1 life plan 5500 exception

[Santo Gold]

I have a new client who sponsors a PS plan for himself (no other employees). The assets have always been under $100,000 so he's never had to file a 5500, but his accountant had done so anyways. The accountant missed the 2005 filing (but did one for 2006 and 2007 as well as for years prior to 2005) and an IRS letter was now sent following up on the 2005 filing.

1. Even though the plan filed 5500's for all years before and after 2005, he was not required to file for 2005 and so, a correct reply to the IRS would be that one was not required, correct?

2. The owner then mentioned "oh by the way, I also have a SEP". Do SEP plan assets count towards the $100,000 threshold?

3. The owner then mentioned that he owns other small companies (no employees). I am waiting to hear if he has any retirement plans through these other companies. If not, then we're OK. But if he does, I believe that those plans must be aggregated to determine whether the $100,000 has been exceeded, correct?

Finally, a general question. The threshold was raised to $250,000 in 2007. Does that apply to assets at the end of the year, or at anytime during the year? That is, if a plan had over $100,000 in early 2007, do they have to file a 2007 5500 even though the limit was raised to $250,000 in 2007?

Thanks

[PensionPro]

If a plan covers a business that is part of a CG or ASG, you have to file Form 5500 regardless of amount of plan assets.

The $250,000 limit is applied as of the end of the year, i.e. 12/31/2007.

[Belgarath]

1. I agree.

2. Although I believe the answer is no, I'm not entirely certain without a little checking.

3. I don't agree - whether the other businesses have plans or not is immaterial. If the business sponsoring the plan is part of a CG/ASG, as it apparently is, then this plan is ineligible to file an EZ.

4. $250,000 asset limitation is at the end of the plan year. (but as BG mentions above, the plan year had to begin on or after 1-1-07 - so if it was a 7/1/06 to 6/30/07 plan year, for example, then the 100,000 limit would still apply.)

[Santo Gold]

Thank you for the replies. I wasn't aware of the CG/ASG requirement. So, just to confirm, if an individual is the sole owner of 2 separate businesses, sets up a retirement plan for himself in one but not the other, a 5500 is required regardless of the assets? That seems a little strange. Why should the CG status matter if he has only 1 plan? [No need to answer just thinking aloud]

[Santo Gold]

New information on the plan. Forget the SEP and ASG/CG components as they do not exist. This is simply a 2 life (both owners) PS plan that has never had assets in excess of $100,000.

History: The plan has filed 5500's since inception, except for 2005. 5500's filed again in 2006 and 2007. But 5500 was filed not 5500EZ. So, the missing 2005 was caught and thats what the IRS is looking into.

The IRS agent is saying that since the plan actually filed a 5500 instead of an EZ, that the fact that a filing really was not due (less than $100,000) in that year does not apply. Once you file a 5500, you cannot go back and then avoid filing a form because you want to be considered an EZ filer.

I asked where it says this in the instructions and I was pointed to a section in the EZ instructions that to me are not clear on this specific point.

Any comments on:

1. Once you file a 5500, you cannot claim to be exempt in future filing years even if you meet the other exemption criteria?

2. Once you file a 5500, you cannot file future 5500EZs in the future.

Thanks

[Bird]

I asked where it says this in the instructions and I was pointed to a section in the EZ instructions that to me are not clear on this specific point.

And that section is...?

I'm not aware of a requirement that says you have to continue filing a 5500 if you ever filed one. And I'm positive that we had a client who went from 5500 to 5500-EZ filing and I don't remember a problem with it, although it was before the EFAST system.

Just a thought - you might want to consider amending the 2004 return and marking it "final" to indicate that future returns aren't required. Of course that will cause some static since the assets aren't zeroed out, and then they filed again in 2006, but I'm just trying to think outside the box.

Another thought - if I were the client, and now realized that not only did I pay someone to do something that wasn't required, but that doing so has me embroiled in this mess, I would be very upset. What a horrific waste.

[Santo Gold]

I asked where it says this in the instructions and I was pointed to a section in the EZ instructions that to me are not clear on this specific point.

And that section is...?

I'm not aware of a requirement that says you have to continue filing a 5500 if you ever filed one. And I'm positive that we had a client who went from 5500 to 5500-EZ filing and I don't remember a problem with it, although it was before the EFAST system.

Just a thought - you might want to consider amending the 2004 return and marking it "final" to indicate that future returns aren't required. Of course that will cause some static since the assets aren't zeroed out, and then they filed again in 2006, but I'm just trying to think outside the box.

Another thought - if I were the client, and now realized that not only did I pay someone to do something that wasn't required, but that doing so has me embroiled in this mess, I would be very upset. What a horrific waste.

The section was just page 2 of the EZ instructions. I don't see the IRS' line of reasoning in these instructions though.

[Bird]

I don't see the IRS' line of reasoning in these instructions though.

Me neither. I would just repeat the assertion that a 5500 is not required until they accept it.

[Blinky the 3-eyed Fish]

You say 2 owners are in the plan. Are they husband and wife or partners in a partnership? If not, you have to file a 5500.