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Hello! We have a client that started their plan in 2022 and failed ADP and TH testing due to their owner maxing out their contribution. Their TH Funding was going to be almost $30k and they demanded a reversal of all the owner's contributions in 2022 which were processed recently after many conversations on why this was a bad idea and having them approve a hold harmless letter. Several questions about this: 1 - Does the reversal change the TH test? The balance as of 12/31/22 hasn't changed, and I know first-year plans can use accrual, but I have only ever used that when adding employer contributions to the total. Was not sure how this should/could be handled since I have never had a client actually go through with a request like this. 2 - Similarly, the Form 5500 will reflect the amounts that were in there on 12/31/22 since this is done on a cash basis. So do their quarterly statements. Should any of this be updated or should it all be left as-is? It's just a glaring issue in an audit and I am fine with that as the client signed off understanding they need to own everything that comes with the request. 3 - The reversal that was processed was for exactly $20,500 and all earnings/dividends remained in the plan. Thoughts on how this should be handled? Their letter of direction stated the exact amount versus making it all look like it never happened but, again, such an obvious issue if looked into. Thanks!

I'd appreciate help here. I have a 100% vested qualified plan with a proposed revocation of tax exempt status. The reason for the revocation is that even though the plan terminated and received a 2008 termination letter from the IRS, full distribution was not made soon enough. The IRS deemed the plan to be "ongoing" rather than terminated, and now wants revocation based on failure to update. No contributions were made since 2008. If tax exempt status is revoked as of 2010, are the employees taxed on 100% of the plan value or just the contributions made after the date (none)? The client was highly compensated but the plan was in full compliance when terminated in 2008. I have seen articles with both answers. THANKS! Jeff