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I suppose you could file showing final, assets to 0 and in place of auditors report a note saying company bankrupt, all assets have been out, etc that way when the DOL looks they have something (which turns out to be 'nothing' to go on) maybe include a note from mom indicating you couldn't think of any thing better to do.

I'm not qualified to give an answer but if you are an ERPA then I think you have some obligation to prepare the 1099. You can't force them to file. I think ASPPA ethics would say the same thing. Having said that, there are times when I've said something along the lines of "You are the Plan Administrator and I am just here to assist you in performing your duties. This is what you should do. Now you tell me exactly what to do or not do and oh by the way sign this statement telling me what to do or not do." (Just thought I'd take a stab at actually answering your question . Although I am prone to answer questions that haven't been asked like everyone else.)

No suggestion. Just submit and see what happens. This actually happens all the time. Sometimes, they may send a letter, which requires an extra step of providing them an explanation. It's just one of those unfortunately imperfect situations we deal with. "Merry-go-round" may be a bit of an overstatement. Then again, it may be a bit of an understatement :-) Good Luck!

In this situation, it was a conversation we were having as I was advising regarding the implications. Thankfully they saw things clearly and are doing the right thing. But I now feel a lot better about what my own responsibilities are in these situations. Thanks everyone!

Question as asked: if you prepare the 1099 and are now told of a correction, issue the correction. You are entitled to be paid for this effort. The service agreement is another matter. Prospectively, you may need some clarity. - Why did you prepare 1099s if your contract is silent? - What does it take to get your contract amended to clearly spell out this responsibility and associated fee? - Can you get someone else to do it in the future?

No, doesn't seem to fit any of the VFCP boxes. Hate to sound like a broken record but this client needs the proverbial good ERISA attorney.

Assuming you did what you were supposed to and they gave you bad data, what is your reluctance to prepare a new 1099-R or a corrected one and bill for the work?

could be Bill. I assumed since we are at this late date I didn't even read the part of it being a W-2 - so my bad. but even if that, I think my comments hold, if a sole proprietor can't defer 'after the fact' why could anyone else.

My first impression is, "what does your service agreement say"? It may be that you are contracted to prepare the 5500 forms but not the 1099-Rs.

Tom, keep in mind that the OP said the owner got a W-2. So it's either a C or S corp and I don't think any of the self employed info would come into play. Right??

starting with the regs 1.401(k)-1(a)(6)(iii) Timing of self-employed individual’s cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner’s compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor’s compensation is deemed currently available on the last day of the individual’s taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated. ............ of course, in the case of a partner, the compensation hasn't necessarily been determined until after the end of the year, but the election itself must be made before the end of the year .......... the example used by Corbel is (which sounds almost exactly like your scenario) What is the timing for a participant to make a deferral election? A participant must make an election to defer his/her compensation to a 401(k) plan before the compensation is available. Treas. Reg. §1.401(k)-1(a)(3). Example. Ellen, a shareholder-employee, after the close of the plan year, determines that she could have deferred more to the 401(k) plan. Accordingly, she writes a check to the trustee for an additional $4,000 and asks the trustee to treat is as an elective deferral. The contribution is not an elective deferral because the election was made after the compensation was already available to the participant. http://www.relius.net/News/TechnicalUpdateDetails.aspx?T=P&1=1&ID=1012 ............ sorry, that is the best I can provide, if that is not enough I can't help you

Pretty sure 401King said the same thing. A salary deferral election must be made prior to earning the compensation. That's likely in the plan document.