Loans and IRS audit

[Cynchbeast]

Client has upcoming audit; last item on auditor's notification was loans; plan allows multiple loans.

Profit Sharing with all funds pooled; 3 participants had multiple loans and sponsor continued deducting on loans past payoff date. We didn't know this until the following year when doing the trust accounting.

In 2 cases, the excess on paid off loan was credited to subsequent loan(s), and in the third case, it was refunded to participant.

Any ideas on how the IRS auditor might look at this? Any suggestions on how to present the facts in the best possible light?

[Bird]

I think you have to lay it out pretty much as you did here. Just document it all so that there's no doubt about the amounts being refunded. Did you show them as a liability at the end of the year before they were refunded?

[shERPA]

Stuff happens, sounds like it was reasonably corrected, so they should look at it as a permissible self-correction. As Bird says, document it well. Also be prepared to show them the employer's new procedure to avoid this in the future.