Form 5500-EZ filed late: why DFVCP does not apply and what the IRS program costs

Why DFVCP does not apply

DFVCP is a Department of Labor program. It exists to bring late filers of the ERISA annual report into compliance with Title I of ERISA, and its fee buys relief from the Department's own penalty under section 502(c)(2). A one-participant plan is not covered by Title I. It has no employees in it, so there is no employee to protect, and the Department has no penalty to waive. EBSA, DFVCP

The Department says the same thing in its own words: Form 5500-EZ filers and one-participant plans that elected Form 5500-SF in place of Form 5500-EZ are outside DFVCP because those plans are not subject to Title I. The foreign plans that file Form 5500-EZ are in the same position. They file with the IRS because the Internal Revenue Code asks for the return, not because ERISA does. The DOL calculator will price a filing if you type one in; it does not know the plan is out of scope. This clock does.

The IRS program under Revenue Procedure 2015-32

The IRS runs its own relief program for late Form 5500-EZ returns, under Revenue Procedure 2015-32. The structure is simpler than DFVCP: a flat fee per late return, a cap per submission, and no daily accrual. IRS, penalty relief program for Form 5500-EZ late filers

Under Revenue Procedure 2015-32, section 6, the IRS penalty relief program for late Form 5500-EZ filers reaches only a retirement plan that is not subject to Title I of ERISA.

Put the other way round, a plan subject to Title I for the delinquent year is not eligible for this revenue procedure. One program each, and no overlap.

Under Revenue Procedure 2015-32, the fee is $500 per delinquent return up to $1,500 per submission, and separate submissions are required for separate plans, so $1,500 is the ceiling for one plan.

So the per-return fee is $500 and the most one plan pays in a submission is $1,500, however many delinquent years go in together. That is the arithmetic a TPA needs for the owner-only plans in the book, and it is the reason those plans should never be priced next to the Title I plans in the same column.

Under Revenue Procedure 2015-32, relief is gone once a penalty has been assessed, which is when a CP 283 notice issues.

That is the condition that closes the door, and it mirrors the DFVCP notice rule. The program is for filers the IRS has not yet penalized. Once the penalty has been assessed on a return, which arrives as a CP 283 notice, that return is out of the program and the owner is into the reasonable-cause route instead. Nothing on this page reopens it.

What it costs against the penalty

The penalty the program buys off is the Internal Revenue Code's late penalty for the annual return, the same section that reaches a late Form 5500.

Under 26 U.S.C. 6652(e), the IRS penalty for a late annual return is $250 a day, capped at $150,000 per return.

Put the two side by side. One late return, three years out: the penalty runs to its cap and the program costs one flat fee. Five late returns for the same plan: five penalties at the cap against one fee per return, then the per-submission cap. The arithmetic does not need a worked example to make the point, so the example below makes a different one: the clock tells you which program applies before it prices anything.

How the submission works

The mechanics come from the Rev Proc, and the register carries them so this page cannot drift from the text. Under the Rev Proc, the delinquent year has to be filed on paper as Form 5500-EZ, never as Form 5500-SF, even where a timely Form 5500-SF could have gone through EFAST2. Each return is marked in red letters in the top margin of the first page of the return, above the title of the form, in these words: Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief. Then a completed Form 14704 goes on the front of the oldest delinquent return in the submission, and one payment covers the whole submission. IRS, Form 5500-EZ

The mistake we see most is filing the late EZ returns electronically through EFAST2 without the marking, which gets the returns on file but does not enroll them in the program. The other is running a one-participant plan through the DOL calculator, paying the DFVCP fee, and finding that the plan was never in the program. Getting that money back is a conversation with the Department. Better not to need it.

The clock's not-covered branch

Enter a plan as Form 5500-EZ and the clock stops pricing. It says, in one line, that DFVCP does not cover this form because the plan is outside Title I, and it points here. It still gives the statutory date, and the extended date if a Form 5558 went in, because those run off the plan year like any other return. What it does not do is put a figure on the row. No Department of Labor exposure, because the Department has no penalty against the plan. No program fee, because the plan cannot use the program. And no day count and no IRS figure either: the engine hands an EZ year to the Rev Proc route above rather than pricing it.

Two edges. A plan that was owner-only and then hired an employee crossed into Title I at that point, and from that plan year it files Form 5500-SF or Form 5500 and is inside DFVCP. And the clock does not test whether a one-participant plan had to file at all for a given year. That test sits in the IRS instructions for the form, the register behind this clock does not carry it, so check it before treating an EZ year as late. IRS Form 5500 corner

Most TPA books carry a handful of owner-only plans among the employee plans. Mark them EZ in the list and the register puts them in their own lane: no DFVCP line, no exposure columns, and a pointer at the Rev Proc submission. If you hold one plan, the clock is free and the answer is on the screen.

Worked example: EZ is out of scope

One plan year unfiled, and the engine returns facts and no figures.