BeckyMiller

As an auditor, I am baffled by the question. Why is the auditor arguing that the plan can be retroactively established - was there come binding commitment made to the employees? Generally, the plan has to be in place by the last day of the plan year. You might be able to get the IRS to approve a request under EPCRS to conclude that there was substantial compliance that the plan existed and depending on the nature of the commitment it could be a money purchase/stock bonus ESOP that had an obligation for 2018, but you are right, they are now past the date for getting a deduction on the 2018 return, assuming calendar year end. Just need to know more.

I don't recall any requirement to include the amount of NUA in the rollover notice. The standard notice provided by the IRS as an example describes the tax treatment of NUA and advises the participant to contact the Plan Administrator to learn the amount. Similarly, the SPD would typically only discuss the concept but I think you could make a case that the tax section of the SPD could be more generalized. But, it is required disclosure on the 1099-R and the penalty for incorrect or incomplete information returns is pretty high. I have seen problems with this issue in the past and suggest that the first step is to determine whether it is worth worrying about - how many lump sum distributions were taken that were NOT rolled over. If many, estimate tax basis in the shares recognizing the adjustment for S earnings and S distributions.

I can't give you a banking regulation, but I can tell you that I have worked on dozens on ESOPs in bank holding company structures in many states and they all had the loan from the holding company. Makes for weird financial reporting but that is another story.

See Rev. Rul. 73-258 which supports what is described above. Housing allowance may be included as compensation for plan allocations. But the plan would have to specifically state that and comply with Section 415.

Also, you can google the names you find to see how active they are as members of these groups. There is a big difference in expertise between active members and joiners.

Watch out for the fine points. It is possible to have a 401(k) stock bonus plan.

I think that RLL has raised the relevant issue. Though I am not sure I would word my response as strongly as he did. I think step transaction is the real risk. If the sale to the ESOP is an intermediary step SOLELY to get the seller the 1042 treatment, then I would have a hard time writing a tax opinion on the transaction. BUT, the fact that they are apparently willing to sell for a bit less than fair value might be an argument to overcome the step theory if the bargain element was intentional to create the benefit for the employees and not just a ruse. There are a couple of old private letter rulings that discuss these kind of deals. You may want to read those over. There are also some exceptions from the 10% excise tax for 368 transactions.

I have seen non-standard things done with dividends on allocated shares - an agreed up rate of return and anything in excess of that allocated based upon compensation, for example. Just controlled by the plan document. Since both Titles I and II of ERISA rely heavily on the written plan terms to the extent not inconsistent with the law, I am not sure that you will find anything that says you can't do this. Note, I am agreeing with the prior commentators that the single class of stock concept is measured at the ESOP level. How the ESOP spreads that dividend among the beneficiaries of the trust is a function of its governing instruments.

Are you sure, Belgarath? The 415 rules governing 403(b) contracts have ALWAYS given me indigestion. But, I thought that the participant was generally deemed to control a 403(b) contract. See 1.415(f)-1(f)(1). Now I realize that the regulation is worded in the context that because the participant controls the contract it is NOT aggregated with other plan's of the employer. But...it seems like the consequence would also be that it would be aggregated with other contracts of the participant.... BUT - I am totally unsure that this is the result because I have never been able to find a clearly articulated explanation on this. I have an OLD copy of the 403(b) Answer Book which does support this conclusion. It was Question 3.63 in the 7th Edition of the 403(b) Answer Book. I also found this conclusion supported in another benefitslink source. https://benefitslink.com/articles/valic403b.html I agree with Luke Bailey.

It surprises me that it is not structured as a partnership. That is by far the most common ownership structure of a domestic U.S. hedge fund. The manager is typically a general partner and the investors are limited partners. I would have the client go deeper into the documents that they signed. Or just ask for the tax documents - typically they get a form 1065, Schedule K-1 for a hedge fund, though it may not look like the government form. It may be a white paper surrogate form. If it is an international fund, different structures may apply. See: https://www.riveleslawgroup.com/launching-a-hedge-fund-legal-and-practical-considerations/

I have been practicing in this area since ERISA became the law of the land, so it is interesting to find something that seems like it should be obvious, but apparently isn't. The question is When does a participant loan failure become reportable on Schedule G of Form 5500. The filing instructions say not to report the following: Do not report in Part I participant loans under an individual account plan with investment experience segregated for each account, that are made in accordance with 29 CFR 2550.408b- 1, and that are secured solely by a portion of the participant’s vested accrued benefit. Report all other participant loans in default or classified as uncollectible on Part I, and list each such loan individually. But, ERISA Reg. Section 2550.408b-1 requires that the loan be made in accordance with the plan's written procedures. Which, if any, of the following would you consider a prohibited transaction? a. Written loan program satisfies conditions of DOL regulations and IRS standards to avoid taxation, but: A loan is made in excess of $50,000. A loan is set up with semi-annual payments. The loan payment schedule is o.k. but payments are inadvertently not started on time. Issue is discovered and corrected before the end of the default period. b. Written loan program does NOT satisfy the conditions of the DOL regulations, loans may be made up to 50% of vested balance of NHCEs or 100% of vested balance for HCEs. c. Loan is made that is consistent with IRS requirements, but written terms of plan do not permit such loans. Errors is corrected under EPCRS. It seems to me that case b. would trigger reportable PTs. It seems that case a.3. should not be a PT. But, things like cases a.1. and a.2. happen and I rarely/never see them reported on Schedule G. They are either treated as taxed or corrected under EPCRS. Case c. can be corrected under EPCRS, but sure seems like it would not be an exempt transaction. Remember for purposes of schedule G - all employees of the plan sponsor are Parties In Interest. So - what do you guys think? Thanks in advance - Becky

I agree with RatherbeGolfing. The OP says the auditor can't issue until the errors have been quantified. That is frequently true. Where there is a risk that any receivable required to correct these errors would be material, the auditor cannot conclude that the financial statements present fairly the financial position of the plan. The failure to measure the receivable to enable the auditor to audit it would trigger a qualification of the auditor's report. The DOL typically looks at all filings that include a modification of the auditor's report, other than the normal limited scope. Will it be rejected? That depends. The DOL has the right to reject such a report but will work with the client when they are diligently working to quantify the correction so that a clean report can be issued.

I don't see why it wouldn't. If the employee could have modified their deferral election for the year to hit the $24,000 combined 402(g) and catch-up limit, it seems that the same rules apply.

I agree - the term "seasonal" refers to their period of work. However, if you were excluding all "agricultural labor," for example, they might be seasonal employees but the basis for their exclusion is a job category that doesn't refer to their period of employment.

There is an exception for fractional shares and I have seen cases where the company kept the value per share very high at $10,000 or more, for example, with the result that they could CASH out of small balances. Other than that, as others noted above, there is nothing specific that permits cash distributions only based upon the size of the account. Also, I know that the IRS has ESOP distributions on its hit list these days in their audits.

I can tell you that as a plan auditor, I see a lot of law firms that use the Relius/Sungard system in drafting ESOPs and other plan documents.

This is why we frequently suggest that ESOPs have distribution policies. Many plans are written to say that distributions will commence not later than or made in installments over a period not longer than.... So, the Plan Fiduciary needs to demonstrate consistent and uniform policies in applying these open ended concepts. Sounds like you have already checked the plan and found it not helpful and you don't have a policy. If this is the first time this has happened, this may be the time to start drafting a set of distribution policies. But, I wouldn't do that without some good legal advice.

You should also consider looking at their Form 5500 as filed with the DOL. It is publicly available on the DOL's EFAST2 database. If audited financial statements are attached, the footnotes may include more information.

Assuming that there has not been any change in ownership associated with the return to C corporation status, then the holding period of the S corporation stock is the holding period of the C corporation stock. I can't really give you a cite other than the normal basis tracking rule. See IRC Section 1223.

I can't tell from the recitation of facts how large this plan is. But remember, if the plan is large enough to required a financial statement audit (generally over 100 participants with some exceptions for companies just growing from small to large), the footnotes to the financial statement will typically discuss the existence and status of any government examinations - DOL or IRS. It might be very limited disclosure - DOL announced that they are coming in to examine the plan, Plan management believes the results of such examination will have no material financial statement results. Or, if the examination does have material financial statement results or concluded that there was a prohibited transaction, there should be more detailed disclosures. (This, of course, assumes they have a competent plan auditor.) The plan's audited financial statements are filed with the Form 5500 and are available to the general public at: https://www.efast.dol.gov/portal/app/disseminate?execution=e1s1

First, I would ask the sponsor what they intended. If they didn't intend anything, I would describe to them the consequences and have them decide. If they are worried about risks, I would have them chat with ERISA counsel. Following past practice or dividing the contribution proportionately between the two allocation groups might make sense. But in any event, if I were the TPA, I would not make this call on my own.

In the original message, you noted that it was an ERISA covered 403(b) plan. In that case, there is a parallel provision for the excise tax in ERISA Section 502(i). This section has not been amended over the years, so it remains at the original 5 percent penalty level.

Just a wee technical reminder. The number of participants is measured as of the FIRST day of the current plan year, not the last day of the prior. So, if your plan had 109 participants on December 31, 2007 and 12 entered the plan on January 1, 2008, you would be over the 120. See §2520.104-41(b)

In defense of the accountants, I have to tell you that a highly experienced accountant may have no certainty about net earnings from self-employment is for a member of an LLC. The IRS issued proposed regulations years ago and those regulations are still not finalized. LLC members are NOT necessarily the same as limited partners but absent final guidance many tax practitions use the limited partner concept for certain LLC members. In such case, providing only the guaranteed payments would be the consistent thing to do. NOTE - I did not say the RIGHT thing to do. See http://www.nysscpa.org/cpajournal/2006/606...entials/p32.htm for a good discussion of the issue.

See Rev. Ruls. 80-155 and 2002-42 which interpret the regulatory concept of a specific written formula for the allocation of plan assets. See IRC Reg. Section 1.401-1(b)(1)(ii).