Small Business Retirement Plan Penalty Relief

As a small business owner, it can seem downright impossible to stay on top of your tax reporting requirements. Running a business is demanding enough – and jumping through a never-ending string of hoops can be exhausting. However, as many business owners have learned the hard way, if you fail to stay in compliance with the IRS, you could find yourself facing some pretty steep penalties. Not only does this apply to your individual and corporate tax returns, but also to filing such as your retirement plan return (IRS Form 5500). Each year employers are required to submit this form to the IRS reporting certain financial and other tax related information. Unfortunately, there is a high rate of noncompliance with small business retirement plans.

To help these companies come into compliance and gain a deeper understanding of the administrative requirements, the IRS created a relief program. Launched in June 2014, the one year pilot program provides certain small business plan sponsors with the opportunity to come into compliance with no penalties or related fees. Under normal circumstances, the penalty for not filing a Form 5500 series return is $25 per day with a maximum of $15,000 per return. So if a plan administrator has years of delinquent filings outstanding then this program represents a rare opportunity to resolve the issue and avoid paying heavy fines.

Program Qualification

To qualify for the program there are a few conditions that need to be met. Generally speaking the relief program is designed to help one participant and other small company plans. As a result, the IRS requires one of the following conditions be met in order to qualify for the program. The plan must:

  • Cover only the owner of the entire business (or the owner and the owner’s spouse) or
  • Cover only one or more partners (or partners and their spouses) in a business partnership and
  • Not provide benefits for anyone except the owner (or the owner and the owner’s spouse) or one or more partners (or partners and their spouses).

It’s important to note that if a plan has already been assessed a penalty for late filings then participation in the program is not permitted.

Program Filings

If your plan meets the qualification criteria there are certain items to be aware of when making your filings with the IRS. These include:

    1. Payment – Since no penalty is assessed on late filings no payment should be sent to the IRS. Please be aware that while the pilot program does not assess any fines it’s possible in the future the program may be updated and impose a penalty structure.
    2. Filing Content & Process – Plan administrators are required to file a complete Form 5500 series return. This includes a completed Form 5500 and required schedules and attachments for each plan year relief is being sought. It’s important to note that there are special mailing addresses where these filings are to be sent and the EFAST system may not be used for filing these forms.
    3. Properly Marked Returns – The program requires that all delinquent returns be clearly marked as such when submitted. According to the IRS, this means the applicant must mark the following in red letters in the top margin of the first page, “Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief.” Failure to comply with this requirement allows the IRS to disqualify the applicant from the program and assess all fees and fines on delinquent returns (certain exceptions can be made).
    4. Transmittal Process – Each return must be sent with a paper copy of the Transmittal Schedule provided by the IRS. It’s important to note a completed schedule must be sent with each delinquent return. For example, if three late filings are submitted each one must have its separate paper copy of the transmittal schedule. Again, failure to properly follow this procedure can result in program disqualification
    5. Mailing Process – There are different mailing addresses where returns are to be submitted based on the type of Form 5500 used. For most they will be using the IRS Form 5500-EZ which should be submitted to the IRS at 1973 North Rulon White Blvd, Ogden, UT 84404. If your plan uses the traditional Form 5500 then it needs to be sent to a different mailing address.


Contact Us

If your company has not submitted the required Form 5500 then now is the time to act. It’s important to take the remaining time to come into compliance with IRS regulations. Before you submit your filings it’s best to consult with a professional that can insure you qualify for relief and guide you through the process. The last anyone wants is an unwelcome surprise. For additional information on retirement plan reporting contact JLK Rosenberger at 818-334-8623, or click here to contact us. We look forward to speaking with you soon.