Taxpayer delinquency investigation notices, sent to employers that have failed to file Forms 5500 and 5500-EZ timely for the plan year ending December 31, 2004, or later, require a response within 30 days to avoid further action and potential penalties.

The Internal Revenue Service (IRS) has begun mailing taxpayer delinquency investigation (TDI) notices to employers that, according to IRS records, failed to timely file Forms 5500 and 5500-EZ for plan years ending December 31, 2004, or later. This IRS initiative currently targets only employers that have failed to file a required Form 5500 series return rather than late or incomplete Form 5500s. The IRS has reinstated the program to allow it to obtain missing returns and to allow non-filers to become compliant.

The IRS initiates the activity by sending out a CP 403 Notice to filers 15 months after the original due date of a return. However, recognizing that some Notices will be received by employers that have fully complied with their filing obligations, the IRS asks these employers to allow the IRS to correct its records by responding to the Notices, as requested. If a response is not received, a Final Notice (CP 406) is mailed 15 weeks after the CP 403 Notice. The CP 406 Notice requests a response to the original inquiries within 30 days. The IRS guidance for these Notices indicates that an extension of time to reply is not allowed. Failure to provide a response within the applicable timeframe results in a proposed penalty assessment Notice. A response is required to the penalty assessment Notice within 30 days (an extension of time to respond to this Notice is available providing an additional 30 days to respond). If no response is received by the IRS, the matter is turned over for collection activity.

EBSA Requests for Additional Information

The IRS program should not be confused with the notices generated by the Employee Benefit Security Administration (EBSA) of the U.S. Department of Labor (DOL), which has its own notification programs. In addition to targeting non-filers, EBSA’s program also requests clarification of missing or incomplete data on Forms 5500 for all types of employee benefit plans. The DOL took over from the IRS the function of “perfecting” Form 5500 filings when the DOL’s EFAST processing system was designated as the filing location for the Form 5500 in 2000. Under the EBSA program, notices are sent to employers within specific timeframes when a response to a request for additional information is not provided.

One of the most common events that will generate a notice from EBSA involves the failure to include with the Form 5500 any required accountant’s opinion (i.e., the audited financial statements for qualified retirement plans and welfare benefit plans that utilize a welfare trust) for plans covering 100 or more participants. Other notices are generated when EBSA has identified missing or inconsistent data reported elsewhere in the Form 5500, such as failure to mark all applicable boxes on the Form 5500, failure to include any applicable extension Form 5558 with the 5500 filing for the plan, or failure to provide a “yes” or “no” response when requested. The first EBSA request for additional information or clarification requires a response within 30 days so the agency can continue to process the Form 5500.

Failure to respond to the first EBSA notice generates a Notice of Rejection of the incomplete or missing 5500. The Notice of Rejection requires a reply from the employer within 45 days. Failure to respond to the Notice of Rejection generates a Notice of Intent to Assess Penalties. The Notice of Intent to Assess Penalties must be responded to within 35 days, and must contain a statement of reasonable cause (described below) in order to request a waiver of a portion of the penalties already assessed and to delay the assessment of additional penalties. Penalties assessed for failure to file the required accountant’s opinion, for example, can amount to $50,000 to $86,000 per plan per year or more, if no acceptable reasonable cause statement is provided within the time deadline.

Both IRS and EBSA Penalties May Be Assessed on a Single Form 5500

As a consequence of this recent IRS initiative, employers that fail to file or file incomplete Form 5500 reports now may expect to be contacted by EBSA, the IRS, or both agencies with respect to the same 5500 report, depending on the violation identified.


The IRS is not permitted to impose penalties for failure to file 5500 reports for welfare benefit plans, but it can impose penalties of $25 per day, up to a maximum of $15,000, for failure of a pension plan to file a Form 5500 or a Form 5500-EZ. In contrast, EBSA may impose a penalty of up to $1,100 per day, with no maximum, for failure to file a Form 5500 for a pension, welfare or welfare/fringe benefit plan. However, EBSA does not have jurisdiction over the Form 5500-EZ and therefore only the IRS assesses penalties on Form 5500-EZ. (Form 5500-EZ is a simpler form generally designed to be used by plans covering a business owner and his or her spouse only, or partners in a business partnership, subject to other special restrictions.)

Both EBSA and the IRS will consider a written “reasonable cause” statement when determining final penalty amounts. A “reasonable cause” statement establishes reasonable cause for the failure which (i) states mitigating circumstances regarding the degree or willfulness of the noncompliance, or (ii) demonstrates that an error was made on the part of the IRS or EBSA’s processing.

DOL’s DFVC Program

There are opportunities to complete delinquent filings without being subject to these penalties. Plan sponsors whose Form 5500 filings are late, or that are unsure of the filing history of a plan (due to merger/acquisition activity, for example) or do not have copies of prior plan year Form 5500s, may want to consider the DOL’s Delinquent Filer Voluntary Correction (DFVC) program.

Employers taking advantage of the DFVC program prior to the initiation of any action by the IRS or EBSA may have their EBSA penalties reduced and IRS penalties abated. Penalties under the DFVC program start with a de minimis fee of $10 per day, with a maximum fee structure of $1,500 for each small plan and $4,000 for each large plan. There is a reduced fee of $750 for small plans (fewer than 100 participants) and for tax-exempt employers. Plan sponsors that have utilized the DFVC program have been able to reduce the risk of being assessed with significant non-filer penalties at a reasonable cost and without using significant resources. Another advantage of the DFVC program is that it ensures satisfaction of both EBSA and IRS filing requirements in a single program. However, Form 5500-EZ filers cannot utilize the DFVC program.