VFC program

[Guest babs51]

Can a one-man DB plan use the VFC program to receive an exemption from excise tax on a prohibited transaction of contributing stock rather than cash to the DB plan?

[SoCalActuary]

Can you make a compelling argument for the exemption?

One additional factor: Did you show the stock sale as a realized gain/loss on the income tax return? In other words, if you had properly sold the stock for cash, you would be able to contribute cash to the plan, which could then buy the stock, but at the same time, you would be required to realize the income on the stock sale.

One of my clients told the stock broker to re-title a security into the plan. We had them correct the instruction to the broker, showing that it was a sale and purchase, and had them correct their income tax. No harm, no penalty from the IRS audit then in process. In fact we found this problem while preparing the annual administration information just before we received an audit letter. But we were vigilant about the correction, able to get the cooperation of the accountant, and had the broker "accept responsibility for misunderstanding" the sale.