shERPA

Most of us are aware of the IRS opinion that an allocation method cannot be changed once the criteria for allocation are satisfied, but have they issued any formal written guidance on this? I recall RR 79-237 that allowed an MP to be amended prior the the allocation date regardless of 1,000 hours or last day requirement, which is sort of on point. Any other written guidance on this?

Plan sponsor adopted plan in 2005. Did not report all employees to TPA, did not fully deposit all deferrals. Plan went top heavy in 2008, sponsor has not contributed TH minimums to date. TPA finally gets all the information, revises ADP tests, calculates VCP correction amounts, TH amounts, delinquent deferrals, with earnings, etc. Total tab to correct under VCP is about $100K. Sponsor refuses to make corrections and directs TPA to terminate the plan. TPA chose to resign because: 1. it won't knowingly prepare an incorrect 5500, and without restoring plan assets, the 5500 cannot be zeroed out. 2. 1099-Rs and distribution paperwork that represents distributions to be eligible for rollover when the plan is known to be out of compliance would be incorrect. 3 participants have a claim to benefits under the terms of the plan, TPA doesn't want to be associated with this. Individual (who is an ERPA) who made the decision to resign is getting push back from various parties, but cannot see any way to help the client terminate the plan without some reasonable efforts made to correct known defects. What, if anything, can a circular 230 practitioner do for this client to get the plan terminated?

Rhonda Migdail of IRS said from the dais that they believe it is reasonable to take the position that all of the regular plan notices, distribution paperwork and/or periodic benefit statements provide the information necessary. She said a "technical reading" would require that the SSN also be included, but in light of all the concerns with protecting SSNs that they are not going to require this. So no additional individual statement required.

If a client hasn't provided the info, then DVFC is the next step. And the pain of writing that check will help them remember to get the info in timely next year. Would your tax accountant prepare your 1040 for you without your W-2 information? Would YOU sign a government form under penalty of perjury, knowing the information is not correct? If you're not willing to sign it that way, you shouldn't prepare it for your client either, IMHO.

Resign.

Request the funds be returned to the plan. If the funds are not returned to the plan, nothing can be done to force the participant to do so. Document that the request was made and followed up on. Also document what changes are being made to internal procedures to avoid this occurring in the future. That's about all that can be done.

I have never had DOL audit a plan where we did DFVC. And we've done quite a few of them over the years.

Look at the fee schedule in RP 2008-50 for Audit CAP non-amenders. We just resolved one that had other issues too, but I think they were going by this schedule for the document failures.

...yet.

We just closed one, timely restated for GUST but late interim amendments and EGTRRA restatement as I recall. Initial IRS "offer" was substantially higher, but eventually they followed the audit CAP schedule in RP 2008-50.

"It is the inevitable habit of bureaucracies, at all times and everywhere, to assume ... that every citizen is a criminal. Their one apparent purpose ... is to convert the assumption into a fact." - H.L. Mencken I keep this quote under my desk blotter, it helps me deal with the insanity. Hopefully it will help you too.

Something is off. A single member LLC is generally a disregarded entity and reports income on the member's Schedule C. Is this a Form 1065 K-1? Or perhaps and 1120S K-1?

One of the most common reasons is to continue to self trustee the plan. There may be a number of assets that are not handled by most IRA custodians that the trustee is perfectly capable of handling. In some cases if there are notes, mortgages, rental properties, etc. creating monthly transactions, having a self-trusteed 0% MPP can cost less than IRA custodial fees since the trustee can handle the receipts, payments and banking personally.

I think the "substantial and recurring contributions" issue is still a problem. We continue to use 0% MP for these.

Gary, - Presumably it's an S-Corp, so W-2 and K-1 is SOP. But bpsep is correct, K-1 income is not plan compensation. 8 years? Can you even amend returns that far back? Statute of limitations is 3 years. Continuing to pay 6% per year doesn't seem like a good idea. Why not take out the excess and stop the bleeding? I mean as a U.S. taxpayer, I'll thank you for your voluntary contribution to reduce the national debt if that's what you want to do.

Amend the DB to a 24 month eligibility period and kick the problem down the road to 2014.

Who is the PA? Apparently not the employer? Why did the PA wait 5 years to deal with uncashed checks? Was the check drawn on a plan account or some sort of omnibus account? Do they know the original check was delivered to the participant or the other plan? Presumably since it was intended to be rolled over no taxes were withheld and the participant did not include it in income. Seems to me the PA or the plan itself still has possession of the participant's money since the check wasn't cashed, the check is stale dated now, so simply reverse the check entry and use the funds to reinstate the account in the plan. It all works out (until the participant asks for make up earnings for the last 5 years, but that's another thread!)