Larry Starr

To quote 37: "But that would be wrong". We're told the election is $500 PER PAY PERIOD. How do you get that a bonus check (which is definitely NOT an additional pay period) should have $500 taken out of it? I agree it's not arbitrary and capricious; it's just plain wrong! Now, if the employee WANTS to get that extra $500 in, just increase the REGULAR PAY PERIOD amount to $1000 for one pay day. This is not a complicated solution.

I disagree for several reasons. First, no one can say what the "spirit" of the program is, and there is legally NO SUCH THING. So why are we talking about it? We need to only look at what the actual rules are. Second, Congress CLEARLY included health and retirement benefits in THEIR definition of compensation, so who are we to say those benefits are not intended to be included when they clearly are included. I don't know what you "understand" is the issue about how the program amounts are to be calculated, but that process is quite clear now. The forgiveness forms make it clear that retirement plan contributions ARE part of the calculation; why should we be doing anything other than including such payments? Did they provide ANY limits on that number? No, they did not. They could have, but they didn't. As advisors in the retirement plan area, it is not our job to be concerned about the "broader societal view" when advising our clients. That has no place in the advice; you can discuss with the client your thoughts, but you have to deal with the rules as they exist, not rules that "might be good for society" but don't exist. I'm not sure what you are actually saying in your last clause in the last sentence since there are triple negatives in that sentence.

In this case, the employer should NOT approve it. HOWEVER, he can ask that the participant re-examine his situation, give him a CRD form that shows the conditions (as of now) that is necessary, and then asks the participant to self-certify. The employee was an idiot to disclose this non-eligible situation AT THAT TIME, but he can certainly have a change in his situation that now would qualify him. And again, all he has to do is self-certify. Understand?

Isn't an Excess Allocation a violation of the plan limits or legal limits for deferrals? Would the wrong amount (an extra couple of percent deferral, but still within the maximums) be subject to this section? I didn't see a definition for Excess Allocation in the Rev Proc, but there is this definition of Excess Amount: (3) Excess Amount. The term "Excess Amount" means a contribution or other credit that is made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed or credited on behalf of the participant or beneficiary under the terms of the plan or that exceeds a limitation on contributions provided in the Code or regulations. The term "Excess Amount" includes any amount in excess of the amount permitted under the requirements of § 402(g), 401(m), or 415. A contribution in excess of the limitation of § 415(c) is not an Excess Amount (or a 403(b) Failure) if that excess is maintained in a separate account in accordance with the rules in the regulations under §§ 403(b) and 415. Such separate account is considered to be a § 403(c) annuity contract (or, if applicable, an amount to which § 61, 83, or 402(b) applies). A contribution in excess of the limitation of § 415(c) that is not maintained in a separate account in accordance with the rules set forth in regulations under §§ 403(b) and 415 is an Excess Amount. Thus, the correction principles in section 6.06 apply.

Pete, I think you have an absolutely good argument with the letter from both houses both sides of Congress to Treasury telling them that they are wrong. You can find that here: https://www.grassley.senate.gov/news/news-releases/grassley-wyden-neal-push-treasury-allow-small-businesses-deduct-ppp-expenses. I think this paragraph, and the last sentence in particular, in their letter is the most useful: Section 1106(i) was specifically included in the CARES Act to exclude from income loan forgiveness, which would otherwise be taxable, to provide a tax benefit to small businesses that received the PPP loan. Had we intended to provide neutral tax treatment for loan forgiveness, Section 1106(i) would not have been necessary. In that case, loan forgiveness generally would have been added to the borrower’s taxable income, and the expenses covered by the PPP loan would be deductible, reducing taxable income by an offsetting amount and resulting in no additional net income. Notice 2020-32 effectively renders Section 1106(i) meaningless. That, clearly, is contrary to the intent of Section 1106(i) and the CARES Act more generally. Here was the introduction on Grassley's website: Washington – Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Ranking Member Ron Wyden (D-Ore.) and House Ways & Means Committee Chairman Richard E. Neal (D-Mass.) today wrote to Treasury Secretary Steven Mnuchin urging the department to change its flawed interpretation of the CARES Act preventing businesses from deducting expenses associated with Paycheck Protection Program (PPP) loans that are ultimately forgiven. “Providing assistance to small businesses, only to disallow their business deductions as provided in Notice 2020-32, reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income. This interpretation means that whatever income a small business is able to produce will be taxed on a gross basis to the extent of the loan forgiveness, leaving substantially less after-tax capital for the swift economic recovery we hope is on the horizon,” the lawmakers wrote. Grassley, Wyden and Neal specifically argue that the determination adopted by IRS and Treasury runs contrary to congressional intent underlying the PPP program and the CARES Act overall. Full text of the letter from Grassley, Wyden and Neal follows or can be found HERE.

No, but they have all year to fix that, and they will, with certainty (as much certainty as one can have in this world).

l Are we still in the same year? For how many paychecks was this error made? Would participant accept the 12% for that limited time? Can the future checks be reduced to 8% for an equivalent number of paychecks if the employee wants to "catch down"? Sometimes there are practical answers that may not be the absolute same as what the "corrective" rules would expect. FWIW.

The OP said nothing about paying expenses, just FUNDING THE PLAN with PPP money, which was what I answered. There's no question that matching funds or any other plan contributions qualify for the compensation side of the forgiveness calc. Yes, that is the proper definition of settlor expenses and I agree with you, but that was not the question in this case. I would certainly recommend that they could set up the plan if that's how they wanted to spend their PPP money. Also, since I am an Enrolled Agent with the same legal authority before IRS and Treasury as a CPA, I feel free to provide my advice and beliefs while the client is always free to check with his accountant and/or attorney, who probably knows very little about the issue and often will be calling on me for the answer! "It's good to be the king."?

I'm assuming the OP want to be able to make a CRD to this participant. He is asking if the individual qualifies, and I'm saying to the OP that the PARTICIPANT makes that determination, self-certifies, and the distribution can be made. Does he meet the technical definition? Maybe not (we'll have to see what additional guidance the IRS allows for being financially impacted, but this guy has a good story). But assuming the OP wasn't taking a test where he had to know the "technical" definition, but instead wanted to know HOW he could make the CRD distribution, I have given him what I think is extremely useful information as to how it actually works. So, like I tell my employees, don't answer the question a client asks, ask them WHY are they asking that. In this case, because we can't talk to the OP, I'm assuming what he really want to know is "can I make a distribution to this guy" and the answer is yes, as I explained. Reminds me of the guy in the hot air balloon who is lost and sees a guy on the ground and asks him "where am I" and the guy answers "you're in a hot air balloon". The balloonist responds "you must be a lawyer" and the guy on the ground, surprised, answers "yes, how did you know". The balloonist replies "because your answer was absolutely correct and absolutely useless!"

You are missing the practical issues here. First, the employee SELF-CERTIFIES that he meets the requirements. He does not have to say WHICH requirements. So if the plan adopts CRDs, it doesn't matter if it is the spouse's adverse financial consequences that necessitates a distribution from this plan. The employee self-certifies and the distribution is made. I will say it once more: the employer does not ask HOW the participant qualifies; just needs the participant to say he does!

If the plan does not provide for specific CRDs, then the participant will be able to request a distribution only under the regular operation of the plan, like termination of employment, reaching NRA, death, disability, etc.

I would be surprised, and I'll take bets!

There have not been any additional guidance yet from IRS. However, and I have said this a number of times on this board, the participant will simply self-certify that "I meet the requirements for a Coronavirus Related Distribution" and no reason for why he qualifies is needed nor should it be requested. And if the plan does not offer CRD, then the participant can simply call an "audible" by self certifying on their own that the distribution was a CRD when they do their tax return. I think people are overthinking this. Just about every distribution can be a CRD. Now, as a matter of information, we have exactly ONE PLAN where we are currently discussing having a CRD option adopted and I doubt it will actually happen even in that plan. For us, this is just a non-issue (and happily so). The participant doesn't need to KNOW that he is a qualified individual. He self-certifies that he is and that's the end of it. There will be NO "auditing" of those certifications; it would be impossible and IRS does not have the resources. And that's the truth!

The two significant issues still out there: 1) Can you fund whatever you want into your retirement program in your (now) 24 weeks, regardless of whether it is 2019 or 2020 funding, and without regard to some pro-rata contribution limit. I believe that you can put in anything you want (that is legitimate contributions) and it counts towards the forgiveness. 2) Is there any restriction on C or S corporation stockholders who are also employees, like the restrictions on Schedule SE filers (sole props, partners)? I say there are NOT. There are a few other minor issues but resolving the above two will quiet most of the noise out there. It really didn't solve anything; it extended the 8 weeks to 24 and changed the 75/25 to 60/40 but in the process screwed up the language about the 60% (which they are already saying needs to be fixed: the "cliff" issue).

Cross tested plan that isn't top heavy? I figure it isn't top heavy because you say you are using the safe harbor 401(k) match, which would be unusual for a top heavy plan where the 3% nonelective works so much better from the standpoint of saving money for the employer since the employees have to get the 3% anyway in a top heavy minimum. Just curious.....

FWIW: it didn't stall. The house passed it last week and the Senate was out of session. They came back late Monday and this was not on the agenda until Wed, at which time the Senate passes the house version as you now know. We actually predicted that it would be signed by the President on Thursday and I think that is when he is signing it.

It is in process of being settled; they still need to work out the nitty gritty details. And then the settlement may very well NOT be public.

Yes, but.... Has anyone ever seen this challenged by IRS? You can terminate a plan even after one year if you have a good reason; and a good reason is that "we aren't making money any more but last year we had extra money given to us by the government so we decided to share it with the employees via a retirement plan; we would have like to continue it but business just doesn't allow". Yes, "permanency" is ostensibly required; in practice it is easily avoidable if need be.

So now, it looks like you are asking a totally different question than originally posted. Are you really asking how to fill out a W-2? Suggest you review the IRS explanation of the form W-2 and what goes in each box.

W-2 goes to each employed owner of the S corp. W-2s are never "reduced" by 401(k) deferrals. They are included in the gross amount paid but reduce the taxable amount reported. Your last clause: "since the entire amount of 401(k) contributions is already being deducted on the S Corp return" makes no sense. 401(k) contributions are NEVER deducted on the business return. The funds are included in compensation paid and that is the deduction on the business return. So I'm guessing you have misstated the situation. Care to clarify?

Lowering to zero is still lowering. That would be the perfect citation. Thanks.

The magnitude of the error requires that the client engage competent ERISA counsel. YOU don't have privilege and the client needs that. The attorney can hire you to do work if that is desired, and then your work is the attorney's work product and is not subject to disclosure.

Yup; them's the rules!

Even my good friend and partner has been wrong once or twice in his life. I believe he is wrong again on this issue. I sent him notes to tell him we are in 180 degrees opposite positions. If they wanted to say owners of C and S corps, they would have said it. It is just that simple. Everything they are talking about are folks who file Schedule SEs. Of course, I could be wrong, but I don't think so!

If the participant wants to avoid withholding, do a direct transfer to an IRA and then take the funds out of the IRA.