August 14, 2023
I Received a Notice About My Form 5500. Now What?
The Form 5500 Annual Return/Report of Employee Benefit Plan serves to provide information to both the Department of Labor (DOL) and the Internal Revenue Service (IRS) to ensure the welfare of employees participating in the plans covered by Form 5500.
These agencies take this responsibility seriously, and failure to properly file the Form 5500 or reporting incorrect information, may result in substantial penalties for your organization.
When the DOL or IRS reviews the Form 5500, you may receive a written notice from either (or both) agencies regarding your filing. Recently, the DOL started sending emails to previous filers of the Form 5500 with reminders to file, and other helpful details, so it is important to monitor for these if you have been involved with a previous filing, while exercising caution that such correspondence is coming from a valid source, prior to responding.
An important reminder: Formal communication from the DOL or the IRS that requires a response will always be sent as physical correspondence, and a formal inquiry will never be initiated via telephone call, email, or fax.
DOL Communications
Your organization may receive written correspondence from the DOL. Common communications from the DOL include:
- Inquiry Letter (always sent Certified or Overnight Delivery)
- Notice of Rejection (NOR) (always sent Certified or Overnight Delivery)
- Notice of Intent to Assess a Penalty Letter (NOI) (always sent Certified or Overnight Delivery)
- Notice of Determination Letter (NOD) (sent without certification, as no response is required).
Learn more about each type of DOL communication below.
Inquiry Letter – Additional Info Needed for Form 5500 Filing
If the DOL seeks additional information regarding a Form 5500 filing, an inquiry letter is sent.
Depending on the nature of the requested information, various times to respond (with a maximum of 30 days) will be included in the letter.
Inquiry letters cover a broad scope of information contained within the Form 5500, and the complexity of the request may vary. You may feel comfortable responding to the inquiry directly, or you may wish to have a CPA advisor respond on your behalf.
Regardless of whether you choose to respond directly or not, it is always a best practice to consult with your CPA advisor prior to communicating with the DOL.
Notice of Rejection (NOR) – Deficiency Identified
This communication is issued when the DOL believes there is a deficiency in the Form 5500. The NOR may be (but is not always) issued as a follow up to an inquiry letter.
The recipient has 45 days to respond to the NOR.
An NOR requires either amending Form 5500, or providing satisfactory evidence that the originally filed Form 5500 is correct.
It is strongly recommended that a response to a NOR be crafted in tandem with your CPA advisor, especially if an amended Form 5500 is required. If the response to the NOR is acceptable to the DOL, a Notice of Satisfactory Filing will be mailed (uncertified).
Notice of Intent to Assess a Penalty (NOI)
This letter is sent when the DOL has determined a penalty is applicable. In most situations, this will be preceded by either a NOR or inquiry letter. Penalties associated with a Form 5500 filing may be severe, so it is important to act quickly to minimize your exposure.
The response time for a NOI is 35 days.
To avoid the penalty (and waiver of certain appeal rights), reasonable cause for the underlying penalized issue must be established in writing, and include a signed penalty of perjury attestation.
Notice of Determination Letter (NOD)
The DOL will issue a Notice of Determination letter (uncertified) if they determine reasonable cause was properly demonstrated by the taxpayer. Otherwise, they may issue another NOR or NOI, which will require starting the response cycle over. It is important to note that in the case of an NOI, the DOL will be expecting either an amended filing (or in the case of a delinquent filer) an initial filing of the Form 5500 to have taken place prior to assessing the reasonable cause response.
No response is required to a NOD.
IRS Communications
Your organization may also receive written correspondence from the IRS. Common communications from the IRS include:
- CP403 and CP406 – Delinquency Notice
- CP216H – Denial of Extension to File
- CP216F – Acceptance of Form 5500 or Form 8955-SSA Extension
Learn more about each type of IRS communication below.
CP403 and CP406 – Delinquency Notice
The IRS may issue a CP403 or CP406 Delinquency notice if they believe a Form 5500 should have been filed and was not. Response to these letters may be as simple as determining that a Form 5500 was filed and the information on the Return matches the information on the CP notice received.
A written response is always required for a Form CP406, and occasionally required with Form CP403.
CP216H – Denial of Extension to File
The CP216H notice may be triggered for a variety of reasons, but the key takeaway is that the IRS will consider the Form 5500 late and will begin assessing interest and penalties.
It is important to share this notice with your CPA advisor immediately to minimize interest and penalties.
CP216F – Acceptance of Form 5500 or Form 8955-SSA Extension
The IRS sends a CP216F letter when they approve a request to extend the Form 5500.
This notice should be kept for your records, but no response is required.
Understand The Penalties
While not all communications from the DOL or IRS result in penalties, failure to properly resolve them can quickly spell trouble.
If a required Independent Qualified Public Accountant Audit Report is missing or considered incomplete, penalties may be applied by the DOL at $150/day up to a maximum of $50,000.
Penalties for failing to supply critical information with the filing may be $100/day up to a maximum of $36,500, and missing or inadequate information considered to be non-critical at $10/day up to a maximum of $3,650.
Ultimately, the DOL and IRS together may assess penalties of up to $2,400 per day for non-filing.
Next Steps
Because there is a limited response window for notices, it is a best practice to notify your CPA advisor whenever you receive a communication regarding your Form 5500 from the DOL or the IRS, prior to initiating correspondence.
Your advisor can also let you know when it may be valuable to alert legal counsel.
Additionally, be on the lookout for emails that come directly from the DOL. While it would be easy to mark these as potential spam, it may be an important reminder from the DOL, following through on which may avert one of the formal notices discussed.
Need Additional Assistance?
With the expertise and guidance of the Johnson Lambert Team, your inquiries regarding a written notice or any other aspects related to your employee benefit plan can be swiftly addressed. We are here to provide the necessary assistance and ensure your peace of mind.
Disclaimer
The content contained herein is provided solely for educational purposes to Johnson Lambert LLP’s intended audience, and should not be relied upon as accounting, tax, or business advice because it does not take into account any specific organization’s facts and circumstances.
