Belgarath

I'd also think the client, and the client's tax counsel, should take note of the "recurring and substantial" contribution requirement for a profit sharing plan, found in 1.401-1(b)(2). This whole arrangement seems improper to me.

Just back from a vacation where I did not turn on a television, radio, read a newspaper, nor access the internet, so all of this is new to me. I predict the Red Sox will not win the World Cup. Germany seems like the favorite at this point, but I somehow think that Spain will regain their form and end up winning. Why, you ask? I have no idea. But I WOULD like to see Sieve minding the net.

What Bill said. You can also refer them to the Durando case, and PLR 8716060 for more information on the subject.

Is this really tax fraud? I'm no attorney, but it would seem that since the tax deduction will actually be REDUCED under the scenario contemplated, that it isn't tax fraud? It's lots of other bad things, certainly. Any attorneys out there who know the answer to this?

Sort of a survey of opinions and/experiences here. Generally, pre-approved plans are no longer required to obtain determination letters. My question is this: what has been your experience when plan termination rolls around? What I'm really trying to get at is this: if you do a formal plan termination, the IRS reviewer is wanting to see plan documents and amendments all the way back to the year one. What's your experience if the plan DID apply for (and receive) a D-letter for, say, GUST? When you do a plan termination now, are they only requiring docs/amendments POST D-letter, or are they still going back beyond that? Assuming the former, then it seems like not obtaining a D-letter just postpones the problem and increases difficulty, so that going back to the old practice of requiring a D-letter for all plans might save some agony in the long run. (Of course on a side note, requiring terminating plans to be currently updated for all interim law changes is stupid beyond belief, since operational compliance is always required regardless, and substantially contributes to the difficulty, but that's a gripe for another time.) Would be interested in your thoughts on ths issue.

Yes, should be EZ eligible.

Generally only a few days, as QDROphile mentions. Under no circumstances would it be beyond the 15th business day of the month following the month withheld from your paycheck. There are certain voluntary correction programs/procedures that the employer can use in some circumstances to mitigate their penalties, and to make you participants "whole." The Department of Labor takes this very seriously, and generally comes down hard on violators if they are reported. However, I'm sure you know that employers have great power to retaliate against employees, so I urge you to be careful when considering what action is appropriate.

But NRA's are INCLUDED in the testing if they otherwise satisfy eligibility (age, service) and have U.S. source income. So you can still exclude them if you pass testing, but they are not "excludable employees" under IRC 410 if they have U.S. source income. I think this is what Sieve is saying also, but I wasn't entirely sure.

I tend to side with Kevin on this one. Yes, I happen to be of a conservative mindset on such issues, but I think folks sometimes tend to forget the following: "(3) Anti-abuse provisions. This section and §§1.401(k)–2 through 1.401(k)–6 are designed to provide simple, practical rules that accommodate legitimate plan changes. At the same time, the rules are intended to be applied by employers in a manner that does not make use of changes in plan testing procedures or other plan provisions to inflate inappropriately the ADP for NHCEs (which is used as a benchmark for testing the ADP for HCEs) or to otherwise manipulate the nondiscrimination testing requirements of this paragraph (b). Further, this paragraph (b) is part of the overall requirement that benefits or contributions not discriminate in favor of HCEs. Therefore, a plan will not be treated as satisfying the requirements of this paragraph (b) if there are repeated changes to plan testing procedures or plan provisions that have the effect of distorting the ADP so as to increase significantly the permitted ADP for HCEs, or otherwise manipulate the nondiscrimination rules of this paragraph, if a principal purpose of the changes was to achieve such a result."

FWIW, it seems fairly clear that this was, in fact, an inherited IRA, given the affirmative election to title it this way. So what has happened is that your father didn't take enough for RMD's, and therefore it needs to be corrected and a penalty is due. And you can't treat the IRA as being owned by your father. That's what is "right" in my humble opinion. Lots of folks may think my opinion is remarkably stupid. As to what you can do, interpret another way, or get away with, I have no opinion. I guess it depends upon your assessment of risk/reward. It's reasonable to ask IRS to abate the penalty tax, particularly if there were extenuating circumstances, and they very well might be reasonable about it.

Gary - I forgot to mention that I don't know about resources for getting these old ones for free, but CCH has a VERY good on-line service that you could subscribe to.

I have a book that I treasure - it is from Prentice Hall Information Services - 1990 edition. It is Entitled "Pension Revenue Rulings" and has all the pre-1990 RR's that affect pension plans. I don't know if there is some way that you can find this or something similar. I haven't looked into other methods, 'cause I was fortunate enough to "inherit" this from another old-timer in this business. P.S. - with your taxable term cost issue - are they unincorporated? The "reporting" isn't specifically listed, per se, for unincorporated owners. The taxable term cost is instead not deducted. For example, sole prop with $45,000 contribution on his own behalf, $1,000 TTC. The owner only deducts $44,000 as a qualified plan contribution. So while he pays income tax on that $1,000, it isn't separately "reported."

As a fan, I am utterly opposed to overturning such calls on instant replay. I hate what it does to the ebb and flow of a game. Yes, it was a blown call, which would be quickly forgotten if it wasn't in the situation at hand. But umpires blow calls. Fielders make errors. Pitchers make bad pitches. It is just part of the game (and yes, it is still a game - not like a cardiac surgeon being drunk and killing someone by botching an operation.) Yes, most unfortunate, but there would be nowhere as much angst and animosity if the second baseman had just thrown the ball into the stands for an error. I am particularly impressed by the class with which the pitcher handled the situation, and I give him all the credit in the world. So I feel sorry for all involved (the poor ump is just sick about it) but I still don't want instant replay. Part of the allure of the game is that "x" factor and the glorious uncertainty of an umpire's call.

I'm hoping that your bad luck means that we won't get any!!!

Hi Andy - you should be in a good mood these days - Red Sox Nation is happy right now! I've never found it a problem to obtain (or to have the client obtain) FMV vs. cash value. Maybe I've just been lucky. The companies I've dealt with routinely will provide a FMV if the FMV is different from the cash value. Cost to the participant would normally be the CSV, or if greater, the FMV. To elaborate, and get to your last question, many companies marketed policies which were designed for "rollouts" from the plan. By design, these policies had "suppressed" or low cash values in the early years, and the accelerated cash value growth hit after the policies were typically rolled out of the plan. The idea was that you would have a large income tax deduction for the premium, yet pay very little income tax when you got it out of the plan, then the cash value would grow very fast. The "springing" cash value type policies were rather gross examples of this practice, which is why the IRS clamped down in the first place. But to pluck numbers out of the air, if you paid $50,000 permiums per year, and after 5 years the cash value was $10,000, but in the next 5 years the CSV would grow to $750,000, then it would be a little unreasonable to accept the cash value as a true measure of the "fair" market value. If I were given the opportunity to purchase such an existing policy for $10,000, I'd sure grab it fast! Any reasonable person would say that the FMV in such a situation is obviously higher than $10,000. I have no clear knowledge of what interpolated terminal reserve is, or how it is calculated. I only know that when determining a FMV, Revenue Procedure 2005-25 gives a safe harbor where the FMV is the GREATER of (A) the sum of the interpolated terminal reserve, any unearned premium, and a pro-rata portion of any current dividend, or (B) he product of the "PERC" amount and the "applicable average surrender factor." How an insurance product actuary (or whoever) actually calculates the FMV is something about which I have no clue whatsoever. I merely know they do. So the FMV figure that the client is getting from the insurance company may well be "interpolated terminal reserve" for all I know - we just accept their figure.

First, as always, check the document to see what it says on the issue. But if there hasn't been some sort of a distributable event, then the participant needs to write a check to the plan for the fair market value. This may be the same as the cash value, or it may be higher. Client will need to check with the insurance company to find out. So a "springing" cash value policy isn't a problem per se, because participant would be buying it for the FMV, which would be a lot more than the CSV. There are situations in small plan terminations, for example, where this can cause all kinds of problems, because it pumps a huge infusion of cash into the plan, and if the plan assets are already such that participant who is at 415 limit has that 415 limit already fully funded by existing assets, then the plan has excess assets, which can't be used up in some situations. So if you aren't the actuary, I'd recommend that you check this with the actuary to confirm that it will be ok in your situation.

We won't do valuations until we get copies of properly signed and executed documents and/or amendments. If they send us the originals, we make a copy for us, and send back the originals. I can't imagine doing administration without access to a complete set of documents. Yes, this causes some headaches when trying to get them returned by some clients, but ultimately less of a headache than those caused by NOT having copies. I like Jim's idea of charging after "X" number of followups, although our current service agreement doesn't directly allow for it.

We've run into institutions only making checks payable to the Trustees - but never had them suggest that they deposit it into a CORPORATE account. I agree with you - they should set up a trust checking account. We always encourage them to do this anyway when they establish a plan, but they rarely listen...

Yes, we've had the same experience as well.

Are you sure it needs correcting? For an existing SIMPLE-IRA plan, there is a 2 year "grace period" where you are treated as meeting the 100 employee requirement - 2 years following the year in which you last satisfied the limit. So if 2009 was the first year this happened, you would be ok for both 2009 and 2010.

I think this issue is frequently misunderstood. Here's the FAQ from the DFVCP program: May plans participate in the DFVCP if they have already received correspondence from the Department of Labor or the Internal Revenue Service? Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the Department of Labor of a failure to file a timely annual report under Title I of the Employee Retirement Security Act of 1974 (ERISA). IRS late-filer penalty letters will not disqualify a plan from participating in the DFVCP. A Department of Labor Notice of Intent to Assess a Penalty will always disqualify a plan.

Austin - FWIW, here's an excerpt from Sungard's blurb on this issue: A concern in using this alternative system is that the client’s signature will appear on the Internet for the entire world to view, thereby increasing the client’s vulnerability to identity theft. When actuaries were presented with this same issue with regard to Schedule SB or MB, the DOL allowed them to type their names and initial the return. There is no such capability here. The preparer must warn the client that the client’s signature will appear on the net.

The DOL doesn't, at least yet, care about the security concerns. While I admire your courage and willingness to accept the liability for advising a client that an initial counts as a signature, I'll cower in the rear echelon and have them sign IF they choose to do it this way.

I was wondering this too. There's a reference on page 45, but that is for an actuary's signature on a MB. I don't see how this can be read to permit Plan Administrator initialling rather than signature on the 5500 itself?

As well you should! I absolutely agree with Sieve. I was making an unwarranted assumption that they didn't want to incur a taxable event - a Pavlovian response based upon the actual situations that I always deal with. I've never actually seen a situation such as Sieve posits (and our documents don't permit it) but that's no excuse for my incomplete response.