5500EZ eligibility/missed return notice

[Draper55]

1.)the 5500 instructions describe who is a participant. for active employees the phrase earning or retaining credited service is used. In the EZ instructions we read that it must cover only and owner and spouse (or partners) and provide benefits only for them. Does earning and retaining credited service equate to covering? Suppose a historically one person profit sharing plan now has a common law employee for 2014 but no contribution is made for 2014. Can an EZ be filed for 2014? The newly eligible ee is not retaining or crediting service and has no benefit.

separate question..

2.)an IRS notice is received by plan sponsor querying the absence of a 2013 5500 filing..in reality a 2012 return was also not filed but no corresponding notice has been received. Is it likely that a 2012 notice will come at a later date or was the 2012 unfiled return not picked up...any guesses or thoughts?

[Lou S.]

1 - if the person is eligible then you can no longer file and EZ even if the participant has a $0 balance.

2 - no clue for sure but if they discovered the missing 2013 Form 5500 and sent notice, it is likely they will discover the missing 2012 return if they try to match BOY 2013 assets with EOY 2012.

[BG5150]

Remember, now that the plan is no longer a 1-participant plan, they need to get a fidelity bond.

Also, where are the assets held? Are they qualified assets or no? If more than 10% of the assets are in non-qualifying investments, they need to get a bond for the full amount of those assets...

[Draper55]

One additional question relative to this situation. Once again it is owner employee only. Suppose secretary(the only common law employee) becomes eligible on 7/1 and then dos not make it to the year end. No allocation is made for the year. So the 5500 boy count would be one, the eoy count would be one and the number of people

with account balances would be one. Yet there was an eligible employee covered during the year. Would this be an EZ filer or not? I think some believe that if your boy count includes a common law eligible you are not allowed to use the EZ.. Is the situation I described different?? thank you..

[BG5150]

I would do an EZ. What's the penalty if it's caught? File an SF?