shERPA

Actually there is old IRS guidance allowing the use of the EIN, but being three years retired now, I no longer remember the cite. I think it dates back to the 80s, so it’s probably obsolete given all the identification laws and rules that have come since then. That said, it’s far better to get a separate TIN. Not only is it technically correct since the trust is a separate entity from the employer, but using the EIN can have disastrous consequences if the employer gets into hot water with the IRS over things like unpaid payroll taxes. The IRS can levy (seize) employer accounts for unpaid taxes AND they identify accounts to levy by the ID number on the account. Imagine trying to unwind the mess created if the IRS were to hoover up plan assets for unpaid payroll taxes. This actually happened to the client of a TPA I knew way back in the day. Over the years I had a handful of clients get in arrears on tax payments, (stuff happens) but they managed to avoid IRS levy action. Jim Norman P.S. Hi Larry!

Thank you!

I’m 99% retired, but have a couple people I help take care of their EZ filing on their solo k plans. I understand the feds want the EZ to be filed electronically, and that this is apparently mandatory for many filers for the 2024 returns to be filed in 2025. But I’ve seen conflicting guidance where some say it’s mandatory if the plan sponsor files at least 10 returns of any type (e.g. payroll, tax, 1099s, etc) in a year, and other sources say this threshold is 250 returns in a year. Obviously this makes a big difference in who must file the EZ electronically. Can anyone help clarify this for me? Thanks.

So sorry to hear about Mike. I (Jim Norman) was fortunate enough to be a PIX sysop along with Mike. I learned a lot from him, he was incredibly generous with his knowledge. I also really enjoyed the occasions when we got together. He was one of the good guys. RIP Mike.

Right? That’s what I always said, why do we call it “the Service”? Didn’t even think about it when I typed the message, I guess it’s still resident in my mind from attending so (too?) many ASPPA conferences.

Ok, so after 40+ years in the TPA world I retired at the end of 2021. In 2022 I terminated my small solo-k which I sponsored as a sole prop for some side income, plan was alway under $250k. I rolled it to an IRA and in January 2023 I filed a 2022 EZ marked as both the first, and the final return. Today I get a letter 1072C from the IRS telling me that my EIN is XX-XXXXXXX and that I should always use this number in filing the EZ. Well, duh! Yes, I know that’s my EIN, that’s why I put it on the EZ form in the first place. I checked my copy, the number on the EZ is correct and matches the number IRS states in the letter as well as on the original EIN assignment letter I received years ago. The letter doesn’t say I have to do anything, and it acknowledges receipt of the 2022 EZ filing. So Whiskey Tango Foxtrot? I don’t recall any of my clients over the years getting a letter from the Service like this. anyway, just thought I’d put this out there in case some of you start getting client calls about such a letter. I think IRS has a special department to create correspondence designed to waste TPAs’ time. Definitely helps remind me why I was ready to retire (and enjoying it immensely, especially most days where there’s no IRS envelope in my mailbox!)

Those who like sausage and respect the law should not watch either being made.

This isn't specific to IRAs, etc. but is an estate close-out issue. Filing form 5495 to request an estate trustee's discharge of any personal liability after 9 months, I need to list and attach the returns for which this is requested, in this case forms 1040 and 1041. The returns are filed, the 5495 asks for the IRS service center where they were filed. 1041 was mailed to Ogden, but the 1040 was filed electronically. So in the service center box, should I put "filed electronically", or list the service center where the paper return would have otherwise been mailed? IRS instructions are very brief and don't address this. Thanks.

If he has no ownership, it's not a CG, nor can it be an ASG unless he's principally providing management services. That said, this could be a shared employee situation if the attorney is utilizing the firm's staff. It could also be some sort of de facto partnership if he has a profit interest in the firm (as opposed to simply a percentage of billing compensation). This sort of determination should be made by legal counsel. TPA points out the issues of an ASG and/or shared employees (IRC 414(m) and Rev Ruling 73-447. Then let the lawyers figure it out.

That's a joke, I say, that's a joke, son! I’ve never seen a document include language suggesting a participant go fly a kite either. Although it might have been fun to slip it into one BITD when we did individual DL submissions, just to see if it got thru.

But only if that’s what the plan document says to do.

Thanks Bill. Yeah I’m really trying to be retired, and being fairly successful at it. Just trying to wrap up a few things that started last year. As explained to me they originally had other plans for company C, but so far those plans have not come to fruition and they don’t expect this to change for a while. It’s possible C will just go away, or they just move the ees back to A for payroll, which would clean this up nicely. But we’re dealing with 2021 right now so we have to deal with it as it was.

A and B are a CG (100% owned by one individual), they want to establish a plan, all employees of both entities will be covered. A employs its staff thru a staffing company C. C is 50% owned by the owner of A and B (other 50% unrelated ownership), so it is not part of the A&B CG. C has absolutely no other functions. It pays A's staff and gets reimbursed by A, that's it. The employees are hired, fired, directed, controlled. report to, and in all respects managed by A. It seems to me that under RPs 2002-21 and 2003-86 that these C employees are common law employees of A only. In fact, if C sponsored a plan and wanted to cover them, it could not do so on its own. It would have to set up a multiple employer plan with A adopting to comply with the RPs. Question 1 - Do you agree so far? Now there is another company, D, that is a CG with C (80% ownership overlap by 2 owners). D has employees and its own 401(k) plan. It seems to me that since the "employees" paid thru C on behalf of A should be considered common law employees of A only, that A and B can proceed with their plan without regard to D. It also seems that D can maintain its 4k plan without regard to C, as C has no common-law employees. Question 2 - Do you agree with this? Any other thoughts? For the record none of these are service orgs. Thanks.

Entry age normal, RR 81-202, excess only integration allocations.

Listen to your friend. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=44

No, I'm not nearly as creative or talented as Derrin. This came to me in a fit of inspiration after yet another prospect objecting to the plan design I was presenting by asking "why would I cover all these employees when I can do a SEP for myself?". But as for musical abilities I have pretty much zero. Have at it!

Well the SEP failed to meet the coverage requirements, so it's not deductible. Not being an ERISA plan I don't know that the employees have any claim for benefits. There is no provision for any offset between qualified plans and SEPs, maybe something could be negotiated with the IRS. In my experience clients and their advisors tend to let sleeping SEPs lie. Seems like a good time to repost this, I wrote it years ago (back when the 415 limit was $40K): Ode to SEPs At the ripe old age of 42, My CPA said this won't do, He told me I'm out of step, To cut my taxes, go start a SEP. Sent me to a TPA, he said Yep A SEP might work, but first let's see. Lo and behold, we have an ASG! He told me we could work around the ASG; But there would be attorneys fees, Determination letters and trustees, Not only that, I'd have to contribute for employees! But, wait, I have no employees, they work for XYZ, But the lawyer said the ASG Means those employees work for me! We'll design a plan, that will conform, Of course you'll have to file the 5500 form. I said OK, let's kill some trees, But before we do, please explain the fees. When he was done, I had to pee, Surely I could find simplicity. So I went online to explore Found SEPs, 401(k)s, and more, They needed my name and address and EIN But had no pesky questions about 414(b), (c) or (m). What about the IRS, would they find my SEP? They audited my return, said I did misstep, About my SEP they did not complain, But disallowed my green fees, oh the pain! My SEP grew and grew and I paid no fees Wrote a check every year for my 40 Gs. As for my employees, they did not know, For their retirement, they have nothing to show.

Yeah, this has never been a big deal, just change the sponsor, show it on the 5500 and done. In fact I was speaking to a client about this yesterday as he will need to do so. I told him this is one of the few things in this business that is still relatively straightforward, the IRS hasn't mucked it up yet. I guess they realized their oversight and are now working to complexify something that has never previously been a problem.

No, pretty much every document includes similar language.

Yes, plans use W-2 wages. To clarify, Company X, "the partnership" - is an actual partnership filing a form 1065 partnership return? And there are only two partners of this partnership, Companies A and B, both of which are S corps? And X issues just two K-1s, one to each S-corp. Correct? It's not clear why one of the S-corp shareholders (the individuals are not technically the partners in X, their corps are the partners) is also getting a W-2 from the partnership, this seems like a needless complication and a good way to increase payroll tax costs. But since it is an ASG, the group of companies are considered a single employer, so yes I'd combine the W-2 amounts for plan compensation assuming all entities have adopted the plan. Answers could change if the facts change.

Here it is right here. And if B is getting a K-1, so is A, because S-corp profits must be distributed in proportion to shares of stock. Basically what you have is a partnership of professional corporations, which is the classic ASG as Bill said. Except that the "partnership" is organized as an S-corp., but it's still a service org, it is probably a professional organization and therefore an A-org FSO, but even it it's not, A and B would be professional corps so they can be the FSO.

How can A, B and X not be an affiliated service group?

DOL is on record stating that if the assets are combined it is subject to audit. I don’t have the cite handy but AFAIK their position on this hasn’t changed.

Are you talking IRS, or independent CPA audits of large plans? If it's the latter, you gotta realize the mindset of auditors. They audit that which is provided to them. It's not the auditor's role to go outside to gather data (even confirmations are officially requested by the client to go back to the auditors). If they want something changed, they tell the client to change it and send it to them, they don't do it themselves. I get it, but taken to extremes it seems weird and highly inefficient.

So, back to BG's original question as to how to get it corrected, now we know - post it on BenefitsLink!