one person plan... owner deceased, final 5500 never filed

[AlbanyConsultant]

We were the TPA on this one person plan, and the owner stopped paying our invoices.  We went back and forth a couple of times over it, he rolled his money out, we told him we wouldn't prepare the final 5500 until he paid us per our client service agreement, and then he never responded.

Just found out that he recently passed away.  So, clearly, we're not getting paid.  But... just wondering... what is going to happen with the 5500?  At some point, they'll figure out that a filing is missing and send a letter to the business that is no longer there.  The guy is dead.  Does the IRS have the authority to levy any penalties against a spouse, estate, heirs, etc.?  It's more of a morbid curiosity at this point.

[Peter Gulia]

If your firm is owed an amount for work you completed, consider whether you want to submit your claim.  Not submitting a claim promptly might time-bar it.

If the employer/sponsor is or was a business organization, there might be persons beyond the decedent with some authority to act for the business organization.  And the decedent’s executor, administrator, or other personal representative might have some authority to administer or wind up the business.

Further, consider whether you do or don’t want to be available if a personal representative wants to engage you to prepare the outstanding information returns.

 

[AlbanyConsultant]

I've already written off the bad debt - I stopped fighting it over a year ago.  I'm now in the "casually wondering what's going to happen when the IRS realizes that there's a missing 5500" phase.  They are going to send a letter that will never get responded to... eventually they may track down the next of kin.  Is there any responsibility on that person?

[Peter Gulia]

Questions about a personal representative’s, trustee’s, business officer’s, or other fiduciary’s personal liability for penalties and other consequences regarding an unfiled Form 5500 information return are fact-sensitive.

Among other factors, a fiduciary’s responsibility might turn on facts about whether the particular fiduciary:

had or lacked a responsibility to administer or wind up the decedent’s business;

knew (or, had she exercised the required care, ought to have known) about the unfiled return;

could have obtained records.

So far, I’ve never done an analysis because in every situation that might involve such a question my client recognized that paying someone to prepare and file returns would be less expensive than paying for my analysis about whether one is exposed to personal responsibility and liability.

And, as you say, this is for you only a curiosity.