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Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 8. Employee Plans and Exempt Organizations Penalties (Cont. 1)

20.1.8  Employee Plans and Exempt Organizations Penalties (Cont. 1)

20.1.8.3 
Employee Plans

20.1.8.3.2  (08-23-2006)
Annual Registration and Other Notification by Pension Plan—IRC section 6652(d)(1)

  1. IRC section 6652(d)(1) imposes a penalty on a plan administrator (see IRC section 6057(a)(1)) for the failure to file by the due date, the Schedule SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. In general, plans subject to this requirement are those which result in the deferral of compensation.

  2. Plans subject to this requirement include all qualified plans or annuities under IRC section 401(a) or 403(a), and, in general, other deferred compensation plans.

  3. Plans not subject to this requirement include:

    • IRC section 414(d), government plans;

    • IRC section 414(e), church plans where no IRC section 410(d) election has been made;

    • Any plan which has not (after September 2, 1974) provided employer contributions;

    • Any plan established and maintained by a society, order, or association described in IRC section 501(c)(8) or (9), if no part of the contributions are made by employers of participants in such plan;

    • Any plans exempted pursuant to ERISA section 102, such as top hat and excess benefit plans; and

    • Plans that cover only owners and their spouses.

20.1.8.3.2.1  (08-23-2006)
Penalty Assertion

  1. In general, IRC section 6057(a) requires a plan administrator to file a registration statement for each plan year. This registration statement should include:

    1. The name of the plan;

    2. The name and address of the plan administrator;

    3. The name and taxpayer identification number of each participant in the plan, who—is separated from service covered by the plan during the plan year (if not reported in the year of separation, such separated participant must be reported in the following year); is entitled to a deferred vested benefit; and did not receive retirement benefits;

    4. The nature, amount and form of deferred vested benefit, and

    5. Other information the Service may require.

  2. The Schedule SSA must be filed as an attachment to Form 5500, Annual Return/Report of Employee Benefit Plan.

  3. Extensions of time to file: See IRM 20.1.8.3.4(4) and (5).

  4. Assess penalties under IRC section 6652(d)(1) on the plan administrator (as defined in IRC section 414(g), Plan Administrator).

  5. Penalties under IRC section 6652(d)(1) are assessed on NMF. As of January 2006, the penalties will be assessed on BMF (MFT 74). The penalty is assessed as part of the CP-213 EP penalty process. Note: Manual assessment may be asserted.

20.1.8.3.2.2  (08-23-2006)
Penalty Computation

  1. The penalty for failing to file on the due date, is equal to:

    1. $1 for each participant (for whom the required information was not filed);

    2. Multiplied by the number of days the failure continues.

    3. The penalty shall not exceed $5,000 for any plan year.

    4. For purpose of the penalty, the failure to report either the participant's name or SSN is considered a failure to report the participant. Exceptions are granted for Foreign Nationals who are not required to have an SSN. For example:
      • Form contains 10 names, but only 8 show an SSN. The penalty would be $2 multiplied by the number of days the failure continues.
      • Form contains 50 names, but it showed 60 SSNs. The penalty would be $10 multiplied by the number of days the failure continues.

20.1.8.3.2.3  (08-23-2006)
Penalty Relief

  1. IRC section 6652(d)(1) provides for non-assertion of the penalty if the plan administrator can show reasonable cause for the failure to timely file.

  2. The request for "penalty relief " due to reasonable cause must be made in the form of a written statement providing all the facts alleged as reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  3. See IRM 20.1.1 for a discussion of penalty relief.

20.1.8.3.3  (08-23-2006)
Change of Status Notice—IRC section 6652(d)(2)

  1. IRC section 6652(d)(2) imposes a penalty on the plan administrator for the failure to notify the Service, by the due date, of changes in the status of a plan as required in IRC section 6057(b).

  2. In general, the plans subject to this requirement are those plans which result in the deferral of compensation.

  3. Plans subject to this requirement include:

    • All qualified plans or annuities under IRC section 401(a) or 403(a), and

    • In general, other deferred compensation plans.

  4. Plans not subject to this requirement include:

    • IRC section 414(d), government plan;

    • IRC section 414(e), church plan where no IRC section 410(d) election has been made;

    • A plan which has not (after September 2, 1974) provided employer contributions;

    • A plan established and maintained by a society, order, or association described in IRC section 501(c)(8) or (9), if no part of the contributions are made by employers of participants in such plan; and

    • Any plans exempted pursuant to ERISA section 102 such as top hat or excess benefits plans.

20.1.8.3.3.1  (08-23-2006)
Penalty Assertion

  1. IRC section 6057(b) requires the plan administrator to notify the Service of:

    1. Any change in the name of the plan;

    2. Any change in the name and address of the plan administrator;

    3. Termination of the plan;

    4. Merger or consolidation of the plan with any other plan; or

    5. Division of the plan into two or more plans.

  2. Extensions of time to file: See IRM 20.1.8.3.4(4) and (5).

  3. Assess penalties under IRC section 6652(d)(2) on the plan administrator (as defined in IRC section 414(g), Plan Administrator).

  4. Penalties under IRC section 6652(d)(2) are assessed on NMF. They are computed after the return is processed at the Master File, or they may be asserted by the EP/EO specialist.

20.1.8.3.3.2  (08-23-2006)
Penalty Computation

  1. The penalty for failing to file the form on the due date in the prescribed manner is equal to:

    1. $1 for each failure;

    2. Multiplied by the number of days the failure continues.

    3. The penalty shall not exceed $1,000 for failure to file any notification.

20.1.8.3.3.3  (08-23-2006)
Penalty Relief

  1. IRC section 6652(d)(2) provides for non-assertion of the penalty if the plan administrator can show reasonable cause for the failure to timely file.

  2. The request for "penalty relief " due to reasonable cause must be made in the form of a written statement providing all the facts alleged as reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  3. See IRM 20.1.1 for more information relating to penalty relief.

20.1.8.3.4  (08-23-2006)
Information Required in Connection with Certain Plans of Deferred Compensation, Etc.—IRC section 6652(e)

  1. IRC section 6652(e) imposes a penalty for failure to file annual returns and statements by the due date and in the prescribed manner required under:

    1. IRC section 6058, relating to certain plans of deferred compensation,

    2. IRC section 6039D, relating to certain fringe benefit plans, and

    3. IRC section 6047(d), relating to certain trusts, and annuity and bond purchase plans, is penalized under IRC section 6721.

  2. In general, IRC section 6058(a), requires the employer, or the plan administrator, of each funded plan of deferred compensation, to file an annual return (Form 5500 (series), Annual Return/Report of Employee Benefit Plan). See Exhibit 20.1.8–1, Plans Filing Requirements, and Exhibit 20.1.8–2, Plans Exempt From Filing.

  3. Due Date: In general, the due date for the Form 5500, Annual Return/Report of an Employee Benefit Plan, and appropriate schedules is:

    1. Full plan year: The appropriate Form 5500 and its applicable schedules must be filed by the last day of the 7th month after the plan year ends.

    2. Short plan year: Form 5500 and its applicable schedules must be filed by the last day of the 7th month after the short plan year ends.

  4. Extension of Time to File:

    1. A one time extension of time to file Form 5500 and its required schedules (up to 21/2 months) may be granted by filing Form 5558, Application for Extension of Time to File Certain Employee Plan Returns.

    2. Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, starts the statute of limitations running with respect to particular excise taxes, including those under section 4975. The filing of Form 5330 may be extended for up to 6 months.

    3. Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, must be filed on or before the original due date of the Form 5500 (series) and Form 5330.

  5. Plans are automatically granted extensions of time to file Form 5500 and its required schedules until the extended due date of the Federal income tax return of the employer and are not required to file Form 5558, if all the following conditions are met:

    1. The plan year and the employer's tax year are the same;

    2. The employer has been granted an extension of time to file its Federal income tax return to a date later than the normal due date for filing the Form 5500; and

    3. A copy of the extension of time to file the Federal income tax return is attached to the Form 5500 when filed.

  6. Plans granted an extension under the conditions in (5) above, cannot further extend the due date by filing a Form 5558.

20.1.8.3.4.1  (08-23-2006)
Penalty Assertion

  1. The penalty is imposed against the person responsible for failure to file.

    Failure to file the... The party liable for the penalty is...
       
    Form 5500 series (annual return) The Plan administrator (within the meaning of IRC section 414(g)) or the employer (who may be jointly and severally liable).
       
    Form 5310-A in the case of a merger, consolidation, or transfer of plan assets or liabilities. The Plan administrator
    Form 1096 or 1099-R In the case of a (i) trust, the trustee; (ii) custodial account, the custodian; and (iii) an annuity contract, the issuer.

  2. In general, IRC section 6058(b), requires a plan administrator to file an actuarial statement of valuation evidencing compliance with IRC section 401(a)(12), in the case of a merger, consolidation or transfer of assets or liabilities from one plan to another.

    1. The Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities, was designated by the Service as the form to be used for satisfying the requirements.

    2. The Form 5310-A should be filed when there is a plan merger, consolidation, spinoff, or when there is a transfer of assets or liabilities to another plan. When meeting this criteria, Form 5310-A should be filed by the plan administrator or plan sponsor for a pension plan, profit-sharing plan, or a deferred compensation plan (except a multi-employer plan covered by PBGC insurance).

    3. The Form 5310-A must be filed at least 30 days prior to a plan merger, consolidation, spinoff, or transfer of liabilities to another plan. The form is late if not filed at least 30 days before any of these referenced activities.

  3. The instructions to Form 5310-A provide that a Form 5310-A is not to be filed for:

    1. An eligible rollover that is paid directly to an eligible retirement plan in a direct rollover as described in IRC section 401(a)(31), Optional Direct Transfer of Eligible Rollover Distributions; or

    2. The plan merger or consolidation, spinoff, or transfer of plan assets or liabilities complies with Regs. 1.414(l)-1(d), Merger of defined contribution plans, Regs. 1.414(l)-1(h), De minimis rule for merger of defined benefit plan, Regs. 1.414(I)-1(m), Spinoff of a defined contribution plan, or Regs. 1.414(I)-1(n)(2), Spinoff of a defined benefit plan, de minimus rule.

  4. In general, IRC section 6047(d) requires Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) and Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc.) to be filed by the employer maintaining, or the plan administrator of, a plan from which designated distributions may be made, or by the issuer of a contract under which such distributions may be made.

    1. Designated distributions are defined in IRC section 3405(e)(1) and include, generally, any includible non-wage distributions from an employer deferred compensation plan, an IRA, or a commercial annuity.

    2. A separate Form 1099-R must be made for each payee, but is not required if the aggregate payment to the payee is less than $10.

    3. Form 1099-R is required to be furnished to the payee by January 31 following the year of the distribution; Form 1096 with Forms 1099-R is required to be filed with the Service by February 28 following the year of the distribution.

  5. In general, IRC section 6039D requires every employer maintaining a specified fringe benefit plan, to file a Form 5500 and Schedule F, Fringe Benefit Plan Annual Information Return. Schedule F must be attached to page 1 of Form 5500 (series), Return/Report of Employee Benefit Plan.

    1. Plans generally required to file are IRC section 125, Cafeteria Plans and IRC section 127, Educational Assistance Programs, and IRC section 137, Adoption Assistance Programs.

    2. Plans generally not required to file are IRC section 127, Educational Assistance Programs (when only job-related training that is deductible under IRC section 162, Trade or Business Expenses), IRC section 79, Group Term-Life Insurance Purchased for Employees, IRC section 105, Amounts Received Under Accident and Health Plans, IRC section 106, Contributions By Employer to Accident and Health Plans; IRC section 120, Amounts Received Under Qualified Group Legal Services Plans; and IRC section 129, Dependent Care Assistance Programs.

  6. Rev. Rul. 84-54, 1984-1 C.B. 260, provides that IRC section 6652(e) penalties do not apply to the failure to file the following Form 5500 schedules, but rather the penalties imposed by IRC sections 6692 and 6652(d)(1):

    1. Schedule B, Actuarial Information

    2. Schedule SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits.

  7. Assess penalties under IRC section 6652(e) on the plan administrator (as defined in IRC section 414(g), Plan Administrator).

  8. The penalty under IRC section 6652(e) is assessed on NMF. It is computed after the return is processed at the Master File, or it may be asserted by the EP/EO specialist.

20.1.8.3.4.2  (08-23-2006)
Penalty Computation

  1. The penalty for failing to file any form required under sections 6058, 6047 and 6039D on the due date in the prescribed manner is equal to:

    1. $25 for each failure;

    2. Multiplied by the number of days the failure continues.

    3. The penalty shall not exceed $15,000 for the failure to file any return.

20.1.8.3.4.3  (08-23-2006)
Penalty Relief

  1. IRC section 6652(e) provides for non-assertion of the penalty if reasonable cause can be shown.

  2. The request for "penalty relief " due to reasonable cause must be made in the form of a written statement providing all the facts alleged as reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  3. In Alton OB-Gyn, Ltd. v. United States, 789 F. 2d 515 (7th Cir. 1986), the taxpayer's reliance on a bank, as plan's trustee, to handle ministerial duties of taxpayer's pension and profit-sharing plans, did not constitute reasonable cause for the failure to timely file the required Form 5500 series return.

20.1.8.3.5  (08-23-2006)
Failure to Give Notice to Recipients of Certain Pension, Etc., Distributions—IRC section 6652(h)

  1. IRC section 6652(h) imposes a penalty for each failure to give notice concerning withholding to recipients of distributions from an employer's deferred compensation plan or an IRA as required by IRC section 3405(e)(10)(B). The penalty is imposed on the payor.

20.1.8.3.5.1  (08-23-2006)
Penalty Assertion

  1. In general, IRC section 3405(e)(10)(B) requires that the "payor" of:

    1. Any annuity or similar periodic payment must provide the "Payee" a notice of the right to elect not to have withholding made on such payment; or

    2. Any distribution which is not in the form of an annuity or a periodic distribution must provide the "Payee" a notice of the right to elect not to have withholding made on such payment.

  2. In general, these requirements pertain to payments and distributions made from employer deferred compensation plans, individual retirement plans, and commercial annuities.

  3. Due Date: The notice of election must be transmitted no earlier than six months before the first payment and no later than when the first payment is made.

    1. For periodic payments, notice must also be provided at least once in each calendar year of the right to make and revoke the election.

    2. Temporary Regs. 35.3405-1 D-21, D-22, D-25, and D-26 provides examples of notices that can be used to satisfy the notice requirements.

  4. The penalty under IRC section 6652(h) is identified by the TE/GE specialist.

  5. The penalty is assessed on NMF. As of January 2006, all new Form 5500 penalties will be assessed on BMF (MFT 74).

20.1.8.3.5.2  (08-23-2006)
Penalty Computation

  1. The penalty under IRC section 6652(h) is $10 for each failure to give notice, up to a maximum penalty of $5,000 for all such failures per calendar year.

20.1.8.3.5.3  (08-23-2006)
Penalty Relief

  1. IRC section 6652(h) provides for non-assertion of the penalty if the payor can show that the failure was due to reasonable cause and not willful neglect.

  2. See IRM 20.1.1 for a discussion of penalty relief.

20.1.8.3.6  (08-23-2006)
Failure to Give Written Explanation to Recipients of Certain Qualifying Rollover Distributions—IRC section 6652(i)

  1. IRC section 6652(i) imposes a penalty for each failure to timely provide a written explanation of an eligible rollover distribution as required by IRC section 402(f), Written Explanation to Recipients of Distributions Eligible for Rollover Treatment.

20.1.8.3.6.1  (08-23-2006)
Penalty Assertion

  1. In general, IRC section 402(f) requires plan administrators of qualified plans to provide a written explanation to recipients of eligible rollover distributions that explains:

    1. The rules under which a recipient may elect a direct rollover to an eligible retirement plan;

    2. Withholding of income tax if there is no direct rollover;

    3. The rules which permit tax deferral on the distribution if it is rolled over into an eligible retirement plan within 60 days of distribution;

    4. If applicable, the notice must also contain information regarding IRC section 402(d), Tax on Lump Sum Distributions; and

    5. Other Rules Applicable to Exempt Trusts.

  2. In general an eligible retirement plan includes the following:

    • IRC section 408(a), individual retirement accounts;

    • IRC section 408(b), individual retirement annuity (other than an endowment contract);

    • IRC section 401(a), trusteed plans;

    • IRC section 403(a) annuity plans.

  3. An eligible rollover distribution means any distribution to an employee of all or part of the balance to the credit of the employee in a qualified trust, other than certain periodic payments, hardship distributions, and distributions required by IRC section 401(a)(9).

  4. Due Date: The explanation must be provided no less than 30 days and no more than 90 days before the date of the distribution.

  5. The penalty under IRC section 6652(i) is identified by the EP specialist.

  6. The penalty is assessed on NMF. As of January 2006, all new Form 5500 penalties will be assessed on BMF (MFT 74).

20.1.8.3.6.2  (08-23-2006)
Penalty Computation

  1. The penalty under IRC section 6652(i) is $100 for each failure to provide a written explanation, up to a maximum penalty of $50,000 for all such failures per calendar year.

20.1.8.3.6.3  (08-23-2006)
Penalty Relief

  1. IRC section 6652(i) provides for non-assertion of the penalty if the payor can show that the failure was due to reasonable cause and not willful neglect.

  2. See IRM 20.1.1 for a discussion of penalty relief.

20.1.8.3.7  (08-23-2006)
Fraudulent Statement or Failure to Furnish Statement to Plan Participant—IRC section 6690

  1. IRC section 6690 imposes a penalty on a plan administrator who:

    1. Willfully fails to furnish a statement to a plan participant showing the information at the time and in the manner required by IRC section 6057(e), Individual Statement to Participant, or

    2. Willfully furnishes a false or fraudulent statement.

20.1.8.3.7.1  (08-23-2006)
Penalty Assertion

  1. In general, the individual statement to a participant, required by IRC section 6057(e) and Regs. 301.6057-(1)(e) must include the following:

    1. A description of the participant's deferred vested retirement benefit;

    2. Information filed with respect to the participant on Schedule SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits; and

    3. Advise the participant of any benefits that are forfeitable in the event the participant dies before a certain date. See IRC section 6057(a).

  2. Due Date: The due date for delivering the statement to the individual is no later than the due date (including extensions) for the Schedule SSA that reports information with respect to the individual.

  3. The penalty under IRC section 6690 can be identified by the EP specialist.

  4. The penalty is assessed on NMF. As of January 2006, all new Form 5500 penalties will be assessed on BMF (MFT 74).

  5. The penalty under IRC section 6690 is not subject to deficiency procedures described in IRM 20.1.1.4.

20.1.8.3.7.2  (08-23-2006)
Penalty Computation

  1. The penalty is imposed at $50 for each act or failure with no maximum.

20.1.8.3.7.3  (08-23-2006)
Penalty Relief

  1. IRC section 6690 provides a penalty for willfully failing to provide the statement, or willfully furnishing a false or fraudulent statement. Therefore, this Code section does not provide for reasonable cause consideration.

20.1.8.3.8  (08-23-2006)
Failure to File Actuarial Report—IRC section 6692

  1. IRC section 6692 imposes a penalty on the plan administrator of a defined benefit plan to which IRC section 412 (Minimum Funding Standard) applies, when the plan administrator fails to file an actuarial report (Form 5500, Sch B), in the time and manner as required by IRC section 6059, Periodic Report of Actuary.

20.1.8.3.8.1  (08-23-2006)
Penalty Assertion

  1. The penalty under IRC section 6692 is imposed if there is a failure to file Schedule B, Actuarial Information, which must be filed as an attachment to the appropriate Form 5500 (series) return.

    Failure to... Is considered a failure to file...
       
    Provide a material item of information required by Schedule B the actuarial report.
       
    Provide base information required by the actuarial report upon an actuarial valuation made in the time and manner required by IRC section 412(c)(9) the actuarial report.
       
    Sign Schedule B by an enrolled actuary the actuarial report.

  2. The penalty is imposed on the plan administrator. If more than one plan administrator is responsible for the failure, all are jointly and severally liable.

  3. The penalty under IRC section 6692 is assessed on NMF.

  4. The penalty may be computed when the return is filed or asserted by the EP specialist.

20.1.8.3.8.2  (08-23-2006)
Penalty Computation

  1. The penalty is imposed at $1,000 for each failure to file with no maximum.

  2. The penalty is computed after the return is processed at the master file.

20.1.8.3.8.3  (08-23-2006)
Penalty Relief

  1. IRC section 6692 provides for non-assertion of the penalty if the responsible party can show that the failure was due to reasonable cause.

    Note:

    The failure of an actuary to give the plan administrator a complete Schedule B on time is not reasonable cause.

  2. The request for "penalty relief " due to reasonable cause must be made in the form of a written statement providing all the facts alleged as reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  3. See IRM 20.1.1 for a discussion of penalty relief.

20.1.8.3.9  (08-23-2006)
Failure to Provide Reports on Certain Tax-Favored Accounts or Annuities; Penalties Relating to Designated Nondeductible Contributions—IRC section 6693

  1. Covered under this sub-section are each of the penalties imposed by IRC section 6693:

    1. IRC section 6693(a), Person required to report or file a disclosure statement;

      Note:

      IRC section 6693(a) provides that the penalty thereunder does not apply to information returns or payee statements regarding payments to other persons required by IRC section 408(i). The failure to satisfy IRC sections 408(i) regarding payments to other persons is penalized under IRC sections 6721 and 6722.

    2. IRC section 6693(b)(1), Overstatement of Designated Nondeductible Contributions;

    3. IRC section 6693(b)(2), Failure to File Form; and

    4. IRC section 6693(c), Penalties Relating to Simple Retirement Accounts.

20.1.8.3.9.1  (08-23-2006)
Penalty Assertion—IRC section 6693(a)

  1. IRC section 6693(a) imposes a penalty on the failure to furnish a report required by IRC section 408(i) and (l).

  2. IRC section 408(i) requires that:

    1. Annual calendar year reports be made on Form 5498, Individual Retirement Arrangement Information, concerning the status of the account or annuity.

    2. Each trustee or issuer required to file Form 5498 is also required to furnish the participant a statement containing the information required to be furnished on Form 5498 plus the value of the account or annuity at the end of the calendar year. A copy of the Form 5498 may be used to satisfy this requirement.

    3. The disclosure statements and copies of the governing instruments be provided to benefited individuals. A benefited individual is the individual for whom an individual retirement account, individual retirement annuity, or an endowment contract is established. A benefited individual also includes both the working and non-working spouse in the case of spousal individual retirement accounts.

      Note:

      The penalty for failure to satisfy these requirements of IRC section 408(i) is imposed on the trustee of an individual retirement account or, in the case of an individual retirement annuity or endowment contract, the issuer. This includes an account or annuity that is part of a SEP or a SIMPLE IRA plan.

  3. IRC section 408(l) requires that an employer who:

    1. Makes contributions to a simplified employee pension (SEP) on behalf of employees make reports to employees upon adoption of the SEP indicating its adoption, contribution requirements, and allocation basis.

    2. Adopts a SEP furnish employees a written statement each calendar year indicating the amount of employer contribution to the employee's IRA. This requirement is satisfied if the information is contained on the employee's W–2 for the calendar year in which the contribution is made.

      Note:

      The penalty for failure to satisfy these requirements of IRC section 408(I) is imposed on the employer maintaining the SEP.

  4. Due Date: IRC section 6693(a):

    1. The annual report is to be filed, accompanied by transmittal Form 1096, on or before May 31 following the calendar year for which the Form 5498 is required.

    2. In general, the disclosure statement and a copy of the governing instrument must be received by the benefited individual at least seven days preceding the earlier of the date of establishment or purchase of the account, annuity, or endowment contract.

    3. Reports required on the adoption of a SEP are to be furnished to an employee no later than a reasonable time after the later of the time the employee becomes employed or the time of the adoption of the simplified employee pension arrangement.

    4. SEP contribution reports made on Form W–2 are required to be furnished to the employee no later than the later of 30 days after the contribution or January 31 the calendar year for which the contribution was made.

  5. IRC section 6693(a) also applies to reports required to be filed under:

    1. IRC section 220(h) relating to medical savings accounts ("MSAs" );

    2. IRC section 529(d) (relating to qualified State tuition programs) (effective after December 31,1997); and

    3. IRC section 530(h) (relating to education individual retirement accounts).

20.1.8.3.9.2  (08-23-2006)
Penalty Assertion—IRC section 6693(b)(1) and (2)

  1. IRC section 6693(b)(2) imposes a penalty on the failure to furnish information under IRC section 408(o)(4).

  2. IRC section 408(o)(4) requires that an individual who makes designated nondeductible contributions to an IRA for any taxable year or receives a distribution from an IRA to which nondeductible contributions have been made for any taxable year report such contributions or distribution, as well as other information, on Form 8606, Nondeductible IRAs.

  3. IRC section 6693(b)(1) imposes a penalty on the overstatement of designated nondeductible contributions made on Form 8606.

  4. The penalty for failure to satisfy the requirements of IRC section 408(o) is imposed on the taxpayer who made the contributions or received the distribution.

  5. Due Date. Form 8606 is required to be filed as an attachment to the Form 1040 (series). If no 1040 return is required, the Form 8606 must still be filed by the due date of the Form 1040.

  6. The penalty under IRC section 6693(a) and (b):

    1. Can be identified by the EP field agent;

    2. Is assessed on NMF; and

    3. Is not subject to deficiency procedures described in IRM 20.1.1.4.

20.1.8.3.9.3  (08-23-2006)
Penalty Assertion—IRC section 6693(c)

  1. IRC section 6693(c) imposes a penalty on the failure to furnish certain information required under IRC section 408(i) and 408(l)(2) to participants in SIMPLE IRA plans described in IRC section 408(p).

    1. IRC section 408(l)(2) requires that the trustee or issuer of IRA set up to receive contributions under an employer's SIMPLE IRA plan each calendar year furnish the employer a summary description containing information regarding the SIMPLE IRA plan, the employer maintaining the plan, and the trustee or issuer.

    2. IRC section 408(l)(2) also requires that an employer maintaining a SIMPLE IRA plan notify eligible employees of their right to participate in the plan. Such notice must include a copy of the applicable summary description.

    3. IRC section 408(i) requires that the trustee or issuer of SIMPLE IRAs provide the SIMPLE IRA owners within 31 days after each calendar year a statement showing the account balance at the close of the calendar year and the account activity during that calendar year. A copy of the Form 5498 may be used to satisfy this requirement.

    4. Further information on the summary description, the notice, and the statement described abov