DB Plan Termination, withholding taxes on lump sum

[DMcGovern]

In the process of terminating a DB plan, one participant elected a split distribution - part as lump sum, and part as a rollover.  The lump sum amount is great enough to require 20% withholding.  Client's CPA is saying that the company is not responsible for submitting the withholding taxes, the participant is, due to the plan termination.  Client has issued a check to the participant for the full lump sum amount, and instructed him to submit the W/H taxes himself.

Never heard of this before.  Is this something new in the tax filing world?

[My 2 cents]

Sounds wrong to me! 

In a DB plan termination, amounts that are paid as lump sums are subject to the 20% withholding and amounts that are directly rolled over (or annuity purchases) are not.  If someone splits the distribution between a lump sum payment and an amount rolled over, then only the amount not being rolled over would be subject to the mandatory withholding.  The plan should have held back 20% of the amount not being rolled over and sent the remainder to the participant and the withheld amount to the government.

If it is to be sent in from the proceeds by the recipient, it isn't "withholding", is it?

It makes me wonder if that was a real CPA, or someone who plays one on TV.

[mphs77]

Technically, the Company is not responsible for submitting the withholding taxes, the Trust for the Plan is responsible.

[My 2 cents]

15 minutes ago, mphs77 said:

Technically, the Company is not responsible for submitting the withholding taxes, the Trust for the Plan is responsible.

Agreed.  The Trust for the Plan is responsible for withholding taxes AND sending them in to the government, and both should be an integral aspect of the Trust's procedures.

[DMcGovern]

Thank you for your responses!