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CLIENT INSISTS ON 5310assets are distributed


Lori H

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DESPITE TRYING TO CONVINCE THEM NOT TO(FOR NUMEROUS REASONS), A CLIENT, WHOSE ASSETS HAVE BEEN DISTRIBUTED SINCE DEC 2001, INSISTS ON FILING FOR DETERMINATION FOR TERMINATION. COULD THE FACT THAT THE PLAN IS LIQUIDATED PRESENT A REAL ISSUE FOR THE IRS/CLIENT? IT'S ALMOST BEEN TWO YEARS AND WE HAD A DELAY IN GETTING THE NEW 5310'S ON TOP OF GUST RESTATEMENTS. I ADVISED THE CLIENT THE FILING DOES NOT PREVENT THE IRS FROM POSSIBLE FUTURE EXAMS. ALSO, THE COST INVOLVED AND THE FACT THAT THE IRS JUST DOES NOT HAVE THE STAFF TO EXAM ALL THE PLANS THAT TERMINATE. STILL, THEY INSIST.

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IMHO, it would be a bad idea to file a 5310. Just the date of termination and the date of the notice to interested parties on the 5310 (among other items) will probably cause an IRS agent to latch on and cause problems.

Unless they still owe you money or are still a client in some other capacity, why couldn't you just refuse to do it?

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I filed a 5310 for a client approx. 1 year after termination. Other than remarking that the plan had been terminated a year earlier, there was no flack from the IRS reviewer. I am assuming that if assets were distributed in 2001, then a final 5500 was filed for 2001. If so the statute of limitations should have started running on 7/31/02 (assuming no extensions). I would think that filing the 5310 would give the IRS additional time as to the issues covered in the 5310. Two thoughts here..... one, advise client of the risks of filing the 5310 at this time, get client to sign off as to acknowledgement of risks, then drive on..... two, reiterate all of the reasons for not filing (assuming there are no correction issues, amendment issues, etc.........) as well as potentially extending the statute of lim's and advise not to file. if client insists, then see one above or refuse to do it.......

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Chris - no doubt it's OK to file a 5310 after the date of termination, but you didn't specify whether the assets were actually distributed prior to the filing. When a 5310 is filed the assets can't be distributed until after the IRS has completed its review process.

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A Form 5310 can be submitted after the assets have been distributed. For practical reasons, an employer should delay distributions until a favorable determination letter is received. In fact, almost all corporate consents/minutes I do re terminating plans provides that the plan will be submitted to the IRS......and that assets will not be distributed until receipt of a FDL. However, there's always the client that wants to distribute 2 minutes after the consent to terminate has been signed. That can be done. I always explain to the client that the IRS could find a problem of some sort and it's a whole lot easier to correct if you still have the assets than if you, for example, have to pursue a participant who was paid too much. There's no statutory bar to distributing the assets if you file a 5310.

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The client can file a 5310 after the funds have been distributed but there is one caveat- in the unlikely event that the plan is deemed to discriminate in favor of the HCEs, the plan cannot reallocate any account balances. Also there could be problems if the plan was not timely amended for Gust and EGTRRA. Since the assets were distributed almost 2 years ago there is no benefit to applying for a determination ltr at this time.

mjb

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It appears unanimous. Print out these responses and give them to your client, or email them a link to read for themselves.

I had a client who insisted in distributing assets prior to receiving the d-letter from IRS. IRS disagreed with our proposed allocation of excess assets and the client had to come up with additional funds to distribute to the participants they thought had been disadvantaged.

Watch out! A client so resolute can easily forget they insisted on filing 5310 against your advice and sue you for malpractice of a correction is needed.

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