Oops! IRS sends out erroneous Form 5500 penalty notices

A glitch in the way the Department of Labor and IRS allow Form 5500 filers to request extensions has resulted in penalties being erroneously assessed against businesses.

The erroneous penalty letters were sent because of a posting lag when businesses requested an extension to the filing of their 5500s. The IRS acknowledged the existence of the problem in a directive to IRS “phone assistors” and tax examiners. The phone assistors basically represent the IRS's call-in complaint department.

“Form 5500 filers that file their return before their extension Form 5558 has had a chance to post are receiving CP 283s assessing them a late filing penalty. Proposed changes to the penalty program would allow time for extensions to post before penalty notices are generated. However, until these changes can be implemented, tax examiners and telephone assistors should abate these penalties as Service Errors,” the IRS said in a directive.

It instructed the help center representatives to apologize to callers, abate the penalties “regardless of the amount … and prepare Letter 168C explaining the penalty has been removed due to Service Error. If the caller is an administrator or sponsor with multiple plans/clients, you may abate up to five penalties for the caller.”

For plan administrators who have received more than five penalty notices erroneously, the directive instructs the call center to “instruct the caller to put his/her request for abatement in writing” and send the letter to the IRS for relief.

“Any penalties that are erroneously assessed should be abated regardless of the amount because the penalties are due to Service Programming. Use RC 045. Send a Letter 168C explaining the penalty has been removed due to Service Error,” the directive concludes, as if driving home the point for its staffers.

 

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