Have a client that adopted an individual plan. He does not want to submit for the cycle as business is down. All of his documents are up to date. Under the 5yr cycle, does he have to submit for a LOD? Is there are penalty if he does not submit for a LOD?

The ER does not have to make an application for a d-letter. A plan's qualification vel non is a fact independent of having such a letter.

Penatly? Not in the traditional sense. However, SCP (self correction) for significant Operational Failures under EPCRS will not be available if the plan does not have a favorable d-letter. Rev Proc 2008-50, § 4.03.

If the plan is audited, usually an auditor will not dig into the document history back beyond the date of the most recent d-letter.

Also, if down the road the ER wants to apply for a d-letter, such as incident to terminating the plan, it might be more difficult to assemble all the documents (misplaced, lost, etc.). If you have a d-letter when making a later application, the Service will only require documents back to the date of the most recent d-letter.