured it out on our own now that I see what is involved.

We did find out from the company that our plan is not exempt from filing. We thought that maybe we were exempt because our plan offers a wide variety of choices of funds, including funds from competing companies, that our employees can choose from. However, since all of the wide array of choices are offered through only one company (the company where we have our 403(b) plan), we are not exempt.

We also found out that there is a Delinquent Filer Voluntary Compliance Program (DFVCP) --

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-- that sets the maximum total fine and penalty for nonprofits at $750 if they voluntarily comply using that program. And, by filing both the 2009 and 2010 Form 5500 at the same time, that counts as one late filing, not two, under the DFVCP program so the total maximum is one $750 fine, not $750 for each year.

However, we still plan on submitting a letter of explanation regarding the late filing and asking for a waiver of all fines and penalties for both years. With the electronic filing system, there didn't appear to be any way to submit that request as part of the filing, so we are going to pre-emptively submit the explanatory letter by mail now since the filing is done rather than wait for them to send us a penalty letter.

Thanks again for your help and suggestions.

Reply to
Jay-B

Thanks again. Just to follow up, we did do the online electronic filing of the Form 5500 for the two years (2009 and 2010), and then we got a notice of proposed penalties from the IRS for the late filings. The total proposed penalties for the two years was $11,275. The IRS gave us the option of writing a letter of explanation if we believe we have reasonable cause for the late filings. The notice also states that if we used the Department of Labor (DOL) Delinquent Filers Voluntary Compliance Program (DFVC Program), we can provide the DFVC number to the IRS and the IRS penalties would be waived.

It turns out that late Form 5500 filers are subject to fines by BOTH the IRS and the DOL. We called the DOL and found out that if we enter the DFVC Program now, and pay that program's fine, the whole matter is resolved. But, if we wait until we receive and notice from DOL that our filings were submitted late, we are no longer eligible for the DFVC Program and we are subject to their regular fine/penalty schedule. They said we cannot first write a letter of explanation to the DOL and ask if their fines can be waived and then (if denied) later use the DFVC Program. AND, they informed us that if we first write to the IRS to request a waiver of the IRS penalties we are automatically excluded from using the DFVC Program with the DOL!

In other words, either pay the DFVC Program penalty now -- before doing anything else and before asking for any waivers -- or ask for the waivers, and if denied, be subject to huge penalties from BOTH the IRS and the DOL.

So, of course, we didn't want to take a chance, and we just did the online DFVC Program and paid the penalty. In our case, because we filed both years at the same time in one online filing, and because we are a 501(c)3 nonprofit, the penalty was capped at the maximum total payment of $750. So, we paid that online, and in two days we will get a DFVC Program number that we send to the IRS which automatically waives the IRS penalties.

Reply to
Ron

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