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.