5500SF to 5500EZ

[TPApril]

Plan year starts with 2 participants. During plan year, Participant #2, who is not a spouse and is already terminated, takes a full distribution. So plan year ends with 1 participant.

So, is this the year that the plan switches to 5500EZ? Or wait until the year it starts with 1 Participant?

(technically speaking, plan will file SF as one-person plan)

[Mike Preston]

Wait. 

[Barbara]

I have a slightly different question: an S-corp is owned 50-50 by two owners, whom I originally believed to be husband and wife.  Now I learned that they aren't married. Their 401k Plan was effective in 2016, but assets are still < $100k (and 100% of the assets are in one owner's account; the other never deferred and never received profit sharing.)

I have prepared and they  have filed, Forms 5500-EZ for 2016 and 2017, although not technically required to file at all.

For 2018 I will prepare a Form 5500-SF, since I now know they aren't married.  Do I have any choice as to whether I need to go back and amend 2016-2017 to be on a 5500-SF form?.

[C. B. Zeller]

You can't amend, since the 5500-EZ is not filed with the DOL. You would need to file under DFVCP.

[Kristina]

You might consider using a Reasonable Cause statement for the plan which should have been filed as a Title I plan.

For plans where the owner is the only remaining participant for a plan year, the IRS has indicated that the plan continue to be filed as a Title I plan.  Their theory is that if there was non-owner employee, it is likely that there will be another non-owner employee and the plan should not shift in and out of Title I.

[TPApril]

Kristine - so in reference to the initial question, you are saying a plan should never switch from SF to EZ?

[Barbara]

This is to CB Zeller - since I never was required to file at all in the first place, I don't see why I'd file under DFVC.  What does the group think if i just started filing Forms 5500-SF for 2018 and don't change 2018?

BTW, this will always be a 2-person plan with no technical "employees", it's just the two owners refuse to get married for whatever reasons they have!

 

[C. B. Zeller]

Why were you not required to file at all in 2016 and 2017?

[RatherBeGolfing]

On 5/28/2019 at 3:12 PM, Barbara said:

I have a slightly different question: an S-corp is owned 50-50 by two owners, whom I originally believed to be husband and wife.  Now I learned that they aren't married. Their 401k Plan was effective in 2016, but assets are still < $100k (and 100% of the assets are in one owner's account; the other never deferred and never received profit sharing.)

I have prepared and they  have filed, Forms 5500-EZ for 2016 and 2017, although not technically required to file at all.

For 2018 I will prepare a Form 5500-SF, since I now know they aren't married.  Do I have any choice as to whether I need to go back and amend 2016-2017 to be on a 5500-SF form?.

 

52 minutes ago, Barbara said:

This is to CB Zeller - since I never was required to file at all in the first place, I don't see why I'd file under DFVC.  What does the group think if i just started filing Forms 5500-SF for 2018 and don't change 2018?

BTW, this will always be a 2-person plan with no technical "employees", it's just the two owners refuse to get married for whatever reasons they have!

 

Nothing has changed from 2016.  They are not husband & wife, they are simply 50-50 owners in an S-corp.  You don't get a pass on 2016 and 2017 because you thought they were married.  If the plan has to file a 5500 rather than an EZ,  2016 and 2017 were not filed.  The EZ filing exemption does not matter here, even if you had filed an EZ for 2016 and 2017, those do not count if you had to file a 5500.  That is why @C. B. Zeller said you have to file under DFVCP.

Here is the kicker though, it is not entirely clear which form should be used.

The EZ is for 100% owner & spouse or partners in a partnership.  You clearly don't qualify for 100% owner & spouse.  You seemingly do not qualify for partners in a partnership since you have 50-50 owners in an S-corp. 

PPA  included language that says that a 2% share holder in an S-corp is treated as a partner.  This suggests that your 50-50 owners should be treated as partners and file an EZ.  

PPA did not amend the definition of employee benefit plan, and as such the 50-50 s-corp plan would be an employee benefit plan covered by ERISA.  This means a 5500 rather than an EZ.

The 5500-EZ instructions do not reference the treatment of 2% shareholders of S-corps as partners.

There has been disagreement in the industry as to which Form applies to your situation.  I would file a 5500 or 5500-SF because it takes care of the ERISA reporting requirements.  I think it would be easier to talk the IRS into penalty abatement by showing that you filed as an employee benefit plan for reasons XY&Z than to approach the DOL with no filings at all.  I do think you have to be consistent though, you can't pick position A for 2016-2017 and position B for 2018.  if you are switching to a 5500 for 2018, file DFVCP for 2016-2017.

 

[RatherBeGolfing]

On 5/29/2019 at 2:01 PM, TPApril said:

Kristine - so in reference to the initial question, you are saying a plan should never switch from SF to EZ?

I disagree.  In your example, the plan year that started with 2 participants should be a 5500 or 5500SF.  the next year will be an EZ assuming that the participant who is left in the plan is the only participant all year (and that the participant is the owner).  

[Barbara]

Thank you, CB Zeller.

[Barbara]

I wasn't required to file because assets never reached $100k, let alone $250k.

[RatherBeGolfing]

11 hours ago, Barbara said:

I wasn't required to file because assets never reached $100k, let alone $250k.

I think you are missing the big point being made.  The $250k exemption only applies to the 5500 EZ.  If you do not qualify for the EZ, you have to file, period.  

 

Why do you think you qualified for the EZ (with the 250k exemption) in 2016 and 2017 but not for 2018?  Maybe if you help us understand your logic we can give you a better explanation.

[Barbara]

On 6/1/2019 at 8:17 AM, RatherBeGolfing said:

I think you are missing the big point being made.  The $250k exemption only applies to the 5500 EZ.  If you do not qualify for the EZ, you have to file, period.  

 

Why do you think you qualified for the EZ (with the 250k exemption) in 2016 and 2017 but not for 2018?  Maybe if you help us understand your logic we can give you a better explanation.

I don't think we qualified for the EZ, because the two owners weren't married.  (But I had thought they were, which is why I prepared the -EZ.) Just trying to avoid going through DFVC.....

[RatherBeGolfing]

51 minutes ago, Barbara said:

I don't think we qualified for the EZ, because the two owners weren't married.  (But I had thought they were, which is why I prepared the -EZ.) Just trying to avoid going through DFVC.....

Ok fair enough.  You keep going back to "didn't have to file" for 2016 and 2017 so its a little hard to determine your rationale.  If you didn't qualify for the EZ, you also didn't qualify for the $250k exemption.  

The only way to not go through DFVCP is to make the determination that you DID qualify for the EZ in 2016 and 2017, which means you would continue to file (or use the $250k exemption) for 2018.  You can't switch to a 5500 or 5500-SF for 2018 without addressing 2016-2017.  It will be your first filing for the plan but the details of the filing will make them follow up on why you haven't filed before.  You can't answer that previous years were EZ-exempt because if they qualified for the EZ in 2016-2017, they would still qualify in 2018.  They have heard the "I didn't think I had to file" excuse a million times and will tell you that is why there they have the correction programs.  If you had filed an EZ for 2016 and 2017, you might have a small opportunity to argue that you filed a return but you filed the wrong one, and hope that they will see it as reasonable but even that is questionable. 

Basically you have two options

1.  Make the determination that the plan should file a 5500 or 5500-SF and file DFVCP for 2016 and 2017.

2.  Make the determination that the 50-50 S-corp owners should be treated as partners because of the language in PPA, and continue to file or rely on the the filing exemption for the 5500-EZ.    

Personally, I would go with #1, but considering the penalty cap under DFVCP I could see the argument in continuing to file as an EZ.

[Mike Preston]

1 hour ago, RatherBeGolfing said:

Personally, I would go with #1, but considering the penalty cap under DFVCP I could see the argument in continuing to file as an EZ.

Can you describe the penalty cap?

[RatherBeGolfing]

4 minutes ago, Mike Preston said:

Can you describe the penalty cap?

$750 per year capped at $1,500 for a small plan.  The user fee would be the same to correct 2016 and 2017 as 2016 through 2018 (and beyond) if it questioned. I still think that 5500 or 5500-SF is the correct form though.  

[TPApril]

On 5/30/2019 at 10:12 AM, RatherBeGolfing said:

I disagree.  In your example, the plan year that started with 2 participants should be a 5500 or 5500SF.  the next year will be an EZ assuming that the participant who is left in the plan is the only participant all year (and that the participant is the owner).  

In reference back to the original question, I tend to agree to file the SF that year of transition, however, in terms of privacy of the owner, I thought part of the reason EZs (& one-participant SF's) are not public are because the assets can so easily be linked to the Plan Sponsor as an individual, which would be the case in this year of transition.

[C. B. Zeller]

The reason EZ and one-participant SF filings are not public is because ERISA sec. 106 does not apply to one-participant plans.

[chc93]

6 hours ago, C. B. Zeller said:

The reason EZ and one-participant SF filings are not public is because ERISA sec. 106 does not apply to one-participant plans.

I've always wondered about this.  The upper-right corner under the form year clearly states that "this form is open to public inspection".  I always thought that a copy of an EZ could be requested from the Public Disclosure Room.  But I do know that a SF for a one-participant plan filed electronically through EFAST is not viewable on the EFAST website.... <confused>

f5500ez.pdf