Schedule I = Question 4i

[MarZDoates]

Client has a pooled account in which cash and mutual funds are the investments. He receives statements each month indicating the holdings. With respect to Question 4i on Schedule I, I understand that you start with the balance at the beginning of the plan year (i.e. value is $200,000 at 1/1/02) to determine the 20% amount. He does have more than 20% in one security (one mutual fund), and obviously the value varies each month and stays consistently above 20%. For reporting purposes, what amount do I use to complete the Schedule? He also has about 40% in a money market account. That would not be considered a security would it? Thank you.

[Earl]

I sure don't know the legl answer, but I don't report it. I figure "what's the downside?" Audit happens and the auditor says "you should have listed this as a 20% holding".. I say "really? ok, I will. thanks!"

[mwyatt]

From a philosophical viewpoint, the question is really getting at diversification of plan assets. I would probably bet that your mutual fund might hold more than one stock in its portfolio, which tends to argue against the spirit of the lockstep "yes" response. This question always kind of bugged me (and also its prior counterpart dealing with transaction over 20%) for small plans at the beginning of their life. I actually answered this question as "Yes" one time on a fairly new plan as the plan had just started out (hard to avoid 20% of asset limitation when it is pretty new, unless you "luck" in to one of those brokers who likes to buy 5 shares of this, 15 shares of that... ever heard of a mutual fund sport?) which inadvertantly triggered an IRS audit. The agent actually told me not to answer that question yes in the future unless it was a meaningful stretch of diversification of assets. And so it goes...