In Revenue Procedure 2014-32, the Internal Revenue Service (IRS) introduced a pilot correction program for plans which are subject to the Form 5500 filing requirement under the Internal Revenue Code, but which are exempt from Title I of ERISA. This covers certain foreign plans and plans which are considered one participant plans.
HURRY – No fee or penalty applies under the pilot correction program! However, if a permanent program is established, the IRS indicated that a fee or penalty will apply to receive the relief. The pilot program is only open for one year – from June 2, 2014 through June 2, 2015.
The Department of Labor (DOL) sponsors the Delinquent Filer Voluntary Correction (DFVC) program, which allows plans which are subject to Title I of ERISA to make corrective Form 5500 filings for a reduced, set penalty, thereby avoiding the larger possible penalties for delinquent filings. A plan sponsor that corrects under the DFVC program also avoids any penalties under the Internal Revenue Code. However, the DFVC program is not available to plans that are not subject to Title I of ERISA. Therefore, a plan with only one participant cannot correct delinquent Form 5500 filings under the DOL’s DFVC program. While this type of plan could (and, in fact, still can) request relief from the IRS’s penalties if “reasonable cause” exists surrounding the failure and a statement explaining that reasonable cause is attached to the delinquent filing, that is a somewhat complicated process the result of which is somewhat uncertain since the IRS reserves discretion to waive those penalties.
Eligibility for the Pilot Correction Program: The IRS’ pilot program allows eligible plans to seek relief no later than June 2, 2015. The relief is available to (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 includes a plan which (a) covers only the owner of the entire business (or the owner and the owner’s spouse); covers only one or more partners (or partners and their spouses) in a business partnership; and 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). In addition, the pilot program is open to retirement plans maintained outside the United States primarily for nonresident aliens, if the plan sponsor is a U.S. employer or a foreign employer with U.S. source income that deducts contribution to the foreign plan on its U.S. income tax return.
Plan subject to Title I of ERISA are not eligible for the relief provided in this Revenue Procedure, and plans which have been assessed a penalty for failure to file a Form 5500 are not eligible for the relief with respect to the returns involved with the assessment.
Filing Requirements: A complete Form 5500 must be filed for the delinquent year. A paper copy of the return must be mailed to a specific address outlined in the Revenue Procedure. A filing through the DOL’s EFAST filing system will not be considered a filing under the correction program. The following statement must be included on the first page of each return in red ink: “Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief.” A completed “Transmittal Schedule” must be attached as the cover to each submitted return, even if multiple filings (for same or different plans) are filed simultaneously.
Additional specific instructions are outlined in the Revenue Procedure and should be followed to the letter to avoid having the return treated as a delinquent filing (and having a fee assessed).
The IRS requested comments on whether a permanent program should be established and, if so, what the fee structure should be to that program. It is clear that any permanent program will include a fee, so plan sponsors should move quickly to take advantage of the no-fee pilot program.