Did you miss the deadline for Form 5500 or Form 5500 EZ?

The IRS and Department of Labor (DOL) do not mess around. Failing to timely file triggers massive daily penalties from both agencies.

Late filing of Form 5500 can result in financial penalties exceeding thousands of dollars per day. A delinquent form 5500 can even trigger a DOL audit.

But you can breathe. You have options. You may be able to reduce or avoid those late filing penalties altogether.

This guide explains what plan administrators, plan sponsors, and solo 401(k) filers need to know about IRS penalty relief, reasonable cause, and how to take action fast.

What Is Form 5500 and Who Needs to File It?

The United States Treasury requires most employer-sponsored retirement plans to file an annual return. This includes traditional 401(k)s and solo 401(k)s.

You have to file by the end of the seventh month after the plan year ends. For calendar year plans, this usually means July 31. You can also file for an extension to October 15.

You probably hired a Third Party Administrator (TPA) for these reporting requirements. But you cannot pass the buck! Under Title I of ERISA, you must personally oversee the plan. If your TPA misses the deadline, a late return is still your fault.

The law considers it a direct breach of your duty.

The Shocking Cost of Late Filing: IRS and DOL Penalties

Thanks to the SECURE Act, the IRS penalties for late annual reports are severe.

The IRS enforces a penalty of $250 per day. They cap this at a maximum of $150,000 per plan year.

The department of Labor hits even harder. The DOL can assess civil penalties of up to $2,739 per day. They have no maximum cap on total fines for a delinquent form.

Think you can fly under the radar with an incomplete or late form? Think again. The DOL does not wait around. Most of the time they will slap you with a penalty notice just two months after a missed deadline.

How to Get IRS Penalty Relief and Waive Fines

Staring down a massive penalty amount? Do not panic, yet.

You have two main ways to get relief.

1. Reasonable Cause Request (IRS and DOL)

You can electronically file your late form with a letter explaining why there’s a delay.

Fiduciaries can submit a reasonable cause claim to the IRS for penalty abatement. You must prove unavoidable disruptions caused the failure to file.

What counts as reasonable? The IRS wants proof that you did not act with willful neglect. Legitimate situations include:

• Death or serious illness of the responsible person
• Natural disasters (fire, flood, etc.)
• Civil unrest or unavoidable absence
• Lost records or technological failure

If the IRS and DOL buy your story, they might just wipe out those filing penalties completely.

If they don’t buy it, they will hit you with a notice for the proposed penalty.

Do not throw in the towel just yet, though. You can always fight back and appeal their decision.

2. The DFVC Program (Penalty Relief Program)

The Delinquent Filer Voluntary Compliance, DFVC program, acts as a huge lifeline.

It lets plan administrators fix their past mistakes. You can step up, submit your overdue annual reports, and pay much smaller fines.

Here is how you use this relief program:

• You must file Form 5500 electronically using the EFAST2 system.
• You must file for each year you request relief.
• Include all required schedules and attachments (like an actuarial report or transmittal schedule).
• You must mark the “DFVC Program” box online.
• Use the DFVC program calculator to find your reduced fee.

The DFVC program does not waive all DOL penalties. However, it severely limits the total penalty charged to your business.

Rules for One Participant Plans and 5500 EZ

Are you running a solo 401(k) or a one participant plan?

You actually cannot use the DFVC program. The government forces one-participant plans to take a different route. You must use the IRS Penalty Relief Program to fix your delinquent return filed.

To qualify for the IRS 5500 EZ Relief Program, you have to meet these rules.

• You must not have received a CP 283 Notice for the delinquent return.
• You must file the late return using the original IRS form for that specific year.
• You must write on the form in red ink. The first page must be marked in red letters in the top margin. This indicates it is a delinquent return filed under the proper program to be eligible for penalty relief.

Note: Foreign plans and plans subject to the Pension Benefit Guaranty Corporation have different rules. Always consult a professional.

Stop Guessing With Your Retirement Plans

Late filing penalties can destroy your business.

You can’t afford to make a mistake when dealing with the Internal Revenue Code and ERISA laws.

If you missed a deadline, do not tackle the DFVC filing process by yourself. The paperwork is incredibly complex. One small mistake can cost you thousands in extra interest and fines.

Find a trusted tax professional that protects your livelihood before things get worse.