messed up plan

[Gary]

an owner of a tpa firm comes to me and says that his client implemented a 1 participant db plan in the late 90s. the plan has not kept up with all the amendments and restatements and they have not filed 5500EZs since the year 2000.

The plan has about 800k.

The sponsor/participant would like to terminate plan and distibute assets. It is expected from owner of tpa firm that distribution will be well below 415 limit.

The tpa owner would like to perhaps just prepare a final return and perhaps include a statement explainng the situation, the corrective action taken. Essentially a self correction attempt. The tpa owner feels his firm is somewhat responsible for the missed filings and from a business perspective cannot charge client for VCP fees incurred by his firm and is concerned that it would not be cost effective to do so.

Any thoughts on that technique and its consequences?

Alternatively, I tend to think they would need to go straight into the VCP program.

thanks

[ETA Consulting LLC]

You are right. Not everything is eligible for self correction; especially when you do not have reliance on an opinion letter or a favorable determination letter. Just a technical issue to consider.

Good Luck!

[Effen]

So, was there an actuary involved or did he just contribute whatever he felt like?

[Gary]

they just contributed what they felt like.

[Guest VEBAPLAN]

Probably have to also file under IRS code 6707A to avoid those fines.

[AndyH]

Sounds like legal advice VEBA. Didn't know you were a lawyer.

[Lou S.]

they just contributed what they felt like.

So no valuations then?

I agree the plan sounds like a mess. I wouldn't touch it if they don't agree to go through an IRS correction program.

[Gary]

I'll check into this on the Form instructions, but can a statement of facts and circumstances be filed with the IRS along with the form 5500ez package to the IRS?

Would the IRS review such a statement? Respond to it, etc.?

thanks

[Gary]

after further information i found out that this plan never even had a formal document. they had a prior db plan for a short while which they terminated and distributed. then started this new plan, but no document ever prepared. tpa firm just didn't follow thru on that even though client paid for document prep.

so essentially client just contributed about 100k for 8 or 9 years with no vals since about 2005 and no returns filed, no document, and assets close to $1 million.

this request by tpa owner (also my boss) puts me in a precarious position.

of course i can provide explicit disclosures in actuarial statement with val.

other views?

[FormsRstillmylife]

Have you reviewed the rules governing the reporting of tax shelters to the IRS? Contribution deductions for a disqualified/non-existent DB plan over a prolonged period subject to fraud statute of limitations. TPA owner needs an attorney and he needs to un-involve his employees with this albatross.

[Gary]

it seems pretty clear that this is an undertaking that is unnecessary.

i don't intend to work further on this assignment i am just trying to become adequately informed to support my position. thanks.