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IRS reminds delinquent small retirement plans of looming June 2 deadline for penalty relief

IR 2015-74

In an Information Release, IRS has reminded certain small businesses that have failed to timely file required retirement plan returns, that they have until June 2, 2015 to take advantage of a special penalty relief program that was launched last year.In Rev Proc 2014-32, 2014-23 IRB , IRS established a temporary one-year pilot program to provide Code Sec. 6652(e) and Code Sec. 6692 penalty relief for delinquent Form 5500 series filers that weren’t 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.

Background.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 under Code Sec. 6652(e) and Code Sec. 6692 for the failure to satisfy the requirements for annual returns.Code Sec. 6652(e) generally provides that in the case of any failure to timely file a return or statement required under Code Sec. 6058 (annual return of employee benefit plans) or Code Sec. 6047(e) (returns and reports for employee stock ownership plans), 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.Code Sec. 6692 generally provides that, 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.No penalty is imposed under these sections if it is shown that the failure to timely file is due to reasonable cause.(Reg. § 301.6652-3(b), Reg. § 301.6692-1(c))

Certain retirement plans that are not subject to Title I of ERISA are exempt from some of the annual reporting requirements if they satisfy certain criteria specified by statute or by IRS in published guidance.For example, for years beginning after 2006, §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 aren’t required to file a Form 5500 series return/report.(However, IRS has determined that these plans must file an annual return/report when the plan is terminated and all assets have been distributed.)

Penalty relief.Launched June 2, 2014, the one-year temporary pilot program described in Rev Proc 2014-32 provides administrative relief from the penalties imposed under Code Sec. 6652(e) and Code Sec. 6692 for a failure to timely comply with the annual reporting requirements under Code Sec. 6047(e), Code Sec. 6058, and Code Sec. 6059.(For details, see Weekly Alert ¶  22  05/15/2014.)

An applicant must submit a complete Form 5500 Series return, including all required schedules and attachments, to 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.(Rev Proc 2014-32, Sec. 4)

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).(Rev Proc 2014-32, Sec. 4.02)

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.(Rev Proc 2014-32, Sec. 4.03)

Relief is not available if a penalty has been assessed (i.e., if a CP 283 Notice, Penalty Charged on Your Form 5500 Return, has been issued by IRS to a plan sponsor or administrator) with respect to a delinquent return.(Rev Proc 2014-32, Sec. 4.05)

References:For penalties for late annual reporting by retirement plans, see FTC 2d/FIN ¶  V-1971  ; United States Tax Reporter ¶  66,924  ; TG ¶  71714  .

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