Late deposits on Form 5330

[Cynchbeast]

It's been awhile since I tackled this so wanted to be sure I have it correct:

Sponsor has one participant deferring $100/check semi-monthly and CONSISTENTLY held checks and deposited them very late. Plan started in 2012 and we only discovered the extent of this recently as we tried to put together 2013 data, and everything still due, including lost earnings was paid last month.

Facts (I have used IRS calculator to determine lost earnings):

• For 2012, all deposits were delayed, for up to 217 days - total delayed deposits = $2,400, total lost earnings = $22.85
• For 2013, all but the first two deposits were delayed again for over 200 days - total delayed deposits = $2,200, total lost earnings = $44.39

The question is what figures to I put on the 2012 and 2013 Form 5330?

[BG5150]

Way off topic, but what was participant invested in that they made less than 1% in 2012? Even weighted, it seems very low.

[Kevin C]

Page 7 of the Form 5330 instructions tells how to determine the "amount involved" for a PT involving the use of plan assets:

If the use of money

or other property is involved, the amount

involved is the greater of the amount

paid for the use or the FMV of the use

for the period for which the money or

other property is used. In addition,

transactions involving the use of money

or other property will be treated as

giving rise to a prohibited transaction

occurring on the date of the actual

transaction, plus a new prohibited

transaction on the first day of each

succeeding tax year or portion of a

succeeding tax year which is within the

taxable period. ...

[My 2 cents]

Way off topic, but what was participant invested in that they made less than 1% in 2012? Even weighted, it seems very low.

Could have been money market funds. Maybe bank CDs. Two-year Treasuries. Any low duration fixed income investment. Gold didn't do so well, especially if one excludes the beginning of the year.

[Cynchbeast]

Earnings aren't important, but used IRS calculator to determine earnings on each $100 deposit; some delayed only a few weeks others months.

As for 5330, which was my actual question, Kevin C referred to page 7 of 5330 instructions. But on page 8, it says:

Failure to transmit participant

contributions. Purposes of

calculating the excise tax on a

prohibited transaction where there is a

failure to transmit participant

contributions (elective deferrals) or

amounts that would have otherwise

been payable to the participant in cash,

the amount involved is based on

interest on those elective deferrals. See

Rev. Rul. 2006-38

So I prepared 5500-SF for 2012 with the total amount of deferrals that were delayed ($1,200), and the 5330 for 2012 with only the lost earnings on Schedule C line 2.

My question is really how to prepare the 2013 forms. Some of the 2012 deposits were made in 2013, while the rest of 2012 plus all of 2013 was paid in 2014, as was all the lost earnings. SoI need to determine what specific figures to put on line 10.a. of the 5500-SF, and on Schedule C line 2 of the 5330.

On the 5500-SF, I listed the total of all 2013 deferrals that were deposited late. On the 5330, do I put only the lost earnings on the 2013 deferrals, or do I also include the lost earnings reported on 2012 return since they weren't paid until 2014?

To used specific (albeit round) numbers, let's say lost earnings on all 2012 deposits were $25 and lost earnings on all 2013 deposits were $45. I put $25 as the prohibited transaction on the 5330 for 2012. Do I put $45 or l$70 on the 2013 form?

[Kevin C]

To used specific (albeit round) numbers, let's say lost earnings on all 2012 deposits were $25 and lost earnings on all 2013 deposits were $45. I put $25 as the prohibited transaction on the 5330 for 2012. Do I put $45 or l$70 on the 2013 form?

The 2012 Form 5330 will show a 2012 PT of the lost income attributable to 2012. From your description, that may or may not be $25. If part of the $25 is lost income attributable to 2013, it would not be reported on the 2012 filing. For example, if total lost income on 2012 late deposits, calculated for a final deposit in May 2013 is $25, you would calculate the lost income through the last day of 2012, say $24 and the rest would be additional income attributable to 2013.

If it was not corrected by the end of 2012, it will be reported again on the 2013 Form 5330 and so on until corrected. There will be a new PT reported for 2013 that is the lost earnings on the 2012 deposits attributable to 2013 and lost income on the 2013 attributable to 2013.

So, assuming the 2012 lost income on late 2012 deposits is $24, the 2013 lost income on 2012 deposits is $1 and the 2013 lost income on 2013 late deposits is $45,

The 2012 Form 5330 would show a single PT with amount involved of $24.

The 2013 Form 5330 would show two PTs, the 2012 PT of $24 AND the 2013 PT of $46 ($45 + $1)

If both are not corrected until 2014, the 2014 Form 5330 would show three PTs.

[Cynchbeast]

WOW! Your response was very good, and such confusion over such a small amount of money! But this client has been sooooo irresponsible with deposits, we want to be sure to get it right and have him pay everything he owes.

Needless to say, we won't be handling his plan after the 2013 report.

Wouldn't our business be easy were it not for flaky sponsors?