Larry Starr

I would prefer to see the settlement agreement before commenting, but since I won't see it..... I vote for #1. If it says half of the monthly benefit and he is in pay status, then the parties know what the monthly benefit is and she gets half of that. QED. Yes, a multi employer plan is still a qualified plan (which is Sec 401 of the code).

Mike was very kind to you in his response; more importantly, he gave you hundreds of dollars worth of consulting advice for no charge. I'm not sure what your ERISA education is, but my guess is you have none and are a participant trying to figure out the arcane rules in the playground we exist in daily; that is a big mistake. ERISA doesn't care what "seems to you"; sorry. Frankly, what Mike should have said to you is: Contact your plan administrator and ask him/her that question and get the response in writing. There might very well be plan level limitations that would further modify what you can do or not do. Best of luck.

But that that were the case; the IRS will apply the rules in existence. There is no "rule of logic" which I admit you are suggesting, but it just doesn't exist.

No. Would be nice and "participant friendly", but the requirement for default is the law, and no notice is required.

Sorry, but there is no question here: they must be reported. I remember when that exclusion was written; it was for GUARANTEES (that is: annuities), not life insurance. PERIOD. A life insurance contract DOES NOT guarantee to pay a specific BENEFIT (RETIREMENT BENEFIT) at a future date. Besides, from a logical standpoint there is a reason why they specifically excluded REAL ANNUITIES and that logic does not apply to a life insurance contract.

I agree with AMDG that you cannot change the rules on reporting basis because the prior 1099s were wrong. You need to figure out what the current amounts should be AS IF the prior 1099s were correct (even though they weren't); produce corrected 1099s for 3 years, and then if the employer is so inclined, cut a check to the participants for "feel good" purposes to try to make up for the error. Some effort will have to go into figuring out how much that "feel good" amount should be, and it may not be deductible (or may) at the business level and it may (or may not) be taxable at the participant level (my head hurts just thinking about those issues, but someone is going to have to deal with that if "feel good" payments are made.

I tell my employees all the time: it's ok to tell clients NO when that is the answer. In this case, that is the answer. Usually, they just say "oh, ok".

Just so everyone knows our prior responses when this came up in the other thread, we have no doubt that there are no timing restrictions on eliminating the plan for 2019 in late 2018, even though SH notices were distributed. Austin is having trouble accepting that, but that doesn't change the situation, of which (on this one) I am certain.

There are some things that you know that you know; I know I know this one. The answer is black and white on this one. During my tenure on overseeing the ASPPA Q&As, I don't remember this question being raised, but if it was, I'm guessing the committee would simply have agreed we knew the answer and published it (just expecting our friends at IRS would simply say "of course"). FWIW.

Your error is in expecting government (or any mutual fund, insurance company, etc...) to do anything right. We long ago accepted the fact that they won't (do anything right) and no longer take it personal. We tell clients the same thing ("... as good as Vanguard is for handling your money, never call them to ask them anything: you will most assuredly get the wrong answer!"). ALWAYS CALL US FIRST.

OK, now I understand your issues. The plan administrator is free to decide to defer making the payouts until the year end work is done and in this case I think that makes excellent sense, especially given the risk of an ADP failure. Also, since the plan is terminated, I would think it makes sense to hold of on the NHCE payouts as well until the full reconciliation is done for the year. But it is the PA's choice. Just tell them what happens if there is a screw up in the accounts and you don't have a chance to reconcile before they distribute; they may have to make up any errors out of their own pockets! That might deter them from making the distribution now. Hope that helps.

You don't ask a question but make a statement. Your statement is not necessarily true. And this is quite complicated and is a facts and circumstances situation. The following (long piece) might be helpful; but this sentence (just below the bullets) is probably the most significant: The courts have considered the frequency and substantiality of sales as the most important factor. Buying one house to flip is most likely not going to be considered being in the business of real estate. Larry. ======================================================== Is it Capital Gain or Ordinary Income? By Melinda A. Kloster, CPA One of the questions we often get from real estate developers and professionals is how to preserve the “investment nature” of a property to obtain the favorable tax treatment of capital gains. Obtaining capital gain treatment has the potential to save non-corporate taxpayers up to 20% in taxes when the property is sold since long-term capital gains are generally taxed at a 15% rate compared to ordinary income tax rates that can reach 35%. With proper planning, there are opportunities that taxpayers can take to be able to utilize the favorable tax treatment of capital gains. Gain or loss from the sale of property that is held primarily for sale is generally treated as ordinary income or loss. Gain from the sale of property that is primarily held as an “investment” is generally treated as capital gain. The purpose of this is to differentiate amongst gain from everyday business operations and gain from assets that have appreciated over a substantial period of time. The courts have ruled that property is held primarily for sale when that is the principal purpose. Taxpayers that hold property for sale are classified as dealers. Distinguishing whether or not you are a dealer versus investor is not always so black and white. There is no tax law that defines the “dealer” status but, rather, it is based on facts and circumstances. As a result of there being so much judgment involved, this is an area that the IRS frequently audits. Therefore, keeping in mind substance over form, the more factors that you have in favor of “investment” status, the better case you have to obtain capital gain treatment. The careful planning at the beginning of the transaction can often help build your case for this treatment. You must consider all of the facts and circumstances to determine if the property should be treated as a capital asset. The courts have offered some guidelines in determining whether or not the property is held for sale or if it is a capital asset. The important facts the tax court often considers when determining if you are a dealer or investor are as follows: The nature and purpose of the acquisition of the property and the duration of the ownership. The extent and nature of the taxpayer’s efforts to sell the property. The number, extent, continuity, and substantiality of the sales. The extent of improvements, subdividing, developing, and advertising to increase sales. The use of a business office for the sale of the property. The character and degree of supervision or control exercised by the taxpayer over any representative selling the property. The time and effort the taxpayer habitually devoted to the sales. The courts have considered the frequency and substantiality of sales as the most important factor. There are some simple steps that can be taken to help further support the taxpayer’s case that the property is investment in nature such as: The partnership agreement should state that the entity was formed for the purpose of investing in real estate, and other contracts should state that the property is being acquired to hold for investment purposes. The partnership name should not include words like “developer” or “development” but, rather, words that support the investment nature. The tax return should show the particular assets on the balance sheet as investments rather than as inventory or work in process. The taxpayer should make sure they are doing business in the investment entity’s name rather than through another entity that may have been formed and/or operated for non-investment purposes. It is important to note that the focus has been less on looking at the taxpayer itself and more on the taxpayer’s initial intent of holding the property for investment purposes. When planning, keep in mind that, in some circumstances, classifying the property as an investment property is not always the most tax advantageous. If there ultimately is a loss upon sale, then generally being treated as a dealer and having an ordinary loss is more advantageous than being an investor and having a capital loss. Of course, in cases where you are trying to support the dealer status, you need to analyze the same facts and circumstances to make the determination. In conclusion, when planning these transactions, it is very important that all facets are reviewed. Careful planning from the beginning of these transactions can result in the taxpayer receiving the best tax treatment possible.

Of course they don't get it back. It's an annual fee that covers all amendments that might be needed (for any reason) during that year. Trustee changes, -11g amendments, provision changes, limits on participants, or complete document restatements. You misunderstand: there are NO advance payments.

I would suggest they actually have fully funded their deferrals throughout the year, because they can only "fund" what they defer. What they deferred, they funded. They are all done for the year. What they apparently didn't do is MAXIMIZE their deferrals for the year; a different animal. SOL is the answer as Ed noted.

To quote the bard... fuggedaboutit!

To make it clear, the Social Security Administration couldn't care less whether he was paid out or not and doesn't want to hear from you. They are tasked with putting the info from 8955s into their system and feeding back what they are told many years later. If the participant is not removed via an 8955 filing, SS will just tell the participant at some time that they MIGHT have money due them. As has been noted, the necessity is to tell the employee he has been paid out. It is great if you have the details, but even if you don't (and that happens: say a take over where he was paid many years ago and is never reflected in the records from the time you take over the plan), you can still say "our records show you are not currently entitled to any payments from the plan" and that is all you have to say. We have had clients have to do that a number of times. Yes, you might have an argument form the participant, but the participant would have to sue and prove they are entitled to something since the plan records are given deference. Where are their benefit statements from the plan for all these years? They won't have them because they were paid out many years ago. FWIW.

Cold or not, the question was whether it could be done, and the answer is yes. Of course they should notify the employees asap. And if it was a calendar year SH plan, even if the notice was given for 2019, terminating it on 12/31/18 makes the notice a non-event. FWIW.

We long ago eliminated this issue; we charge to set up the plan documents only the first time. Thereafter, there is an annual modest document compliance fee paid every year that covers ALL amendments needed (whether for compliance or to meet client objectives), and that includes the restatements every 5 or 6 years. We surveyed clients when we changed from the standard "charge 'em for documents every 5 years"; our clients voted for an annual fee overwhelmingly.

As presented, you don't care. As to common ownership issues: yes, you need to know about that but that has nothing to do with this employee per se but with all the rules about controlled groups and aggregating and testing controlled groups.

Understand the need for this question on 12/28! :-) A PENSION plan has an advance notice requirement but a profit sharing plan (401(k)) does not. I think you can execute the necessary amendments by 12/31/18 and accomplish your objective.

Suggest that you explain what the issues are with the question you are asking. That is, what is the difference between whether they are treated as being terminated employees or whether they are being treated as in a terminated plan. You obviously see some difference; what is it? Also, we probably need to know what the plan says about paying out terminated employees in the regular course of business (non plan termination situation).

I agree with this analysis. However, if you are really concerned (of if the auditors for the company do not agree), make the amendment effective 12/31/18. You count as of 12/31 is everybody. Your count on 1/1 doesn't include the ones kicked out on 12/31/18 at midnight of that day. Not my preferred way of doing it, but if you have that concern......

I seem to remember that the case where the summary was deemed adequate for the deduction included the fact that it was a bigger company with a real board of directors and the plan had been discussed and authorized by a vote of the board that was fully documented. I could be remembering it wrong, but if I'm right, that is not the kind of thing that happens often with our clients. FWIW.

Agreed; the only thing they can do to make it work for 2018 is to FIX THE MISTAKE by doing it correctly now, before 12/31.

Setting up a retirement plan is ALSO a valid reason for getting an EIN for a sole prop who otherwise has no employees.