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Tax Refunds to Plan after termination and full distribution of assets


Guest Paul Jalazo

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Guest Paul Jalazo

I have a profit sharing plan that terminated, distributed

and filed a final return as of 12/31/98.

The trustee of this defunct plan has received, as a result of a class action lawsuit, a refund of an intangible property tax ($4,800).

What does he do with it?

Do we file additional 5500s having already filed a "final" return?

If we allocate the funds based on the distributions made, on

what basis can these additional monies be rolled?

Confused!

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Guest PAUL DUGAN

I have had this situation occur several times in the past. We have always filed amended returns for the final and then filled 5500s for the following years. In this case an amended return for 1998 then a 1999, 2000 and a final for 2001. Under the IRS there never was a problem with the 1999 form being late, with the DOL I have no idea but what they will do but they have said they would be fair.

I believe that the 4800 should be allocated on account balances just like an investment gain. I also believe that a reasonable portion of the 4800 could be used to cover the additional expense since a portion of the work(5500s) is goverment required and the balance is for the benefit of the participants(reallocation, distribution, and 1099s). None of the expense is for the benefit of the plan sponsor.

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Ok, but who gets the allocation? Is it only those who were there on the date of plan termination? date of plan freeze? Since this is a refund of taxes, could/should it be "attributed" to certain years and therefore should be allocated to those who were participants at that particular time?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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when was the class action commenced. I think it is reasonable that some accrual occurred at the beginning of the class action suit.

Therefore, all participants in the plan as of that date would likely participate in the proceeds.

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