It’s IRS Amnesty Time Again: The Non-Title I ERISA Plan Form 5500 Pilot Penalty Relief Program Is In Full Swing

Compass with retirement word

On May 22, 2014, the Internal Revenue Service announced it will begin a one-year pilot program to help small businesses which have not filed reporting documents for Non-Title I ERISA plans.[1] The program is nearly two months old now, having commenced this past June.   According to the news bulletin, the Service is reaching out to certain small businesses that maintain retirement plans and that may have been unaware of the Form 5500 filing requirement.

According to Tucson-based retired CPA, Dennis N. Melin of Grumpy Old Men Management Services LLC, “The instant amnesty program resonates the 2009 Offshore Voluntary Disclosure Program and 2011 Offshore Voluntary Disclosure Initiative. The OVDP and OVDI amnesties abated foreseeable penalties as the Service sought to bring those with offshore accounts into reporting compliance. Not only did the initiatives offer consistency and predictability to taxpayers in determining the amount of tax and penalties they faced, it also enabled the IRS to centralize the civil processing of offshore voluntary disclosures.”

Melin continued by adding, “Many clients came forward at that time and took advantage of the penalty relief opportunity. Of course, the IRS reduced tremendous administrative costs it would otherwise have incurred. So the program benefited all concerned parties.”

Melin believes the IRS is employing a similar strategy with the Small Business Non-Title I ERISA Plan Penalty Relief Pilot Program. “The goal is clear,” Melin shares, “penalty amnesty in exchange for voluntary reporting compliance is a good trade-off for both the IRS and taxpayers. The Voluntary Disclose Practice is a longstanding practice of IRS Criminal Investigation whereby CI takes timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.”

In my recent paper, “Changes in Form 5498 Reporting and Foreseeable IRS Correction of Self-Directed ERISA Plan Fiduciary Abuses,” I pointed to several factors indicating the IRS was about to launch a widespread assault on self-directed ERISA plan fiduciary abuses. First, it changed Form 5498 reporting requirements. The incremental hard-to-value asset disclosures become mandatory in 2015. Second, the Service won several 2013 and 2014 key Tax Court decisions: Peek (May 2013), Ellis (October 2013), Gist (January 2014), and Berks (January 2014).

The first two decisions were important for the same reasons. The Tax Court essentially held constructively owned disqualified person status preempts the operating company exception to the plan asset look-through rule. By the Tax Court’s holdings, what the taxpayers planned to have been exempt transactions became prohibited, and quite costly.

The early 2014 decisions address account valuation. An account holder is liable for Form 5498 reported values when the self-directed ERISA plan is liquidated. In both Berks and Gist, the taxpayers argued the plans were worthless. However, the Tax Court held both taxpayers liable for values reported on the Forms 5498 filed by the custodians.

I postulated the foregoing factors, taken together, indicate the IRS is positioning to attack self-directed ERISA plan fiduciary abuses. In the fiduciary relationship between the account holder and his or her self-directed ERISA plan, the plan is the principal and the account holder is the agent. ERISA policy considerations impose plan controls over the agent. And, ERISA vests the IRS with the responsibility to enforce plan principal controls over the agent.

While prohibited transactions are the most well recognized form of enforced plan controls over fiduciary abuses, other forms of fiduciary abuses are ripe for correction as well. In my foregoing paper, I teach ERISA policy considerations may well require plan real estate dealer status be determined by the totality of the circumstances among the plan, plan derived disqualified persons, the account holder, and account holder derived disqualified persons without regard to separate entity distinctions. Such dealer status will result in the non-reporting of Unrelated Business Taxable Income, the other self-directed ERISA plan taboo.

It is important advisors and their clients alike prepare for the day of reckoning that is now upon us. Taking Melin’s recognition of the Form 5500 amnesty program’s information signal together with the factors I review in my foregoing paper, it is now more clear than ever the wild and wooly days of unchecked self-directed ERISA plan fiduciary abuses are about to come to a screeching halt.

[1] The IRS news announcement is available at

*David Randall Jenkins, Ph.D., received his doctorate in accounting and a master’s in accounting with an emphasis in tax from the University of Arizona. He has taught financial, managerial, and tax accounting courses at both the graduate and undergraduate levels. Dr. Jenkins is an AACSB academically qualified business school and tax professor owing to his peer reviewed journal article publications. His company, Algorithm LLC (, is an IRS Approved Continuing Education Provider. Dr. Jenkins may be contacted at

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