2010 Form 5500-EZ should have been filed

[doombuggy]

We have a new client that created a profit sharing plan effective 1/1/2010. He was the only person eligible in 2010 and he rolled over about $232k in IRA money into the plan. He was told he didn't need to file a 5500-EZ, since the account had less than $250k in it on 12/31/10. The problem is, he anticipated putting in a $45k profit sharing allocation for 2010, which put him over the $250. He didn't have a TPA working for him at the time, so there was no one to tell him he actually SHOULD have filed that 5500-EZ.

We have been hired by him as the TPA and I want to get his filings straightened out. He has an employee that came into the plan in 2011, so he is required to file a 5500-SF now. I am concerned that fact that there is a beginning balance (over $250K) on 1/1/11 on the SF will trigger an audit.

There was another thread that was started by someone else, but gave me an idea for this plan. Since 2010 was the first plan year, and the plan only covered the owner, and the plan (on a cash basis) had under $250k in it, no filing was required. If I show the "cash" basis as a beginning balance and count the 2010 profit sharing that was paid timely in 2011 as an additional contribuiton (either in the er contribution line or on the other line in #8) along with the contribution for 2011 (we usually treat all plans on a accrual basis here) would that suffice as a correction? Or how else would you recommend to correct?

[Bird]

Since 2010 was the first plan year, and the plan only covered the owner, and the plan (on a cash basis) had under $250k in it, no filing was required. If I show the "cash" basis as a beginning balance and count the 2010 profit sharing that was paid timely in 2011 as an additional contribuiton (either in the er contribution line or on the other line in #8) along with the contribution for 2011 (we usually treat all plans on a accrual basis here) would that suffice as a correction?

That's how I would do it, but I wouldn't call it a correction, just an acceptable way of filing (or not filing as the case may be). Yes, I would prefer to include accrued contributions so everything ties out better but considering the number of plans handled by large payroll companies these days, I'd hazard a guess that most plans are filed on a cash basis now. (And I would call the contributions for both years contributions, not "other.")