Please help: K-1 Info:

[Guest tintree73]

Re finishing our testing: We are an LLC that is taxed as a partnership.

Our administrator just told us that if some of the companies in our controlled group are taxed as partnerships (which they are), that we have to turn over K-1s for applicable partners. Our finance guy doesn't want to do this. Can we get out of providing this information and provide something else instead? I have no idea-please help!

[Blinky the 3-eyed Fish]

Is each partners net earned income clearly over the 401(a)(17) limit after reducing it for the pension and SE taxes? I am not sure which of the members of the controlled group sponsor the plan, so this may be a necessary determination for each partnership. If so, you you may be able to provide a statement certifying to that. Otherwise to not give the K-1's is to not provide enough information for him to do his work - garbage in means garbage out.

It's this type of thinking by clients that bothers me greatly. Here you have a TPA, who is on the client's side mind you and trying to do the work properly, but the client is blocking that effort. What did you do last year?

[Guest tintree73]

They didn't ask for it last year - and the CG hasn't changed - which is why we are more than a little confused.

I don't know if this changes anything, but the members do not receive any guaranted income from any of the entities, do not participate and none of the companies in the CG had a profit last year.

[Blinky the 3-eyed Fish]

There are still possibilities for needing the information, but rather than I go through them, why wouldn't you ask the TPA these questions?

[Guest tintree73]

First, thank you for your responses. Second (to answer your question), we did and we got an abrupt - we will only take the K-1. Seeing as my boss was the interface - he then handed it off to me and told me to figure it out (as they say, it goes downhill). Anyway, I had no where to turn but here to find something out because the administrator will not "talk" to me and I need to either (1) make an argument to my boss to just provide it - which would have to be a REALLY good argument or (2) figure out a way around it.

[Blinky the 3-eyed Fish]

Well since I am devoid of specifics about the plan nor am I in the TPA's head, I rather not try and list every possible reason he needs the K-1's. I see that you have 3 choices: 1) provide the K-1's; 2) tell the TPA to get bent; or 3) get a new TPA who will explain his query. No matter what you do this year, I see 3) as a future option. Someone who asks for something but can't explain why creates doubt.

[jquazza]

It's very strange that they would only take the K1s and not a report. If you were planning to make additional contributions, the K1s could not be finalized until the plan costs were taken into consideration. Would they still insist on getting the K1s?

I agree with Blinky, they need the data, but they could rely on a report without getting the actual K1s (are they asking for the W2s for the staff too?) There has to be a certain level of trust between the TPA and the sponsor for the relationship to be fruitful.

[BeckyMiller]

It appears that what we have here is a lack of trust. The sponsor is worried about what the TPA will do with the data. The TPA is feeling like it isn't getting exactly what it needs to do the job right...

I can see where both sides may have a reason for concern.

So - here is a suggestion. Assuming that the sponsor has someone who is reasonably informed about the rules for determining net earnings from self-employment for a partner and willing to take responsibility, have the sponsor send a note to the TPA specifying that for plan purposes the following information has been extracted from the returns and constitutes compensation, earned income, net earnings from self-employment or whatever concept is required by the plan. Then sign and date the note.

Don't just stop with the limit on compensation because remember the definition of compensation is after the allocable share of the contribution for employees and each partner. So, to get $200,000 of net earnings from self-employment for plan purposes, you might need $240,000 of earned or more depending upon the cost to fund participants.

I don't see that getting the K-1's is any better than this and it may be worse. I have seen an awful lot of wrong or incomplete K-1s and who is to say that the provided K-1 is even the one that was filed with the Service.

[R. Butler]

It's very strange that they would only take the K1s and not a report.  If you were planning to make additional contributions, the K1s could not be finalized until the plan costs were taken into consideration.  Would they still insist on getting the K1s?

I agree with Blinky, they need the data, but they could rely on a report without getting the actual K1s (are they asking for the W2s for the staff too?)  There has to be a certain level of trust between the TPA and the sponsor for the relationship to be fruitful.

Not necessarily speaking to this situation because the facts seem somewhat unclear to me, but we will take some report, but that report must include numbers from every relevant line on the K-1, so it is really not much different than actually giving us the K-1.

I'm not sure how most do it, but the K-1s we receive are preliminary in that they are prepared before any retirement plan contribution is considered; we factor in the retirement plan contribution. So at least in our cases additonal contributions won't change the numbers we receive. We will factor in those additional contributions. So yes I would still insist on receiving the actual K-1 or at least a report giving me the exact numbers off the relevant lines.

I do agree that there has to be a certain level of trust between the TPA & the plan sponsor. If that level of trust is not there find a new TPA.

[jquazza]

RB,

keyword in your post being preliminary. I think we're all in agreement here. Bottom line is the sponsor should trust the TPA and provide them with the info they need, the TPA should trust the sponsor and accept the information on whatever format the sponsor wants to provide it.