Schedule P - and the point is?

[Brenda Wren]

Does anyone know exactly why we all file Schedule P's? I think a common thought out there is that somehow it starts the statute of limitations for IRS audit. I know this can't be true because IRS auditors go back as many years as they want when they discover recurrent operational defects. Also, when you terminate a plan, you have to go back 6 years to show operational compliance.

I suspect filing Schedule P protects trustees (not plan sponsors) from something, I'm just not sure what. Since most of our plans are trusteed by the business owner who is also the Plan Administrator and Plan Sponsor, is it necessary to file Schedule P and what is the benefit?

[WDIK]

From Schedule P Instructions:

Purpose of Schedule

You may use this schedule to satisfy the requirements under Code section 6033(a) for an annual information return from every section 401(a) organization exempt from tax under section 501(a). The statute of limitations under section 6501(a) for any trust described in section 401(a), which is exempt from tax under section 501(a), will not start to run until you file this schedule.

From the Code:

6501(a) General rule

Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. For purposes of this chapter, the term "return" means the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).

[Brenda Wren]

what tax?

[BeckyMiller]

It is the tax that the trust would pay if it was disqualified. It has nothing to do with all that operational stuff we have to correct. It is just the tax due on any income that would be reportable by the trust under normal trust taxation.

[mbozek]

Qualified plans are taxpayers who are exempt from taxaton under IRC 501(a). Filing the sked p commences the running of the S/l for back taxes that may be collected from the trust for violations of the IRC, e.g. loss of tax exmpt status. Once the sked p is filed the s/l for taxes is limited to 3 or 6 yrs.

[Brenda Wren]

So you're saying that if the IRS decided to disqualify a plan and Sch P had been filed every year, they could only go back 3 years, not from inception of the plan?

[Bird]

Brenda, FWIW I share your skepticism about the form's worth. As noted in other messages in this thread, it apparently protects the trust from taxation if it is disqualified. But I think there is a misconception that it protects the employer's deductions.

I asked an IRS person about this within the last couple of months and he said "oh yes, we always look for the sched p first to determine when the statute of limitations expires" (with the implication, from the context of my question, that it DID protect the employer's deduction). So they apparently think it serves that purpose...or at least he does.

[mbozek]

Under IRC 6501 the s/l for the employer's deduction commences by filing the tax return for the er, e.g, 1120 for corporation, 1040 for self employed persons. The Sked P is only for the trust as a taxpayer.

[Kirk Maldonado]

General Counsel Memorandum 38230, 12/31/1979, IRC Sec(s). 6033

--------------------------------------------------------------------------------

UIL No. 6033.01-01; 6501.04-00; 6501.06-01

Headnote:

Reference(s): Code Sec. 6033; Code Sec. 6501;

Full Text:

CC:I-355-77

Br1:HRBucholtz

December 31, 1979

Memorandum to:

S. ALLEN WINBORNE

Assistant Commissioner (Employee Plans and Exempt Organizations)

Attention: Director, Employee Plans Division

In G.C.M. 38082, captioned as above and dated Sept. 6, 1979, we responded to your inquiry as to whether Form 5500, Annual Return/Report of Employee Benefit Plan, may constitute a return of a trust serving as part of a qualified employee benefit plan for purposes of I.R.C. § 6501. We concluded that it could not. We then went on in G.C.M. 38082 to discuss possible solutions to the problem posed by that conclusion; i.e., that such trusts would have no formal means of starting the running of the section 6501(a) statute of limitations. One such solution to which G.C.M. 38082 at 15 n.2 (and accompanying text) refers is the reimposition of a return requirement upon employee benefit trusts. That requirement would be satisfied by the trust filing an abbreviated return as a schedule to the Form 5500 completed by the employer maintaining the plan or the plan administrator thereof. Such a filing would be sufficient to start the limitations period running.

Representatives of this office and of the Employee Plans Division agreed that this proposed solution should be implemented. Members of the Employee Plans Division then undertook to develop Schedule P (Form 5500) to serve as a trust return.

We have now learned that the Tax Forms and Publications Division (T:FP) objects to the issuance of the proposed Schedule P (Form 5500). Representatives of that division have informed us that they are under a congressional mandate to reduce the number of Service-imposed filing requirements. Pursuant to that mandate they carefully scrutinize proposals for issuance of new forms such as the proposed Schedule P (Form 5500). The Tax Forms and Publications Division has determined that solution of the problem with which we are concerned does not justify issuance of a new schedule because of an available alternative. That alternative would be to provide trustees in the instructions to Form 5500 with an informal and unnumbered statement that may be used by them as a return for purposes of sections 6033(a) and 6501(g)(2).

We have reviewed a draft of the proposed statement and draft instructions thereto. We have suggested certain revisions of the statement and of the instructions and we attach copies of the draft statement and instructions so revised. In our view the statement, so revised, would suffice as a return for purposes of sections 6033(a) and 6501(g)(2). We believe, therefore, that such a statement may be substituted for the proposed Schedule P. (Form 5500).

N. JEROLD COHEN

Chief Counsel

SIGMUND J. LIBERMAN

Assistant Director

Interpretative Division

Attachments:

Revision of proposed trustee statement

Revision of proposed instructions as to trustee statement

PROPOSED TRUSTEE STATEMENT

This statement constitutes the annual information return described in section 6033(a) of the Internal Revenue Code of 1954 filed for the trust year ending (date) _____.

Under penalties of perjury, I declare that I am the (trustee) custodian) of the _____ (Name of Trust), which serves as a part of the _____ (Name of Plan).

_____

Date

$05R

(Signature of Fiduciary)

PROPOSED INSTRUCTIONS AS TO TRUSTEE STATEMENT

An employer or plan administrator filing Form 5500, 5500-C, 5500-K or 5500-G as to an employee benefit plan in which an organization qualified under section 401(a) of the Code and exempt from tax under section 501(a) of the Code forms a part should inform the fiduciary of such organization that, if it desires the protection of the statute of limitations provided in section 6501(a) of the Code, an annual information return under section 6033(a) of the Code should be filed. The statement below may be used by such a fiduciary for that purpose. A reproduction of the statement is also acceptable.

The statement should be filed as an attachment to the Form 5500, 5500-C, 5500-K or 5500-G filed for the plan year in which the trust year ends.

[The statement itself would then follow.]