Entity Control Changes, Enforcement change by IRS/DOL Options

[MSN]

Help!

We have a client who changed their name & ein back in 2005. 5500 for 2005 properly reflected these changes in the entity control section. Client recieved notice recently from IRS proposing a $15,000 penalty for not filing a final return for the old company/ein in 2006 showing a zero balance.

I called the IRS and they noted that the entity change reported on the 2005 5500 does not "close out" the reporting requirements for the original sponsor name/ein. Even though the sponsor just changed their name & ein, they are required to file a final 5500 for the former sponsor reporting transfers that never actually occurred. The rep noted that everyone does this wrong and it's not clarified on the 5500 instructions.

Has anyone else run into this? I can usually press the issue with the IRS and get it dropped with a letter but that's not working in this situation. I believe I can get the proposed penalty abated, but will continue to have to respond to annual inquiries until the client actually files a final return.

Any thoughts you may have on this would be most appreciated!

[jpod]

I am pretty certain that the IRS person is completely full of beans.

[MSN]

As was I. I have subsequently called back, got a different rep, and recieved the same exact information that they originally provided me. I'm fearful that they have changed their processing, begun enforcement, and not informed the preparers.

[WDIK]

Unless there is some additional pertinent information about this situation, the position that both the new and the old entity are obligated to file a return for a single plan is ludicrous.

Having said that, I am aware of a scenario where an IRS auditor required a husband and wife to both file returns for the single plan in which they were participants. The client complied to avoid irritating said auditor further.

[jpod]

MSN: WDIK stated it more artfully than I stated it. The filing is for a plan; that is why the 5500 asks for information if there is a sponsor identity change.

So we may be able to better brainstorm with you, give us more facts. How exactly did the sponsor info change. You said "name and ein." Do you mean that there was some transaction in which sponsorship of the plan was transferred to a different entity? If so, which entity is your client, the old one or the new one? If the new sponsor previously had another plan or 2 or more plans, how did you handle the plan numbering?

Also, this doesn't sound possible, but could there be an inconsistency between the 5500 and the Schedule H/I, in that maybe the Schedule reported a transfer in from another plan?

[MSN]

The details of this are actually pretty simplistic. Company A was a S-Corp. Their accountant suggested they change their structure to a LLC. Their business name changed with the entity change and a change to the EIN was also necessary, per the accountant. We amended the document to reflect the new name of the sponsor/entity/ein. The plan # did not change. Ownership interests did not change. Company A still exists as a shell only.

[Bird]

I agree with everyone else - this is nutty. The only thing I can imagine that might have gone wrong is that you didn't note the old EIN when you filed the new return (and even if you did, they are notorious for not recognizing it, and if you didn't, no big deal, you can file an amended return to clean it all up). "Ludicrous" begins to scratch the surface of describing what is happening here.

[pmacduff]

Matter of fact - just a short time ago I had a Dr. group where a young Doc has joined an older Doc to eventually take over the practice when the older Doc retires. Plan Sponsor was older Doc's entity name/EIN, I reported the change to the new partnership name & EIN". Client received a letter from the IRS that the plan did not file a return under the old sponsor name. Returned a letter to the IRS stating that the entity had changed and why and that was that. Now that seems to good to be true according to what MSN is facing!!!!!

[MSN]

I had drafted a letter for the client to use as a response to the IRS initially. Same letter has worked for many clients over the years. This time though, it wasn't successful and the response I recieved from the IRS was baffling. I'm hearing that you think this is as obsurd a position for IRS to take as I do, but how would you recommend dealing with it? Would you file the final under the old EIN just to be done with it or continue to press the issue with a more senior person in EP?

[Bird]

I would just keep saying the same thing over and over until you find someone with a pulse; that's usually what it takes. I don't think there was a chance of policy or procedures or anything; you just found the wrong person. Good luck.

[masteff]

I had to fix a not-too-different 990 error last year. My opinion is your better off addressing the issue in a penalty abatement request letter. My feeling is the people in the abatement area actually have the authority to use common sense and fix the problem permanently. My theory on my 990 abatement request was: the more exhibits/attachments, the better. Include copies of the 2004 and 2005 5500's, as well as plan amendments for the change, and copies of documents relating to name and EIN change of the company. Give the abatement department every possible detail so they can reach the conclusion you want and then can fix it.

[PAL]

I'm interested in knowing if you reported the change on page 2 of the 5500 (I'm thinking that is what you mean when you say it was changed in the "entity control section"). The reason I ask is that for a period of time, the IRS had been disregarding the information on page 2 and were advising people that they needed to final a final Form 5500 for the original entity with a new Form 5500 for the new entity. I thought the IRS stopped doing this a while back but if you did provide the information on page 2 of the 5500, my guess is that they are not looking at that page 2 again.

[vijendrasnv]

We may be able to better brainstorm with you, give us more facts. How exactly did the sponsor info change.
I don't think there was a chance of policy or procedures or anything; you just found the wrong person.