IRS Admits Sending Erroneous Penalty Notices

[kcjenkins]

IRS Admits Sending Erroneous Penalty Notices

Washington, D.C. (September 13, 2013)

By Michael Cohn

The Internal Revenue Service said Friday that approximately 4,000 plan sponsors received erroneous penalty notices.

The erroneous notices were dated between July 28 and Aug. 26, 2013. The IRS mistakenly sent out the CP 283C , Notice of Balance Due for Incomplete/Late Penalties, for the Form 8955-SSA , Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits to thousands of businesses. The agency has now fixed the problem and alerted the recipients of the erroneous notices.

“We corrected the programming error that generated the notices and abated the erroneous penalties,” the IRS said in an email to employee benefit plan professionals. “We also sent letters apologizing for the error; it isn’t necessary to reply to the notice or to contact the IRS.”

However, some of the penalty notices were correct.

“If you received an IRS penalty notice dated between July 28 and August 26, 2013, for an issue unrelated to this programming error, you must respond according to the instructions in the notice,” the IRS added.

[Mr. Pencil]

approximately 4,000 plan sponsors received erroneous penalty notices.

I've been thinking of this for a few days. It's not hard to find instances of technical errors in the IRS. Although that doesn't support all the political claims of harassment, it does support calls for simplification. Why exactly do we need an "Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits"?

[Guest Taxed]

In my younger days I used to prepare those Form 5500 and related schedules. The DOL needs to know separated participants with vested benefits because defined benefit plans must generally be insured by PBGC.

[Mr. Pencil]

The DOL needs to know separated participants with vested benefits because defined benefit plans must generally be insured by PBGC.

That sounds like the reason we need a complicated tax code is that the tax code is so complicated!

And I think that is right, and it's the reason we will never have a flat tax. Our tax system is not only about raising revenue. It is about social policy. We defer taxes to encourage saving for retirement, but then we have to account for all the deferrals.

Currently we want better health insurance so we put a big chunk of that business into the tax code. Similarly, tax policy is at the heart of the new marriage equality--the Supreme Court ruling on DOMA was about taxation of estates.

So we seem to be in a growth industry. But I don't think we should be too critical of IRS employees making mistakes, until we embrace higher standards for ourselves.

[Guest Taxed]

>>> But I don't think we should be too critical of IRS employees making mistakes, until we embrace higher standards for ourselves.

You are correct. Back in the days before PBGC companies would terminate the plan to save money and the accrued vested benefits of the employees were wiped out completely. How many times have you heard that they terminated an employee just before they got vested.

So to combat bad behavior of employers, IRS and DOL has to tweak the tax laws to prevent employers from taking advantage of employees. Because employers can not be trusted to do the right thing.

So unfortunately, "Our tax system is not only about raising revenue. It is about social policy". is true and will remain so unless the underlying factors and conditions change.