Hello All,
I've never reached out to a community forum before but I figure if ever there was a time to crowd source some help, now would be it. I will preface this by saying it is difficult to write this (I have not told anyone else in my life about this situation) because I made a number of (significant) mistakes along the way and I feel very frustrated at myself for not reaching out for professional help sooner. Suffice it to say that I do have a tax lawyer representing me now but in my panic to resolve this issue (you might understand why momentarily) I am not sure I selected a team with explicit expertise in this area. So here goes.
I have a solo 401k plan with Fidelity that I set up in 2017 when I started receiving 1099 income. Since then I have alternatively and sometimes simultaneously had both W2 and 1099 income for any given year. I am set up as a sole proprietor and do not have my 1099 income going to an LLC. I (finally) realized earlier this year that I should have been filing form 5500-EZ for this account on a yearly basis since 2020 when my account first exceeded 250K. I decided to attempt to do this back filing on my own and to pay the delinquent fee ($500 per year, maxing at $1500 total) using Form 14704 (Form 5500-EZ Delinquent Filer Penalty Relief Program). I ended up filing each past plan year electronically before reading more about Form 14704 and speaking to someone at the Department of Labor who informed me that I needed to do this process via mail / hard copy. So I effectively re-sent all of the documents that I initially sent electronically, along with 14704 and my payment in May of this year. The IRS cashed that payment shortly after I sent it in and I received a letter in August stating the following: "We received your payment of $1500 with the Form 14704 . . . Our records indicate the fee was paid for your Form 5500-EZ returns for the accounts listed above [listing all five years worth of past due plan years]. We have accepted your plan into the program and no other action will be taken on these accounts at this time." The plan number indicated on all forms filed (hardcopy and electronic) and this document was 001.
Cue one week ago, 11/2 - I received five CP238 penalty notices from the IRS with penalties for each year 2020 through 2023 for $150,000 (that's right - $600,000) and one for 2024 of $68,000. Total penalty = 668K. The penalty for delinquent filing is $1,000 per day up to $150,000 per plan year. No other information was provided with these notices but the plan referenced on these documents is 0002 (I only have one plan), they reference Form 5500 (not 5500-EZ) and the due date for this exorbitant fee is December 2nd, 2026. Hence the panic call to obtain counsel and now the (excruciating) waiting for them to get back to me about next steps. I am in such a state about this that I practically feel paralyzed. I am terrified that I have somehow completely botched my entire solo 401K set up due to trying to DIY everything and that this will ultimately lead to additional audits and fees. I feel angry that I wasn't issued any kind of warning by the IRS because all of the documentation I've read is that once you receive the actual penalty it is not possible to use the delinquent filer forgiveness programs. I am also wondering how this level of punishment could possible fit the "crime". I am not far off from retirement but 668K would essentially ruin me financially (I don't have anywhere close to this amount of liquidity). In short, I am a mess. Is there any one out there that has had a similar experience or can offer me advice on how to deal with / think about this situation?
Thank you,
CC
