The Form 5330[1], an excise tax return used by certain employers and individuals to pay penalty taxes, must be filed electronically for taxable years ending on or after December 31, 2023. As described below, this may create issues for sponsors of qualified retirement plans.

Last year, the Department of the Treasury published final regulations that established a new mandatory electronic filing requirement for the Form 5330, effective for taxable years ending on or after December 31, 2023.[2] These rules will require Form 5330 to be submitted by an authorized provider for periods beginning on or after January 1, 2024. This may raise issues for employers that sponsor qualified retirement plans, as the Form 5330 is used to pay excise taxes when an employer makes a late deposit of salary deferral contributions. It also is commonly used to pay excise taxes owing on corrective distributions of salary deferral contributions from the plan as a result of a failure to satisfy the annual nondiscrimination tests if those distributions are made more than 2.5 months after the end of the plan year.

Who has to e-file?

An employer or individual is required to electronically file if they filed with the IRS at least 10 returns of any type (such as W-2, 1099, 941, etc.) during the calendar year in which the Form 5330 is due. Since many employers file at least 10 returns during a calendar, many will be subject to this mandatory e-filing requirement.

Who is an Authorized E-file Provider?

Electronic filing can only be done through an Authorized e-file Provider (“AEP”). Currently, there is only one AEP listed on the IRS website for the Form 5330[3]. However, based on our review of this vendor’s website as of the date of this posting, the website does not list the Form 5330 as one of the available forms the vendor files electronically.

We are aware that many retirement plan third-party administrators (“TPAs”) are seeking approval to be an AEP during 2024 and are anticipating being in a position to e-file the Forms 5330 before the filing deadline of March 31, 2025 (applicable to the deadline for the excise taxes on late corrective distributions from a retirement plan that occur in 2024). However, these TPAs cannot guarantee approval prior to the deadline.

Unfortunately, employers do not have the option of filing the Forms 5330 by paper even with the lack of AEPs. The final regulations state that filing by paper will be considered a failure to file the Form 5330 unless an exemption or exception applies, such as undue financial hardship. As the deadline to file the Form 5330 becomes closer, if TPAs or other vendors are not approved, it is anticipated that the IRS may provide relief from the e-filing requirement. As of the date of this post, such relief has not been provided.

[1] The Form 5330 is used to report and pay excise taxes incurred under Code Sections 4965(a)(2) for prohibited tax shelter transactions; 4971(a) and (b) for minimum funding deficiency; 4971(f) for a failure to pay liquidity shortfall; 4971(g)(2) for a failure to comply with a funding improvement or rehabilitation plan; 4971(g)(3) for a failure to meet requirements for plans in endangered or critical status; 4971(g)(4) for a failure to adopt a rehabilitation plan; 4971(h) for a failure to adopt a funding restoration plan; 4972 for nondeductible contributions to qualified plans; 4973(a)(3) for excess contributions to a section 403(b)(7)(A) custodial account; 4975 for a prohibited transaction; 4976 for a disqualified benefit provided by funded welfare plans; 4977 for excess fringe benefits; 4978 for certain employee stock ownership plan dispositions; 4979 for excess contributions to plans with cash or deferred arrangements; 4979A for certain prohibited allocations of qualified securities by an ESOP; 4980 for reversions of qualified plan assets to employers; and 4980F for a failure of an applicable plan reducing future benefit accruals to satisfy notice requirements.

[2] The final regulations are available here.

[3] The list of AEPs for the Form 5330 can be found at this link: https://www.irs.gov/charities-non-profits/tax-year-2022-other-tax-exempt-entities-modernized-e-file-mef-providers-form-5330.