Which form to file?

[Guest penman]

New DB plan effective 1/1/04. I have been advised that the proprietor owns 98% of the business and a trust for daughter 1 owns 1% and a trust for daughter 2 owns 1%. I have also been advised the the business is a Limited Liability Company (LLC) elected to be taxed as a sole proprietorship (the 98% owner files a Schedule C).

Can I file a 5500-EZ in this situation? Does it depend on whether the daughters are minors in which case I think he would be deemed to own their shares? If he is not deemed to own their shares I think a full 5500 is needed.

Any help/experience/opinions are appreciated.

[WDIK]

I am unclear after reading your post if the daughters are eligible plan participants. If they are, you must file Form 5500. If they are not, it appears you can file Form 5500-EZ.

[Guest penman]

They are beneficiaries of the trust but they are not employees. The EZ instructions for line 7b self-employed box says the owner or the owner and spouse must be own 100% of the business. This guy owns 98%, but if his daughters were minors wouldn't he be considered owning their shares?

[WDIK]

I apologize penman. I didn't go deep enough into the issue. For what it's worth, I think that you are on the right track.

[Blinky the 3-eyed Fish]

I think the issues are this:

Attribution does not come into play for determining if an EZ can be filed, so it doesn't matter if they are minors or not.

You say it's an LLC taxed as a sole proprietorship, but yet he doesn't own 100% of the sole proprietorship? I am not accountant, but by definition this seems to fit the definition of a partnership, not a sole proprietorship. That being said, if a plan covers only one or more partners in a partnership, they can file an EZ.

What I am curious about though is how this entity files a Sch C under these circumstances. I someone wants to enlighten me on that, feel free.

[Guest penman]

"Attribution does not come into play for determining if an EZ can be filed, so it doesn't matter if they are minors or not."

For my own benefit, where does that come from?

Regarding filing the C, note that the two 1% "owners" are trusts which benefit each of his two daughters, if that makes any difference. Frankly, I am not sure (yet) why it isn't considered a partnership. I have never run across this kind of setup before.

[Blinky the 3-eyed Fish]

It would be easier to reverse it and say where does the idea that attribution comes into play come from? It's not stated in the instructions. It's not stated what rules of attribution should be used, 318 or 1563.