IRS Reminds Delinquent Small Retirement Plans of Looming June 2 Deadline for Penalty Relief
The IRS established a temporary one-year pilot program to provide a penalty relief for delinquent Form 5500 series filers that were not covered under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) (i.e., one-participant plans and certain foreign plans, effective from June 2, 2014 through June 2, 2015).
Plan sponsors and plan administrators who fail to file timely Form 5500 series annual returns/reports for their retirement plans may be subject to civil penalties under the Code. In particular, IRS may assess penalties.
A late filer will pay, upon notice and demand, a penalty of $25 for each day the failure continues, up to $15,000 per return or statement. In the case of any failure to timely file a report required by Code Sec. 6059 (actuarial report for employee benefit plans), a late filer will pay a penalty of $1,000 for each failure.
For years beginning after 2006, Sec. 1103 of the Pension Protection Act of 2006 (P.L. 109-280) provides that one-participant plans with assets of $250,000 or less at the end of the plan year are not required to file a Form 5500 series return/report. However, the IRS has determined that these plans must file an annual return/report when the plan is terminated and all assets have been distributed.
Penalty
An applicant must submit a complete Form 5500 Series return, including all required schedules and attachments, to the IRS for each plan year for which penalty relief is sought.
The relief is only available to the plan administrator or plan sponsor of a retirement plan that is subject to the filing requirements of Code Sec. 6047(e), Code Sec. 6058, and Code Sec. 6059, but is not subject to Title I of ERISA for the plan year that is delinquent. Thus, the relief under this revenue procedure is only available to the plan administrator or plan sponsor of: (1) certain small business (owner-spouse) plans and plans of business partnerships (together – one-participant plans); and (2) certain foreign plans.
A one-participant plan is a retirement plan with one or more participants that: (1) covers only the owner of the entire business (or the owner and the owner’s spouse) or covers only one or more partners (or partners and their spouses) in a business partnership; and (2) does 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).
The plan administrator or plan sponsor of a foreign plan (i.e., a retirement plan maintained outside the U.S. primarily for nonresident aliens) is eligible for relief under Rev Proc 2014-32 if the employer that maintains the plan is a domestic employer or a foreign employer with income derived from sources within the U.S., including foreign subsidiaries of domestic employers, that deducts contributions to the plan on its U.S. income tax return.
Relief is not available if a penalty has been assessed.
If you have any questions, please contact your WithumSmith+Brown professional, a member of WS+B’s National Tax Services Group or email us at [email protected].
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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
