DB for 1 person S Corp

[thepensionmaven]

DB plan was established for 2018 for S corp; accountant called last week to mention that the was no W-2 for 2018 and wants to use Schedule C income.

I would think the plan definition of "compensation" would need be amended as well who would be participating.

Would a Joinder Agreement suffice in this instance?

 

[jpod]

Many questions, starting with "why is there Schedule C income and no W-2 from the S corp"?  Sounds very fishy, but let's assume it's not.  In that event, isn't the bottom line that there can be no DB accruals or deductions for 2018 if the Schedule C filer did not adopt the plan prior to 12/31/18? 

[Bird]

You need to get all of the facts.  Is there another business?  If not, then how is there Schedule C income?

[Belgarath]

Seems like I recall that in the distant past, that some prototype documents automatically included any member of a controlled group/ASG? Is this still a possibility, and if so, does this document have any such provisions?

I may be misremembering this - haven't used a standardized prototype for at least 15 years, I think...

[jpod]

Belgarath, that's my recollection too concerning standardized prototypes, but it doesn't cure the tax deduction problem if the relevant entity - in this case the Schedule C filer - never adopted the plan.  In any event the facts stated here are that the plan was adopted (only) "for the S corp"

[thepensionmaven]

The plan was adopted October, 2018 for 2018.  Appears the accountant did not give a W2, as to why, he was probably attempting to classify the Sub S income as was W-2.  Probably did not know K-1 can not be used for pension purposes.  Maybe client should find another accountant.

No other employees, accountant questioning the possibility of classifying S income as earned income.  

Non-standardized prototype.  Seems questionable to have two employers, the S Corp as well as a "sole proprietorship" adopt the same plan.  Obviously the plan must be amended as to Sponsorship.

[Calavera]

Is this a beginning of year valuation or end of year?

[Bird]

8 hours ago, thepensionmaven said:

The plan was adopted October, 2018 for 2018.  Appears the accountant did not give a W2, as to why, he was probably attempting to classify the Sub S income as was W-2.  Probably did not know K-1 can not be used for pension purposes.  Maybe client should find another accountant.

No other employees, accountant questioning the possibility of classifying S income as earned income.  

Non-standardized prototype.  Seems questionable to have two employers, the S Corp as well as a "sole proprietorship" adopt the same plan.  Obviously the plan must be amended as to Sponsorship.

I'm having a hard time following you.  But it seems there is not a sole proprietorship to potentially save the bacon.  It's just that the accountant wants to use S dividends as earned income - no dice.

[jpod]

I, too, am trying to translate, but maybe the accountant is suggesting that there should be amended filings to move some K-1 income to a W-2.  If that is done along with all the required 941 and ancillary corrections that could be a solution to the problem.

[thepensionmaven]

All the facts- Plan eff 1/1/18, I did a proposal based on estimated W2.  Client contributed 80k by 12/31/18, based on estimated S Corp W2.

Accountant never gave W2 ( he just informed me - what an AH), wants to save the contribution as some sort of deduction and mentioned he could generate a Schedule C to validate the client's contribution as a deduction and asked for a net schedule C he would need to give in order to justify.

Does not pass my smell test, I don't know what can be done, if anything; I do know to tell client to find an accountant that knows what he is doing.

[Bird]

So he's probably going to show some phantom transfers from the S corp to the individual as a sole prop.  I don't know...I mean obviously it's not right.  I like jpod's idea of coming up with W-2 income better, even if means penalties, if that can be done.  I don't have an answer.

[Calavera]

The reason I asked for the valuation date is that the beginning of the year valuation is based on the estimated 2018 W2. The fact that the actual 2018 W2 is 0 is irrelevant for the 2018 calculations. For the 2019, your 1/1/2019 Target liability would be smaller or even $0, depending on the plan design.