plan with no value - how to complete 5500-EZ?

[AlbanyConsultant]

One-person plan that at one point had some assets - never enough to need to file a 5500-EZ.  All the money was invested in two limited partnerships... that went bankrupt.  So the two assets are literally worth zero.  Now he's terminating the plan, and I've got to file a 5500-EZ for the final year.  But it's going to start with $0 BOY; that seems like we're just asking for trouble.  Any suggestions other than to wait for the inevitable letter from the IRS?  Thanks.

[Peter Gulia]

That a plan existed before the first day of the reported-on year yet begins the year with assets valued at $0 might not attract unwelcome attention.

If you want a practical sense about whether a BoY plan assets of $0 would attract a filing-error message or an edit check, enter the plan’s information and see what message (if any) your software turns out.

Consider also that if a one-participant plan never had enough assets that a Form 5500 report was otherwise required (and all years before the final year went unreported), the plan might not be much of an examination target to which the IRS would devote scarce resources.

[Bill Presson]

Also, what if the owner did an inservice distribution the year before the termination and filing? You probably wouldn’t think twice about it. 
 

Just make sure you have documentation of the bankruptcy and $0 assets. 
 

Might be worth completing distribution forms rolling the $0 to an IRA just in case anything shows up in a year or two. 

[CuseFan]

4 hours ago, Bill Presson said:

what if the owner did an inservice distribution the year before the termination

Exactly, that would be a very plausible reason for final filing to show BOY $0 and EOY $0 as is the now worthless assets. Even if it is scrutinized, nothing to see here, just move along.

[AlbanyConsultant]

Thanks, everyone!

[Lou S.]

Yeah it's just a formality. I mean technically the IRS could hit you with a hefty penalty for not filing. But if they audit a plan that has zero assets because the funds went to zero the disallowance of the IRA rollover and taxation of trust income would presumably both be $0 even if they discovered any problems.

[RatherBeGolfing]

On 9/20/2024 at 1:21 PM, CuseFan said:

Exactly, that would be a very plausible reason for final filing to show BOY $0 and EOY $0 as is the now worthless assets. Even if it is scrutinized, nothing to see here, just move along.

This happens all the time.  I have never had the IRS follow up on a final EZ with $0 BOY assets.

[Ecianas]

Be clear about the bankruptcy in your filing. Keep records of everything related to the termination in case the IRS has questions later.