Sole Proprietor Sponsors/Adopts Corporate Plan

[Guest johncpa]

I have a corporation with a qualified profit sharing plan. The corporation is being liquidate by the sole shareholder, who will there after engage in business as a sole proprietor.

The corporate profit sharing plan's only asset is a deceased participant's benefit account of approximately $500,000, that is being paid out to his three beneficiaries (one of which is the sole shareholder) over the next 10 years.

My question is: Can the sole proprietor sponsor and adopt the corporate plan and continue it as a qualified plan and continue to pay out the account to the beneficiaries?

[Bird]

yes

[Guest johncpa]

Thank you for your comment. Could you help me with a reference or authority for your conclusion? I could not find any.

[Bird]

Sorry, no cite. It is common for businesses to change organizational structure and we change the sponsor from the sole prop. to corp. or vice versa all the time.

[QDROphile]

IRC section 414(l).

[Guest johncpa]

Thank you for your reference. However, Reg. 1.414(l)-1© provides, " Section 414(l)

does not apply unless more than a single plan is involved."

So it would seem not to apply to a new sponsor adopting an existing plan.

What do you think?

[QDROphile]

The sole proprietor is adopting a plan and immedately merging the corporate plan into it. The new plan has exactly the same terms as the corporate plan, saving documentation. Does not have to be done that way, but you wanted a statutory reference for something that gets you there. I think you may not be able to find reliable authority for a conceptually more simple change of sponsors, but the IRS infomally accepts it.