SEP - 2 Partners - K1 Income - Contribution

[K-t-F]

Simple question... here is the situation:

The business is a partnership and there are 2 partners

Partner A is a 60% partner

Partner B is a 40% partner

No other employees

Partner A wants to make a contribution

Partner B does not

Can this happen?

[Bill Presson]

Simple question... here is the situation:

The business is a partnership and there are 2 partners

Partner A is a 60% partner

Partner B is a 40% partner

No other employees

Partner A wants to make a contribution

Partner B does not

Can this happen?

No.

[K-t-F]

Can you expand a little? I am a DC man... my CPA is asking me this question and I want to explain why no. What I stated is all I know.

Thanks

[SheilaD]

Simple question... here is the situation:

The business is a partnership and there are 2 partners

Partner A is a 60% partner

Partner B is a 40% partner

No other employees

Partner A wants to make a contribution

Partner B does not

Can this happen?

Put in a DC plan where group A is greater than 50% owners and group B is other owners. The partnership (not the individuals) decides that Group A will get a 49,000 contribution and group B will get a 0 contribution. As long as no other employees I think this would work.

[rcline46]

Refer the CPA to the document establishing the SEP - probably a 5305-SEP from the IRS. EVERYONE ELIGIBLE FOR THE PLAN MUST GET THE SAME CONTRIBUTION (I am ignoring the integration section).

Since the CPA probably installed the SEP he should be familiar with the document.

[Bill Presson]

rcline46 and SheliaD are both right.

PATA, they can't do what you outline in a SEP, because the rules don't allow it.

They can certainly do what you outline in a DC plan exactly as SheilaD has proposed.

They probably just don't want to pay for the document and admin.

[K-t-F]

They can certainly do what you outline in a DC plan exactly as SheilaD has proposed.

They probably just don't want to pay for the document and admin.

That is exactly right! But if SheilaD's idea works then maybe they would go for a DC plan after all.

Thanks for all your help!

[Belgarath]

Just be aware that the IRS could raise the "deemed CODA" issue. SheilaD addresses this when she tells you to have the partnership make the decision, rather than the individual partners.

Lots of different opinions out there. Super-conservative opinion is not to allow a partner in a group by themselves. I'm sure if you do a search you'll find discussions on this issue. I don't think the IRS is currently on any witch hunt for this, but at the least you should consider it.