When is it taxable? (ADP/ACP Corrections)

[Guest RONNIE WASEL]

We are working with a employer sponsor that has not filed 5500's or performed testing since 1997. We have already filed under DFVC and will need to go through VCP for some issues.

The plan has failed both the ADP and ACP test for all years 1997 forward. We will be using a "one-to-one" correction method to correct. With this, the distribution amount will be adjusted for earnings through the date of distribution.

Question:

It seems as if the correction distribution will be taxed to the HCE's in the year that it is distributed. It definately falls outside the 2 1/2 month period.

Therefore, it appears that there will be no need to amend the personal 1040's of the HCE's for 1997 forward, because the distribution will be taxed in the year in which it occurs.

I know that there will also be some excise tax due, but does the above seem logical?

Thanks,

Ronnie Wasel

[2muchstress]

Without answering your question, I just wanted to make you aware that the employer could use either current year testing or prior year testing during the amendment period for GUST.

My guess is if they haven't filed anything since 1997, then they have not updated their documents as well. If this is the case, be sure to use both testing methods to get the best results, and then reflect that method in the document restatement.