VCP filing - keogh plan didn't follow any of the rules

[kmciver]

I had someone come to my office today that has a "keogh" plan. He is self-employed and about to take minimum distributions.

1. He thinks he has plan documents but doesn't even know when the plan started...my first gulp.

2. He has employed two full-timers for the last twenty years who have never been given a statement.

3. Since the employer didn't know what a 5500 is, I think it is safe to assume no 5500 has been filed.

I think we will find some documents, but I am sure he will be a non-amender at some point. With regard to the participants, he is willing to reallocate to include the employees as of their eligibility date.

Can I file under VCP for both the plan defects and non-compliance together? Then would I need to file old 5500's under the DFVC? How far back?

Any advise (other than run for the hills) would be appreciated.

[ETA Consulting LLC]

Any advise (other than run for the hills) would be appreciated.

This leaves us with nothing

You have the right approach; clearly identifying each failure. There really isn't a clear precedent for some cases, but your judgement appears to remain intact; which is the best thing you can have with these types of issues. The only thing is that you would not be able to make significant movements with any approach until the IRS actually agrees; given that this isn't your routine correction.

Good Luck!

[rcline46]

RUN FOR THE HILLS, AND DON'T LOOK BACK! ! ! Ok, you said other advice.

Highly likely he has a standardized prototype from wherever he is invested, and a box where he threw all communications without looking. Start there to recreate documents.

Is he sure it is not a SEPP instead of a qualified plan? It will probably require a visit to his office, and a review of the statements from the asset provider, then communication with the asset provider.

It is likely VCP will be required, at least the IRS fee should not be horrendous, but your time could mount up. And yes you can cover all problems, in fact you must cover all problems, in one VCP submission.

It would be expected that ALL prior required 5500s would need to be filed.

It may be preferable to just have the plan disqualifed. You will need legal advice on that. Of course that means taxes on the full amount now.

I wish you the best of luck!

[kmciver]

I will most definitely suggest legal advice. If anything, my fees will seem much more appealing than theirs after he speaks with them.

[Peter Gulia]

Is there an alternate track for the business owner, with his lawyers' and accountants' advice, to evaluate:

Is it possible that treating the plan as tax-disqualified could be less expensive than the corrections?

[jpod]

Peter beat me to the punch. Two of the elements to consider in evaluating his suggestion are (1) how much money is in the plan, and (2) for what year was the last contribution deduction taken (i.e., has the SOL on back income tax assessments expired). Depending upon the answers, the best approach may be to close out the plan account(s), pay tax on the money, and move on.