LLC plan able to file Form 5500-EZ?

[joano]

A client sponsors a 2-person plan, an LLC company with the owners being the only employees.

Can I prepare Form 5500-EZ under the instructions that the plan only "covers one or more partners (or partner(s) and spouse(s)) in a business partnership" or do I have to file Form 5500 because the entity is a corporation?

[Belgarath]

I'm assuming they are taxed as unincorporated? I'm not aware of any formal guidance on this exact question. Therefore, FWIW, I'd be inclined to take the conservative route and file a regular 5500. The potential penalties if you file an EZ and the Service decides you're wrong outweigh the benefits of filing the marginally easier EZ form. Others who are more aggressive may think I'm crazy, or hopefully someone knows of some guidance to the contrary. 'Cause it certainly seems reasonable that if you are taxed as a partnership, and use earned income for plan purposes, that you'd treat the plan as unincorporated for all purposes, including 5500 forms.

[Demosthenes]

From P 3 of the 5500 Instructions for 2003

Special Rules for Certain Plans of Partnerships

and Wholly Owned Trades or Businesses

A plan that provides deferred compensation solely for (1) an

individual or an individual and his or her spouse who wholly

own a trade or business, whether incorporated or

unincorporated; or (2) partners or the partners and the partners’

spouses in a partnership may generally file Form 5500-EZ,

Annual Return of One-Participant (Owners and Their Spouses)

Retirement Plan, rather than a Form 5500, provided that the

plan:

1. Satisfies the minimum coverage requirements of Code

section 410(b) without being combined with any other plan

maintained by the employer;

2. Does not cover a business that is a member of a

‘‘controlled group’’; and

3. Does not cover a business for which leased employees

(as defined in Code section 414(n)(2)) perform services.

A plan that fails to meet any of the above conditions must file

Form 5500 rather than Form 5500-EZ. A plan that meets all of

the above conditions is exempt from filing the Form 5500-EZ if

the plan (and any other plans of the employer) had total assets

of $100,000 or less at the end of every plan year beginning on

or after January 1, 1994.

[joano]

Thank you for the replies.

I found in a reference book that if an LLC is taxed for the year as a partnership, then for plan purposes should be considered a partnership.

This client was taxed as a partnership for '03, so we will prep an EZ.

[Guest jfp]

joano: You better think about this again. The underlying DOL regulation only applies to partnerships; it does not, by its terms, apply to non-partnerships that are treated as partnerships for federal tax purposes.

The question is much larger than whether to file a 5500-ez or a small plan 5500 (although I agree with the earlier poster who suggested that you take the conservative approach and file the 5500). If the underlying regulation applies, the plan is not subject to TItle I of ERISA; if it does not apply, the plan is subject to Titlte I of ERISA. For example, if the plan is not subject to Title I of ERISA, the participant's account balance is not protected under the federal bankruptcy laws.