Excess Contributions

[visionaryinsight]

Thanks so much everyone...

Short story, plan approximately 7 years old.  Alcohol maker in the south.  Business is a single entity (LLC) but the operations are split between a Schedule C (alcohol production) and a Schedule F (Farming operations).  Every year there is a significant profit on the Schedule C and a loss on the Schedule F.  

Schedule F has never been included in the numbers reported to the actuary until this year.  In looking back, it appears as though there are going to be significant excess contributions when the losses on Schedule F are subtracted from the profits on Schedule C.

What should be done about this error?  

[PensionPro]

Does this help?

 

[Kevin C]

Any chance this would apply in your situation?

Quote

1.401-10(b)(2) If a self-employed individual is engaged in more than one trade or business, each such trade or business shall be considered a separate employer for purposes of applying the provisions of sections 401 through 404 to such individual. Thus, if a qualified plan is established for one trade or business but not the others, the individual will be considered an employee only if he received earned income with respect to such trade or business and only the amount of such earned income derived from that trade or business shall be taken into account for purposes of the qualified plan.

 

[visionaryinsight]

Thanks so much for the responses thus far...still confused...maybe more info will help?

The only reason the business is bifurcated between a C and F is due to IRS regulations.  There is a single EIN and any financial reporting (other than on the income tax return) combines the C and F financial information to reflect the vertical integration of the business (including any potential financing or sale of the enterprise).

In the case of the DB plan, the contribution was historically calculated on an annual average net income of approximately $300k of C net income (and the exclusion of an annual average net loss of approximately $150k of F net loss).  Now, a new calculation is being made each year on an annual average net income of approximately $150k of C and F net income combined together to reflect the true economics of the business entity.

My thought is this will cause major problems with the historical contribution and deductible amounts...In other words, extreme excess contributions and deductions in the tax return greater than should have occurred....

Hope this helps!!!

[PensionPro]

It seems to me the CPA is treating them as a single trade or business using the same EIN so you would net the self employment income.  If this causes nondeductible contributions see the discussion referenced earlier in post 2.  What other issues are you concerned about?