IRS Audit

[goldtpa]

I have an IRS agent from the bklyn NY office who is doing two audits with me. One is a pizzeria and the other business is a bigger company with 50 ees.

The audits are for the 2009 years.

The auditor asked to see the 2008 5500 for the pizzeria. The 5500 showed that they lost 30% on the money. She said that she is now going to open the 2008 year for the audit because she wants to make sure that the HCEs did not take any money from the plan and use it for their personal use.

I asked her if she even remembered 08 and that it was the worst financial downturn since the 30's. I told her that people lost more than 30%. She said that she just want to check.

The bigger company uses Ascensus. I printed out the 09 annual statement which does not have the Ascensus logo on it. Thus she is also going to open up 08 as she also stated that she wants to make sure this is not another Bernie Madoff situation. On the bigger plan she is also doing trust accounting to make sure that all contributions are timely deposited and nothing was stolen.

Times are bad and the IRS is trying to catch those HCEs who might be taking money from the 401k. In order to do so it appears that everyone is guilty until proven innocent!!!!!!!!!!!!!!!

[david rigby]

Perhaps show the agent a 2008 asset statement, presumably with more detail than the 5500, showing investment losses. This might headoff a larger investigation.

[shERPA]

"It is the inevitable habit of bureaucracies, at all times and everywhere, to assume ... that every citizen is a criminal. Their one apparent purpose ... is to convert the assumption into a fact." - H.L. Mencken

I keep this quote under my desk blotter, it helps me deal with the insanity. Hopefully it will help you too.

[mbozek]

If the IRS is going to audit evey qualified plan that lost money in 2008 they are going to need a bigger boat for all the additional auditors that will have to be hired along with the 17,000(?) auditors that the DOL is suposed to hire to enforce the plan expense disclosure rules. Where is fiscal austerity when you really need it.

I am glad I dont do this stuff.

[ETA Consulting LLC]

It appears as if they are looking for HCEs who may have taken distributions without reporting taxable income. It is common for the plans with incomplete recordkeeping systems to issue loans, and then fail to track them for repayment, and then fail to provide a loan offset 1099-R on final distribution (with no prior 1099R for the deemed distribution). Trust me, they are not concerned with protecting plan assets; they are looking for taxable events.

Hope you have good records