5500 NEVER FILED UNTIL NOW

[Dawn Hafner]

Did any othe employees become eligible for the plan? If not, and the assets of each plan were less than $100,000 he should still be under the 5500 EZ exception. Since this plan has been in existence I am assuming other participants have become eligible.

In that case, you can use the Delinquent Filer Voluntary Compliance Program to reduce the penalties. (DFVC) If a report is filed within 12 months after the required date, the penalty is $50/day up to a maximum of $1,000 for a 5500 C. If filed more than 12 months after the required date, the penalty for a 5500 C is $2,000. Note that these penalties can not be paid from plan assets. This program is sponsored by the DOL, but the IRS has indicated they will not impose penalties if DFVC is used.

Another option you could try is the reasonable cause. The IRS and DOL may waive the penalties if the plan administrator can show its failure was due to reasonable cause. This is based on a facts & circumstances test. For example, I have had penalties waived for a plan that filed one year late due to the fact their prior accountant told them it was not required. Good Luck!

You may also want to review his prior contribution calculations. I would be suprised if he did the self-employed contribution calculation right.

[This message has been edited by Dawn Hafner (edited 10-02-98).]

[Guest JCONNER]

I have a client who started a money purchase plan and a profit sharing plan in 1995. According to this client, he always calculated his own contributions (we don't know how) and took care of the plan himself, but says he never knew to file a 5500. Now he has come to us for help in administering his plan. What do we need to do about the 1995 and 1996 5500s that were never filed? He is a self-employed doctor who paid wages in both 1995 and 1996. Can anyone help?

[Guest JCONNER]

Thanks, Dawn, for answering so quickly! The assets are less than $100,000 in both plans combined, so I am going to try to use the EZ option. I appreciate your help.

[imchipbrown]

Make sure you understand what Dawn has written. Doc has had to be the ONLY participant both years AND assets had to be under 100K (most likely, if only one participant for two years).

If so and assets are still under 100k and Doc is only participant, NO returns are yet due.

If any other participants, a 5500-C/R is due (overdue without an extension).

[Guest JCONNER]

Now that we have decided the doctor did not have to file in 1995 and 1996, all is well except......we have come to 1997. As I said before, the doctor calculated his own plan contributions in a way that even he can't remember, and he overcontributed by several thousand dollars in 1997. How does that need to be corrected? Do we do a distribution of the excess money with earnings?

Also, his wife is one of his employees. Does she pay FICA taxes as an owner due to attribution, or does she not pay FICA because she is "just" an employee who happens to be married to the owner? When we enter her in our pension system as a "principal, partner, or owner" she gets FICA taxes taken out of her salary, when in actuality that is not the case because she did not pay FICA out of her salary. However, it is our understanding that a wife should be considered an owner due to the attribution rule. Can someone help?

[Ervin Barham]

You have a mess. How's that for an understatement!

I can't answer the FICA question as I am not a CPA, however for plan purposes, Section 318 attributes the stock of an owner to his/her spouse. One suggestion is that you do some consulting work(or hire a consultant) and go back and get all of the census info for each year and follow the plan rules and recalculate the contribution all the way through. This may be an expensive lesson for the doc!

Returning the contribution in a qualified plan can only be done under a "mistake of fact" and no one is ever sure what that means. The consequences of getting that wrong could be costly. You can carry any excess contributions over and they may have to pay an excise tax. You may want to get an attorney involved as well.

If all of the employees have not been covered, then you may want to take a look at some of the Q&A columns on plan defects that would address this issue.

Good luck!