Failure to Make 945 Deposits

[Guest KFLETT]

What is the best action to take when an employer fails to make the appropriate Federal Tax Deposits and pays out a participant without withholding 20%. The 1099R will reflect the taxable income to the participant with no tax withheld but what should the plan sponsor do in such a case?

[Guest stryan]

When I looked into this before, I could not locate any official corrective action to be taken by the plan sponsor. Basically, the horse is out of the barn. The primary downside I found, was that if the particiapant failed to pay taxes on the distribution, the IRS could come back on the plan sponsor. Probably a low risk situation.

Depending on the timing of finding the error, I would recommend that the plan sponsor contact the participant and advise them that withholding was inadvertantly omitted and should be returned to the plan sponsor for proper deposit, otherwise, the participant will need to pony up the funds at tax time. Think I'm 0 for 3 in having the withholding returned by the participant, but then am also 0 for 3 in having the IRS come back on the plan sponsor.

Go forth and sin no more.

[Guest KFLETT]

Thanks for your response. Presently I did not locate any definitive guidance without calling the IRS directly.