RatherBeGolfing

Let me see if I'm getting the facts right... 1. Participant had a loan that should have been defaulted and taxed to the participant in 2015. 2. Instead, the loan was defaulted when participant terminated in 2016. For 2016, the participant was issued a 1099 for the defaulted loan and for the remaining assets in his account. 3. Because there were additional assets distributed when the loan was deemed distributed, 20% withholding should have been done on the entire amount, rather than non-loan assets only. Withholding was done on non-loan assets and IRS is making the sponsor pay for the tax 20% tax deposit on the loan assets.

Short answer? Yes. I normally do not take on clients who are unwilling to fix known errors. Can you prepare statements and returns using numbers you know are wrong? Especially when you don't even know why the numbers are bad? I personally don't think so. Do I miss out on some business because clients refuse to correct prior bad work? Yup, but a vast majority of clients would rather get it fixed than just continue with bad data. In order to "patch" differences between return and report, you have to at least know what you are patching and why. If there is an unexplained difference, you need to investigate. That is my opinion, your mileage may vary.

The closest I can get to a citation that is somewhat relevant is Mack v. Kuckenmeister, a 9th Circuit case from 2010. In Mack, the the Participant murdered his wife before their divorce was final. Before the murder, Participant had agreed to name the wife the alternate beneficiary, but a QDRO had not yet been issued. The estate filed a motion to have a QRDO issued retroactively which was granted and appealed all the way to the 9th Circuit which held that state court has jurisdiction to determine whether an order is a QDRO. It may be something to consider but the best advice you can get in here is to to consult an attorney licensed to practice in your state.

If it is small enough, I agree with BG. Otherwise, you may need to amend prior year 5500.

Agree with the above. Exclusion of employees by name ($0 allocation) or other specific criteria having the same effect as an exclusion by name is not a reasonable classification for the ABT, so you would need to pass using ratio percentage test.

Always happy to participate. Hypos and thinking outside the box keeps us on our toes.

We only know that the provider had the highest fees and worst performance of the three providers in the hypo. That alone does not make the provider a bad or very bad choice, just different. As with anything else in this business, there is no requirement that we use the cheapest or best performing provider.

The point of the safe harbor is that the fiduciary is deemed to have satisfied his/her duties with respect to the selection of the provider. You present an interesting hypo, but as long as the safe harbor is met, the analysis is complete. If I take bids from 5 companies and pick the first one that meets the safe harbor standard, I have fulfilled my obligation. The fact that there was a better performing or less expensive option is irrelevant.

How was it reflected on the W-2? included as deferral in Box 12 and excluded as comp in Box 1?

Yes I think so, especially in plans offered by payroll providers and bundled plans. Yes. But I would also say that a loyal and prudent fiduciary could make the opposite decision: The probability of a screw up that results in non-compliance (even if the end result is not disqualification) is greater than the small burden of documenting hardship distributions correctly. I don't think there is a wrong or right way here, there is doing it by the book or using a short cut and hoping you don't slip up.

lol yea until the doo doo hits the fan

Whats worse is that legally the memo really doesn't change anything. It is a directive for the examiners to treat a non-compliant plan as if it was compliant if certain conditions are met. Why risk it when you could just do it right?

Total comp for the EE in your example is $466.40 The $42.40 should be listed as deferral on the W-2 and thus excluded from compensation The $424 non-cash comp (iPad plus tax) should be included as compensation

If it was paid as compensation (included on the W-2 right?) and deferred, it came from the EE.

It isn't a corrective contribution. Non-cash comp gets tricky when you don't coordinate with employee benefits. They simply grossed up the bonus to defer on the non-cash bonus. The deferral is compensation that is paid and immediately deferred, it is an employee contribution. FWIW, most employers would miss that they have to defer on the non-cash comp, but I would accept the calculation of 10% on the iPad plus taxes or a calculation that was also grossed up for the deferral. Most auditors I have dealt with would be fine with either. You have to treat it as deferred comp, because that is what it is. The fact that those who already reached the 402(g) limit didn't get the extra is fine because they didn't need to defer on that comp since they already reached their limit.

I would be very careful with self certification even after memo. It doesn't make self certification compliant, but says you should treat it as if it was compliant if certain steps are taken. If you fail to take those steps, you are once again not complaint. I spoke to some ERISA attorneys and auditors at luncheon last week and none are recommending self certification.

What Bill said :)

I agree with the above. I just had this conversation with a fellow industry professional last week. He didn't agree with #2 since the bankruptcy laws don't really track with QP law. Specifically, his concern was that the IRS making it more difficult to obtain det letters will erode QP protection against creditors unless bankruptcy laws are amended to fall in line. I'm not as concerned as he is (yet) but it is an argument to keep in mind.

Yesterdays e-News for Tax Pros included a webinar with 1 free CE Credit for those of us who need it. Working with the IRS Office of Appeals – What to Expect CPE Credits You may earn 1 CE Credit for Federal Tax. To receive a certificate of completion (if applicable to this show), you must: View the presentation for at least 50 minutes from the start of the program for one CE credit. View the presentation while signed in using the same email address that you used to register (you will not receive credit by watching on someone else’s computer). PTIN Holders : In order to get your CE credit reported to the IRS, ensure that your first name, last name and PTIN match your account. Your PTIN begins with the letter P followed by 8 numeric characters. If you don’t have a PTIN or your name and/or PTIN are entered incorrectly, you may receive a certificate; however, your credit will not be reported to the IRS. Other tax professionals will be sent a certificate and may receive credit if the broadcast meets their organizations' or states' CPE requirements. Only registrants who watch the live presentation may qualify for the certificate of completion and CE credit. You will receive your certificate of completion via e-mail about one week after the broadcast.

I agree with your point, but are investors necessarily rational?

I don't do them either but I know some local attorneys who do. From what I understand, it isn't the plan itself that causes the problems its all the circumstances around the plan. Also, I think the IRS still REALLY doesn't like them, because most of them are not done right and are pushed by some seriously flawed promoters... Nothing wrong with them if properly done though.

I agree with all the above. I was just thinking out loud whether the HCEs who deferred the maximum ($18-24k) would still get the benefit of being able to distribute those deferrals as a rollover rather than refunded for a failed ADP test. This is of course assuming that the IRS does not disqualify the plan making refunds/rollovers a moot point.

Well the participants would be made whole, just not on time... But what if the SH is never made (Employer out of business)? ADP test doesn't matter since all assets become subject to taxation at plan disqualification?

We had a plan that used "the last day of the last week that began during the plan year". It was a pain...

(2017 online edition) EOB Ch 11 Section XIV Part B Item 7 (timing of Safe harbor contributions)