Late filing of 5500-EZ plus over-contribution to Keogh MPPP

[Guest retiree]

My friend had net earned income from self-employment only for the years 1992 through 1995. He established a single participant Keogh MPPP in 1992 and made contributions for the years 1992 through 1995, deducting the amounts contributed.

He had no earned income, and no further contributions were made, for years after 1995. All contributions were invested in mutual funds. He moved cross country in 1998. By the end of 1999, the assets had grown in value to over $100,000. Because he had not made contributions for over four years, his records were in disarray from the move, and because he had never previously filed Form 5500-EZ, he did not realize the Form had to be filed beginning in 1999.

He is now nearly 69 years of age and recently began examining his retirement accounts in preparation for taking Minimum Required Distributions and also for estate planning. It was not until the past few weeks that he learned he had to file Forms 5500-EZ for the years 1999 on. He is preparing late returns for filing and will request that penalties be waived based on reasonable cause. (As a Form 5500-EZ filer, he is not eligible to participate in the DFVC Program which substantially reduces penalties.)

Only question so far is: 1. Does this qualify for a TSL (tear stained letter)?

In preparing the Forms 5500-EZ discussed above, examination of his records revealed that his Keogh contributions exceeded the allowable amounts for the years 1992 through 1994 by a total of $2,410. The 10% excise tax applies only for the year 1995 because, for all prior years, the cumulative excess contributions are not more than 6% of his compensation for the year. For 1995, the cumulative excess contributions are $740 more than 6% of his compensation, so he will be paying $74 to the United States Treasury, and filing Forms 5330 for the years 1992 through 1995, as well as Forms 1040X for the years 1992 through 1994.

He will be withdrawing all the excess contributions and earnings thereon this year and will reflect those amounts in income on his Form 1040 tax return for 2005.

Additional questions are:

2. For what years are the earnings on the excess contributions reported? Every year beginning in 1992 on a 1040X? Only on his Form 1040 tax return for 2005? Something in between?

3. He never made GUST amendments. What does he need to do about that?

4. As soon as everything discussed above is resolved, he intends to rollover all the Keogh assets to an IRA, thereby terminating the Keogh. He'll file a final Form 5500. Are there any other Forms that must be filed? Forms 5310 and/or 8717?

This bulletin board is such a fabulous resource. Thank you for any help you can provide.

[WDIK]

This bulletin board is such a fabulous resource.

One of the most frequent pieces of advice found on this forum is to obtain competent professional services. Based on your post, there appears to be enough potential liability to amply justify the cost of such consultation.