Dare Johnson

Disregarding the deductions would increase income tax and SE taxes that would not be overcome by additional retirement income deductions. The tax code requires SE income to be reduced by deductions that are allowed or allowable and I don't think a taxpayer has the option to not deduct expenses. If audited, the IRS would make adjustments.

Since all company shares are held by the ESOP, the deduction is not an issue since there is no income tax. I would find out how the company (and accountant) are treating the funding. Most ESOPs with S-corp stock only allow cash distributions as the company would not want a lot of ex-employees owning and receiving a K-1 for their share of earnings. In addition, S-corps cannot have more than 100 shareholders but that is not an issue with this S-corp.

I agree with EBECatty - accrued benefits will be under the more favorable schedule, new contributions could be subject to new NRA. But recordkeeping this will be a nightmare and guaranteed to get screwed up. On the few plans we have had make a change similar to this, it only applied to participants that became eligible after effective date of amendment.

When a company wants to have 401k plan and health insurance enrollment occur on the same day, we will use either 30/ 60 days because this is the way the health insurance documents are written.

Part-time/temporary/seasonal is a class of employees. Once an employee works completes a year of service (1000 hours), they are no longer part of this class. The basic plan document should clarify this in addition to the IRC Code and Treas Regs mentioned by Griswold and rocknrolls2.

This has always been an issue when the markets are down significantly. The few non-daily plans we have left will pay our a percentage of the last valuation (usually 60-70%) with the remaining after the next valuation. This is fair to the remaining participants.

I would think most (if not all) employers reports hours based on pay-date so the census can be tied to the W-2s due the limitations of most payroll systems. For payroll systems, once 12/31 hits the system closes and resets to the new year. Very few payroll systems can reports that cross years. In your case, the employee would have 1010 hours.

I would look at DOL Advisory Opinion 90-46A. Here are a couple of quotes from AO: "We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse's interest derived only from state property law could be enforced against a pension plan." and "Accordingly, it is the opinion of the Department of Labor that the Court Order is unenforceable against the Plan."

I agree with Bri. The IRS is in such a mess right now with a massive backlog that it might take some time to get this cleared up.

A good way to prevent sham terminations is to have a wait period on receiving distributions of 30-60 days. Some plans will have an exception to the wait period for those at NRA.

I don't understand why you would put the later of separation from service or a specified date. If the distribution will occur one year after separation from service, then this date will always be later so no need to add the extra wording.

I don't think there is a specific time frame to make a change in status election. Here is the link to reg 1.125-4 https://www.govinfo.gov/content/pkg/CFR-2000-title26-vol2/pdf/CFR-2000-title26-vol2-sec1-125-4.pdf

When the client signs the Form 1096, he is attesting to "Under penalties of perjury, I declare that I have examined this return and accompanying documents and, to the best of my knowledge and belief, they are true, correct, and complete". Why elevate a civil penalty into a fraud penalty as the client will have a hard time proving the original 1099-Rs were mailed timely.

The client will need to wait for an IRS notice assessing late filing penalties. If the plan does not have a history of filing Form 1099-R late, the IRS has a First Time Penalty Abatement policy https://www.irs.gov/irm/part20/irm_20-001-001r#idm140198826274112. Client calls the IRS number on the notice and requests first time penalty abatement. If the agent says no, hang up and call again until you get an agent that says yes.

I am a CPA and I think the other CPA is wrong. The Code Section the other CPA is referencing means that an accrual based taxpayer (the company) cannot deduct accrued items payable to a cash basis taxpayer (the owner) if they are related as this would result in deferring taxes to a future year. Retirement plan contributions are one of the few deductions that even a cash-basis taxpayer can accrue and deduct. Usually the issue with S-corps and cash balance plans is the owner might not have tax basis to take an accrued contribution so they wind up with a suspended loss until the following year.

See attached email from DOL - It appears you can now use DFVCP even if the DOL sends you correspondence regarding a late filing. FW_ Ref No. 22-xxxxxx_ Missing Form 5500_5500-SF for 2020_Redacted.pdf

I think the 3 terminated participants that received a contribution in 2021 are considered terminated participants with a vested balance at 12/31/21. Just because the plan didn't fund it until 2021 doesn't mean it can be ignored for 2020 since it was based on 2020 compensation. Is the audit on a modified cash basis? If yes, this method could still record contributions receivable.

S-corp dividends are considered a return on investment and not subject to FICA/Medicare tax, so would be excluded from retirement plan compensation. Here is the link from the IRS Retirement Plans FAQ: https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-s-corporation

Unless the plan is considered unfunded or fully insured, the bonding requirements apply. The amount to be bonded includes contributions, so if the plan receives $200,000 in contributions the bond would be $20,000. Here is the link to Field Assistance Bulletin No. 2008-04 https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04#:~:text=ERISA refers to persons who,plan official has handling functions.

Here is the link to Technical Release 92-01. I don't think you meet the exceptions, but i could be wrong. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/92-01

The IRS has a reasonable call exception but the DOL requires the DFVCP. Hopefully the CPA has a good errors and omissions policy.

Long term care premiums are deductible by the company and not included in the income of the employee/director as long as the company does not retain an interest in the policy. LTC is not subject to ERISA, so companies can choose who is covered.

Compensation for retirement plan purposes is Box 1 less S-corp medical or 66.999.93. The s-corp medical is subject to income tax withholding but not FICA/Medicare, so it is excluded for retirement purposes.

If it is determined the partner is eligible for the profit sharing, make sure everyone knows as soon as possible. It gets messy when the partnership has to fund a contribution for an ex-partner and no way to collect it from him. Assisting with collections and transition is part of a partner's expected duties, so he is performing services for the partnership and will have earned income.

Prior years should be amended to report the assets on the correct line, remove Sch A and correct the plan funding arrangement. Circular 230a requires you to advise the plan sponsor of an error and the plan sponsor signed the Form 5500 stating it was true, correct and complete.