Luke Bailey

I've been waiting for this shoe to drop. The other will be when the SSA actuaries announce that the retirement trust fund's ability to pay 100% of benefits has been extended by 1 or 2 years.

Belgarath, the invitation was not targeted at TPA's, right? This all goes to the preparation of the K-1, which is not the plan's problem.

Peter, I'll assume that all five prongs of the regulations' definition are met, but there is no compensation, direct or indirect. The "rubber hits the road" when something or other "hits the fan." If the plan has a perceived investment loss that is perceived to be attributable to the advice provided by the person who is donating her effort, would a lawsuit by the plan in federal court under ERISA survive a motion for summary judgement? Tough question, but my guess is that the uncompensated adviser would skate for the reason you have explained, although her legal expenses could be significant, and if she has an agreement with the plan that says she works for free, but is indemnified for anything, let alone legal fees, I think that is probably "consideration". But now the plan is in a position where, had it paid for the service instead of accepting it gratis, it would have had recourse against the adviser with respect to the loss sustained by the plan. I agree with QDROphile's suggestion that at this point the plan's named fiduciaries would need to think about their own liability for having entered into a defective service provider agreement. If this is informal and infrequent advice, I think I would try to get more comfortable with the "primary basis" and "regular basis" prongs of the definition before hanging my hat entirely on the absence of consideration.

I do not understand lookatmytaxes' transaction well enough to comment on the UBTI issue, but as long as the "leveraged" investments are for the retirement account itself, and not for its owner or some other third party, it should not be a PT.

Towanda, now that C.B. Zeller has filled in that piece for you, I just want to add that I think what you have outlined in your post is a pretty good rundown of the issues and possibilities.

HarleyBee, I generally agree with the comments that have already been made, but there's a lot to unpack in the portion of your post that I have quoted above, that cannot be unpacked without a much more detailed description of the transaction. Are the three partners individuals? Will "keep[ing the] S corporations open for pay purposes" mean the S corps are the partners? Are they just doing that to avoid SE tax? Normally, if companies merge with each other, the predecessor companies no longer exist. Maybe they just created a new partnership by throwing in assets?

Jennifer D., I'm not sure of the best course in your situation, but in a somewhat similar situation (actually, more like the "Exempt Entity Filed in Error" situation that you link to), the client, a governmental entity, did get a letter from IRS assessing penalties for late filing, but we wrote a letter and called IRS explaining the plan's governmental status, and it went away. Took several contacts over several months, however. So my guess is that if nothing else works, if the IRS and/or DOL does eventually contact your client assessing penalties, your client will eventually be able to explain the facts and get relief, assuming the facts are as you state.

Draper 55, you mean an excess deferral under 402(g), right, i.e. the individual contributed more than $19,500 (> $26,000 if 50 or over)? In that case, if distributed after April 15 it's taxed twice, for both 2020 and 2021 (earnings only in 2021).

rocknrolls2, I agree with Appleby. I think you have to distinguish between what has to be paid and when (RMD in year of death), and to whom it belongs. If the check had been cut right before the individual died, it would go into the estate. But once the participant dies, the account belongs to the beneficiary.

Right. See IRC sec. 318(a)(1)(B) and draw appropriate negative inference.

Oh no, leevena. I assumed the plan is for a 501(c)(3), aka "nonprofit."

Yes. Promotes compliance. 😀

I have not researched this, but if it can be done the support would be under the general principle that most transactions, generally for any reason, including a change of mind, can be rescinded if done in same taxable year, but not after end of taxable year. See Rev. Rul. 80-58 involving, if I remember correctly, a real estate sale. Presumably the same principle was behind the permissibility of Roth deconversions, but of course TCJA 2017 changed the statute to prohibit those.

So Bird, 318 attribution, not 1563. I think you'll have same answer except the age 21 rule is irrelevant. To mom based on actuarial interest (318(a)(2)(B)), from mom to child (318(a)(1)(A)(ii). Since the attribution to mom is under 318(a)(2), it is not excepted out of reattribution by 318(a)(5)(B).

If the bonus is just reinstating pre-pandemic pay level after cut, I would argue it is base pay. If everyone got the same 5%, probably also argue it's base pay and within employer's administrative authority to interpret plan as saying base pay. Since the year is not over, you could adopt a discretionary amendment on or before 12/31/2021 if you are unsure.

Bird, are asking about for purposes of controlled group? Under IRC sec. 1563(e)(3) you attribute to each beneficiary their actuarial interest, assuming maximum exercise of discretion by the trustee (where discretion is involved). So step 1, you determine mother's actuarial interest. Definitely want to get a copy of the trust and also get out some actuarial tables. To need step 2, I assume "sister" is sister of "son," therefore daughter of "mother." In that case, attributed to "sister" if sister under 21, see 1563(e)(6)(A), but no if 21 or over, see 1563(e)(6)(B). Because the initial attribution to mother is under 1563(e)(3), further attribution would be possible, see 1563(f)(2). Since you have provided no specific facts or copies of documents, I am only treating as hypothetical and pointing out the provisions of the Code you would want to look at.

TPApril, is the government plan to which the individual is deferring a grandfathered 401(k), a 403(b) or 457(b)? Grandfathered 401(k) or a 403(b) would aggregate, but 457(b) not.

Belgarath, I think what you're saying is that there are no employer contributions, no employer involvement in loans, hardship determinations, or investments, i.e., no substantive authority conferred on the employer that would cause the plan to be subject to ERISA, but the document contains a provision that says the plan is governed by ERISA. I think the plan is covered by ERISA in that case, because the 403(b) legal document adopted by the employer chooses ERISA as the governing law.

Sure. It's just a loan. Depending on the bank's involvement (if any) in the loan's origination, and other factors, you could have prohibited transaction of fiduciary issues.

Me neither. Year's almost over anyway.

I checked the Code language and I think as others said above it's just a dollar cap.

Plum, the plan document should address this. I don't think what the IRS intended is clear under the regulations. They are susceptible of the interpretation that both the participant and the beneficiary have the ability to make an election, since they repeatedly refer to the participant's or beneficiary's having an election, but are also susceptible of the interpretation that the beneficiary has an election only when distributions had not commenced to the participant. The examples in the regulations that follow the section you quote do not contain any examples with beneficiaries. I have seen at least one plan document that states that if the employee has commenced installment distributions before death, those will continue to the beneficiary and he or she has no other option. I've also seen a plan document that gives the beneficiary a new election regarding whatever is left of the participant's account, by saying that the beneficiary will get a lump sum at some date more than 60 days after the date of the participant's death, but can make an election to defer payment or take installments, if exercised more than 60 days before the date when the lump sum would be paid. So I would follow the plan document, which should address one way or the other.

No, but under Section 132(a)(1) of the Code and Treas. reg. 1.132-2 airline tickets can be excludable "no additional cost services" for airline employees. Maybe that's what you're looking for jireh87?

Pammie57, I agree with above from BG5150 and CuseFan and will add that the IRS seems to say in soft (website) and formal (Rev. Rul.) guidance that in their view if you have a partial termination, then everyone who terminates during the year in which the partial term occurred is "affected" and should be fully vested, regardless of why they terminated. I think a lot of practitioners think that position is not supported by the law, because the rule is that folks "affected" by the partial termination should be 100% vested, and arguably someone who quits for an unrelated reason, e.g. spouse geographic job relocation, would seem not to be "affected." Below is from the IRS's website. Rev. Rul. 2007-43, which is cited, says about the same thing. An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan. Some plans wait until an employee has 5 consecutive 1-year breaks in service before he forfeits their nonvested account balance. For these plans, employees who left during the plan year of the partial termination and who have not had 5 consecutive 1-year breaks in service are affected employees. See IRC Section 411(d)(3) and Revenue Ruling 2007-43.

Part of the price of certainty, BG5150.