VFCP Application - Excise Tax Paid To Plan

[sdix401k]

We recently help complete VFCP Application for a sponsor.  The amount of the excise tax was about $30 an where it has been under $100 we always give it to the plan participants versus IRS.  We still complete the Form 5330 but do not file it.

The contact at San Francisco EBSA is telling Sponsor to File Form 5330?

Thoughts??

[RatherBeGolfing]

You are trying to take advantage of the class exemption, which lets you allocate the excise tax to the participants rather than pay the IRS under certain circumstances.  

vfcp-class-exemption-faqs.pdf

The class exemption is limited, so its possible that the SF EBSA office has determined that you don't qualify for the class exemption.  You can only take advantage of the class exemption for one transaction once every three years.  Have you already used the exemption in the last three years?  Does your application contain more than one transaction?  Either of these could mean that you are not eligible, in which case the EBSA is correct, and you need to file the 5330 and pay the tax.

Could that be your issue here?

 

[ETA Consulting LLC]

It has been my experience that the punishment being levied in these situations is having to work with the EBSA.  You've already performed all the necessary tasks; including allocating the proposed excise tax to the participants as additional earnings.  Now, the EBSA agent is saying file the Form 5330 and pay the $30 to the IRS.  Sometimes, I just do whatever they suggest (despite the disagreement) to prevent spending additional hours over accounting for insignificant amounts.  Governments, by design, are not very efficient.  Sometimes, individuals within government take it to the extreme.  The entire premise on the allocation of small amounts to the participants is to avoid having to spend time processing a small payment.  In the past, I've filed Forms 5330 for less than $2.00.  I think it's ridiculous they would suggest the Form 5330 is filed.  But, if the reason is that the client has exhausted this method in the past, I'd doubt they would be organized enough to ascertain that.  My apologies for the rant. 

Good Luck!

[sdix401k]

Rather be Golfing is correct.  The plan did have a prohibited transaction within the last three years.

 

Thanks for the link to the pdf.