Delinquent Matching Contributions

[Guest dick@fbanet.com]

Question-

We have a prospect - has an existing 401(K) Plan.

Seems as if for several prior years, the company has "accrued" a Company

Match, took a deduction on the Corporate Tax Return, but did NOT ever fund

the contributions.

1) Can the client go back and file amended tax returns and revise the

Participant Accounts to eliminate the Match that was never made ?

2) Would this require the use of one of the IRS VCR programs ?

Or is the client "obligated" to make the Match Contributions ?

3) One opinion is that the IRS would consider it a prohibited

transaction - essentially a "loan" from the plan equal to the Match

Contributions.

Do you think that this is the case ?

Any suggestions ?

[david rigby]

What a mess!

IMHO, this is not a client you want.

[Guest dick@fbanet.com]

Maybe not - that's why we are trying to get a handle on the extent of the problem.

Any thoughts ?

[mbozek]

The question is how much legal advice can the client afford? The easiest answer is that IRS generally cant collect back taxes more than 3yrs after return is due. So tax years prior to 2002 are closed. Client needs to hire counsel to review options including filing under VCR, terminating the plan without making the contributions or making the contributions with interest but not reporting PT. Need to review whether client had obligation to make matching contribution to plan. Client needs to know cost of each option. If client isnt able to make up contributions, interest and penalities there is no reason to go for VCR.

[Guest dick@fbanet.com]

We have since determined that the Match was Discretionary - Not a Fixed Match.

Seems that they would have to file amended tax returns and would NOT be able to make the Match contributions retroactively, they could only inrease the current and subsequent years Match to try to make up the difference to the employees - would you agree ?

What might the DOL's position be if a disgruntled employee reported the company ?

[mbozek]

Dick- No one can give an opinion on a course of action without reviewing the plan documents and applicable law. There is no requirement that a taxpayer file an amended tax return. The client could elect to take a business risk that the s/l will run out before the employer is audited. The client has to retain counsel to get informed advice on the problem which will involve the expenditure of several thousand $. Do you know the amount of the matching contribution that is delinquent?