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Thursday, October 20, 2011

The IRS Employee Plans Compliance Unit recently announced that they would be sending letters to plan sponsors whose Form 5500 filings were six to nine months late. From our experience, these letters are usually sent because there was a simple error, such as transposed numbers in the employer’s EIN or failing to mark a final return filed in a prior year as the “Final Return/Report.” Most often, a corrected copy of the Form 5500 will suffice to make the IRS go away for this purpose. A failure to respond to a compliance check letter could result in an audit referral to the IRS’s Employee Plans Examinations or the Department of Labor (“DoL”).

If an employer discovers a simple error, such as those noted above, whether via a letter from the IRS or otherwise, we generally recommend that the employer file an amended return with the DoL processing center coupled with an explanation detailing the error being corrected. The IRS and DoL are not always able to coordinate as efficiently as we or they would like, so sending a revised return to the IRS does not necessarily mean that the DoL has received it. The employer could be contacted separately by the DoL for the same reason the IRS contacted them, even after the IRS has notice of the corrected filing. Admittedly, filing an amended return does not always alleviate this additional hassle, but it has the potential to head it off at the pass and it makes dealing with the DoL much simpler should they also send a letter on the same issue.

If in fact the employer has not filed a Form 5500, the good news is that a notice from the IRS does not preclude the employer from using the DoL’s Delinquent Filer Voluntary Compliance Program (the “DFVCP”). The DFVCP provides reduced penalties for failure to file Forms 5500 than those that would otherwise be assessed on audit. If you get a letter from the IRS and discover you haven’t filed, we recommend contacting your Bryan Cave attorney as soon as possible to get the DFVCP filing in process.

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