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  1. Group: Seeking an expert to assist a US Tax court case on a few narrow issues dealing with S-ESOP prudent investing standards. Please reply privately. Thank you
  2. An ESOP has a standard distribution policy, 5-year wait, payment thereafter in 5 equal installments (no acceleration below $5K, no segregation of stock accounts, fees fully paid by the Sponsor). Last year the installments were incorrectly counted and participants who should have received their 4th installment (i.e. 50% of the available balance), their payment was calculated based upon a 3rd installment and received only 33% of the available balance. While this may be an operational failure for not following the terms of the document, is there a correction to be made? If future company stock gains are neutral or positive, I don't see that the participants were disadvantaged in any way that would produce a basis for a correction. What about a participant who was due their 5th installment(100%) but only received 50% of their available balance and now will need an additional distribution? Are they harmed vs a comparison to the broader stock indexes? How should future installment amounts be calculated, does the missed amount all get made-up in the next payment, or are they calculated normally based on the remaining periods?
  3. Group: In reviewing a client's ESOP Plan docs adopted 2013 the employer excludes leased employees from participating. However, then I read the payroll and employee census and see a leasing company was the employer of record and issued W2's in the leasing Co name. At the time of adoption there were approximately 22 employees including 2 HCE. IRS has begun to audit the plan and we have already received IDR's asking about the leased employees. My research thus far is as follows: Under TEFRA 1982 Tax Equity and Fiscal Responsibility Act (TEFRA) Public Law 97-248 to curb certain abuses, the 1982 TEFRA act promulgated a law that leased employees are not subject to the same pension rules if the leased employee is covered by a plan maintained by the leasing organization that allows for immediate participation, full and immediate vesting, and employer contributions of at least 7.5 percent of the employee's salary. In other words, Leased employee are subject to employer/plan sponsor pension rules if lease Co doesn't allow immediate participation , full and immediate vesting and employer contributions at least 7.5% employees salaries. Then under TRA of 1986 public law 99-514 seemed to modify the 1982 law by adding the following: Additionally, IRC§414(n)(5)(A) states that the safe harbor provisions do not apply if leased employees constitute more than 20 percent of the recipient's nonhighly compensated workforce. Q: To prevent the plan from being disqualified is there any argument that the leased employees are under control and direction of plan sponsor and the leasing company doesn't provide a money pension plan with immediate vesting and participation? (I may be getting the rules confused) The '86 law seemed to remove the safe harbor and no other work around to prevent disqualification. Q: Would the result change if instead of leasing company there was a PEO? Any cases or other treatise to review for my research would be greatly appreciated. Thank you
  4. Group: Client's esop has been under audit for 2018-2020 by irs TEGE. The IRS recently issued its notice of deficiency stating the plan was ineligible. (much of which related to a former esop advisor and much longer story) The TPA has calculated that there are 2 participants who left the company in 2020 and have not received any distributions for their vested shares. The distribution amount would be approximately $20k each. We are assessing what steps to take for plan participants shares, if any. Q:Is trustee/plan administrator still obligated to pay distributions for a plan year that has resulted in being disqualified? Q: Wouldn't any share value be zero? $0. So partipcants even if fully vested, would have no value. Client plans on filing in tax court to challenge. Q: Does trustee have ability to freeze plan until a court has resolved the issues? Thoughts and comments appreciated. Thank you
  5. Group: In researching ESOP Loans and potential prohibited transaction violations of ERISA under 406(a) I'm curious more than anything whether Sam Zell was assessed for violating 406 as that transaction seems to be a direct transaction with a potential for conflict of interest? Did his bankruptcy discharge any potential prohibited transaction violations? Did the esop loan meet erisa 408 exemption? Is erisa prohibited transaction rule 406(a) intended for esop loans? Thoughts and comments appreciated. Resources and court cases would be helpful as well as I'm beginning research on this topic. Thank you
  6. Group: Client's ESOP is under audit. Along with a number of affiliated entities. Due to health reasons clients' former TPA resigned in early 2021 and a new TPA was hired. The auditor has inquired about an alleged $22k contribution in the plan year under audit (2018). However, the 5500 does not reflect any contribution. I can't seem to reconcile where the former TPA came up with the $22k of contributions. Nor can I reconcile plan stock forfeitures. We have already informed the auditor that a former TPA prepared the annual reports and 5500's. and are working with the new TPA. I'm well aware that the taxpayer/client may still be held liable for any record keeping fines/tax assessments notwithstanding errors caused by the former TPA. Q: Would you inform the auditor that there were no contributions and the auditor's report inadvertently stated that there was a contribution? This does not change the participants share account values. Also state that the taxpayer is in process with new tpa to amend the report to properly reflect no contributions. Thoughts and comments appreciated.
  7. Group: Plan sponsor adopted an esop in Nov 2021. I'm told they have 200 participants. I note they fall into a large plan. Q: I've read that since the adoption date falls late in year (for short year) they don't have to file an independent audit until the following year (12/31/22 y/e)? I couldn't find a cite on the website where I found this information. Is this accurate? Anyone have a cite they'd be willing to share? Q: How is it decided if the audit is performed as limited scope? Does the IQPA? Plan sponsor? Thoughts and comments appreciated. Thank you
  8. Group: I'm a new user to ftwilliam software. Even though I've drafted and worked with a number of S ESOP plan documents over the years. Ftwilliam seems to be one of a few firms in 2021 with an IRS Pre approval letter they received for their ESOP Plan document which was dated June 2020 from IRS. (ftwilliam didn't release the letter to users until Mar 2021) Even with the pre approval letter are you (as ESOP practitioners) still filing an application for determination of initial qualification (form 5300? 5307?)? Thoughts and comments appreciated.
  9. Group: I inherited from another esop advisor a client whose S Corp (Acme Inc) is OWNED 100% by an ESOP. Said bank account is titled 'Acme Inc.' New TPA (former TPA retired) is suggesting there should be a bank account only in name of ESOP that reports all transactions. With no support or cite to a DOL reg. Fwiw, in a number of successful no change audits over last 12 years with S ESOPs, all with almost identical bank account names, no auditor has ever said there's an issue. Anyone have a cite/regulation or case that stands for position that an esop bank account needs to be titled with the name (ESOP)? Thank you in advance.
  10. The 415 test we just performed for plan year 2020 included the sum of the 2020 401(k) deferrals, the lump sum 2020 401(k) match determined and deposited in 2021, [there were no 401(k) forfeiture allocations made in 2020 or in 2021], the 12/31/20 ESOP contribution allocation, and the 12/31/2020 ESOP forfeitures allocation. Under this test let's say there is 415(c) room to do a Mega Backdoor Roth Contribution and for the sake of argument let's say the room is $20,000. I assume that this after-tax $20,000 should have been contributed in 2020, with an immediate Roth 401(k) conversion after each payroll contribution if that's how we do it. What happens if the participant over-contributes, for example, we allowed an after-tax contribution of $22,000 in 2020 vs the finally determined $20,000 that the max should have been. I assume the $2,000 plus earnings could have been returned by April 15, 2021 to avoid double taxes? Is that how a Mega Backdoor Roth is administered? Generally speaking, it always involves a return of excess before April 15? The earnings are taxable in the year of distribution, so no 2020 W-2 needs to be changed, right? Your advice would be appreciated. Thank you!
  11. Group: I'm drafting a Self Correction Plan (SCP) to correct insignificant operational failures for an ESOP and looking to see if anyone has a sample (redacted?) document they are willing to share? Also looking for robust article on SCP's its history and recent changes including Rev Proc 2019-19? other than what I've found in my initial research. Willing to pay if needed. thank you in advance.
  12. Group: Wasn't sure which section to post so I apologize in advance for duplicate posts. Is Ft Williams the best (or just one of a few) in marketplace to help create esop plan documents? Are they owned by Wolters Kluwer? I'm looking for a resource (or service provider. Ie attorney/TPA) familiar with esop plan document design and plans with participants in excess of 100. Along with knowledge in participant notice requirements for material changes. Not looking for freebies. And willing to pay to consult. Thank you in advance.
  13. Group: New client is in initial stages of audit of Esop. In reviewing her businesses 2013 ESOP Plan Document I noticed there was no Adoption Agreement prepared for client at time. Or at least none the client could find. And no restated esop documents. There are corporate resolutions and an SPD. Its my understanding that the former TPA (who I'm told was a volume submitter) at the time assisted in drafting clients esop documents. I thought it would be easy to contact them but I don't believe they're still in business. It seems a little late in the proverbial game to draft an adoption agreement corresponding with the provisions of the plan document. As part of our IDR disclosure to auditor would you give copy of old ESOP Plan Document with explanation that the TPA is no longer around to obtain a copy of any adoption agreement? Thoughts and comments appreciated.
  14. Our ESOP administrator reinstates shares for those rehired participants that terminated employment with a 0% vested balance. There is no time limitation for reinstatement. It was my understanding that if a participant terminated employment 0% vested the terminatino date was considered a distribution and the 5 year Break in service rule calculation would start. Is there a limitation on reinstatement for 0% vested rehires? The plan doc does provide language for partially vested balances reinstated within the 5 year break in service for those that return the vested shares.
  15. In the case of a 2020 regular taxable ESOP distribution with NUA reported in box 6 of Form 1099-R, if you self-certify for COVID relief from taxation, Form 8915-E does not allow you to claim beneficial capital gains tax treatment on your COVID distribution. Capital gains on an ESOP distribution with NUA are normally reported on Form 4972, line 6, and the instructions for Form 8915-E (page 2, left column at the very bottom in the "Note") specifically mentions no capital gains from Form 4972 are allowed. The link to IRS Form 4972 and its instructions are here: Form 4972 and Instructions. Form 8915-E and instructions can be found here: Form 8915-E Instructions; Form 8915-E Accordingly, from what I can tell, COVID impacted recipients of 2020 ESOP distributions with NUA will have a choice to make with respect to claiming COVID relief on Form 8915-E: 1) file Form 8915-E and forego capital gain treatment, but pick up the waiver of the 10% early withdrawal excise tax (plus get 3-year ordinary income tax spread & ability to rollover); or 2) don’t file Form 8915-E for COVID relief and keep capital gain treatment, but pay the 10% excise tax if applicable (and lose the 3-year tax spread & ability to rollover). In my opinion, if the CARES Act is going to allow taxes to be spread over three years, then spread the taxes normally due over three years. I doubt the CARES Act contemplated the IRS recharacterizing capital gains into ordinary income as a consequence of getting COVID relief. If any income tax preparers out there can think of a workaround like attaching a Form 8275 statement or similar, please let me know. I’ve complained to the ESOP community and LinkedIn. I’m not sure if anything will happen, but the IRS makes mistakes now and then, and ESOPs are complicated, even for the IRS. Alternatively, the CARES Act didn't address this issue and it would take an act of Congress to fix. Any thoughts?
  16. Group: Clients' retirement plan form 5500 tax yr '17 was audited.beginning Aug 2019. We only had one request to amend plan documents. Such plan amendment was made months ago. We just received Form letter 1744 signed by area manager. Which notes audit has been completed and on 2nd page states amendment was signed. Is this the final closing letter? Can the IRS now open up following tax years? Thoughts and comments appreciated.
  17. Group: I did not see a specific area to post this so I've posted here. And I may not be asking the question properly so please bear with me. 12/31 fincls/tax return reflects $400k in bank account of entity owned by ESOP. These are funds that were just paid into account and going to be used as loans for business purpose. I recall a discussion some time ago on a similar issue but not sure if there was a complete answer other than "it depends". For valuation purposes, can the appraiser make the statement and assessment that those funds are earmarked and not part of the overall valuation? Which will reduce the overall value. Also, I apologize that this is off topic, but I've recently had a contractor I worked with leave the profession and am looking for a project-based individual with experience in ERISA/ESOP related valuations and research. I am trying the Benefits Link job posting for the first time and thought I'd add my request here. Thoughts and comments appreciated.
  18. Group: In general, can a taxpayer/ESOP (retirement plan) who is under audit, still voluntarily self correct matters they deem need correcting? We believe a former ESOP advisor failed to give basic advice on paying off an ESOP note in a timely manner. The TPA allocated stock based on an assumption that the ESOP note was proportionally paid. ie. 20% of note paid in yr 1 and TPA allocated 20% of stock. Also, a former employee of the ESOP TPA may have failed to account for one terminated employee. However, client ESOP is under audit and I'd like to have client file voluntary self-correction with Dept. of Labor and/or IRS EPCRS. Anyone ever been successful in voluntary self correcting while under audit? I note a taxpayer usually wants to make the correction prior to an audit. Thoughts and comments/resources/cases appreciated. Stay Safe. Warmest...
  19. Good afternoon, I appreciate your time, as I typed quite a bit. I'm in the process of setting up a traditional IRA with a Financial adviser I unfortunately found through my credit union. The fees associated with the account, or for him are 0.8000%. Is this rate about right? the amount accidentally rolled over was $14000 This whole ordeal has been a nightmare for me but I'm slowly but surely learning more about finances so I dont make another mistake in the future Back story, I'll try to be swift. I had an esop for 7 years from a previous employer, I wanted to rollover $45,000 and keep $14,000. I knew 20% was going to be held from the $14,000. Well the documents sent to my employer were incorrectly filled out by my financial adviser. And I signed it so I was slow too. I was sent a huge check I didnt want, and the bank was sent $14000. $9000 was sent to the irs for federal and nothing can be done about that. I may get it back next year but doubt. Lastly I still have this check I havent decided what to do with, my financial adviser has been trying to get that too I just want other options.
  20. Group: I am looking for studies performed after 2008-2010 market crash/recession that shows a greater number of employers wanting to set up an ESOP vs. that of having employees retirement at risk of wall street casino. I have found a few but not sure they are exactly what I'm looking for. Thoughts and comments appreciated. Thank you
  21. Group: Clients' retirement plan (ESOP) is being audited by DOL for tax year 2017 to present. As a side note, clients' same retirement plan (ESOP) has two audits running concurrently with TEGE and SBSE. My queries relate to properly responding to initial IDR and whether stating request is outside of statute of limitation is appropriate. 1. Per IDR, DOL is requesting records (such as articles from plan sponsor entity which was set up approx 10 years ago). Is it appropriate to state in response: Outside of statute of limitation. How do other practitioners respond? Send everything? 2. Also, IDR is requesting service provider fee agreements which would include my own attorney engagement letter. I've read conflicting articles and research saying that attorney fee agreements are not protected by atty-client privilege and other resources saying they are. I'd prefer not to give the govt carte blanche. Thoughts and comments appreciated. Warm regards Joe Dadich, Esq.
  22. There will be a significant number of retirees from the company our company in the next year. The company has a significant amount of Cash on the balance sheet that might not all be included in the valuation. The Company and trustee are unwilling to let anyone else review the valuation report. Is there anyway to dispute the valuation on the basis it is too low? The ESOP owns over 70% of the company, but the CEO and CFO seem to be hiding the cash until after the current round of retirements.
  23. Group: I may not state this properly so bear with me. Entity A, Inc. sells 100% of stock to an ESOP with name of 'A, Inc. ESOP AND PROFIT SHARING PLAN' in 2011. ESOP files for EIN and uses such for all 5500 filings. Entity A is audited for tax year 2012 and 2013. Which resulted in a no change determination letter. Fast forward, Entity A ESOP is now under audit for same years (2012 and 2013) and all years through 2017. I'm coming in late to the proverbial game as 2848/attorney and client has already signed audit extensions prior to my involvement. Q: Are there any cited cases/internal revenue manual cites/other supporting sources, that stand for the proposition that the ESOP was effectively audited for 2012/2013 with these facts? I note there seems to be very little case law about whether or not these facts can support a collateral estoppel or res judicata argument. And it's usually not favorable to taxpayers. Thoughts and comments are appreciated. Thank you Joe Dadich, CPA, Esq.
  24. If you could create a beneficiary form that allowed participants to check the box for applying this primary bene for ESOP and/or 401(k) and this secondary bene for ESOP and/or 401(k) or check the box for "same" and could work it all out in a logical electronic format, can one beneficiary form (actually two within one) cover 2 qualified retirement plans?
  25. Group: Facts/assumptions as follows. Client owns an S-Corp and sets up an S-ESOP with 20 eligible participants/employees. Value of S-ESOP stock is $20k when sold to ESOP Trust and loan is established to be paid off within 5 years. 100k shares outstanding. Assume 6 yr step vesting. ESOP Loan paid off by yr 3. TPA informs me that stock is allocated proportionately to payoff of ESOP loan. By yr 4 all of the 100k stock has already been allocated to the above-referenced 20 participants. Q: What happens when 3 new employees begin work in yr 4 and begin to vest by yr 6? Q: How do you properly allocate shares/benefit to new employees? Is TPA correct? I'm informed by the TPA that the only way to provide a benefit to the 3 new employees is if - and when - the original 20 ee's retire/leave and then forfeit their allocated stock shares. At such time those retired shares (proper terminology?) can be allocated to the 3 new ee's. Can Plan Sponsor issue additional stock for allocation? or is the TPA correct? I can't seem to find guidance on this matter. Thoughts, comments and resources would be much appreciated. Thank you!
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