File Amended 5500-SF Originally Filed 5500-EZ

[Dougsbpc]

We administer a 3 participant 401(k) plan.

It had always been communicated that all 3 were 33/1/3% partners.

For the 2023 plan year (12/31/2023) we prepared and filed a Form 5500-EZ. However, we subsequently found out one of the "partners" was actually an unrelated employee during the 2023 year.

We are thinking of filing an amended Form 5500-SF for the 2023 year, the way it should have been filed. Does anyone think there will be trouble doing this? In other words maybe the IRS will come back and indicate that the original filing did not qualify for an EZ, therefore the amended return (the 5500-SF) is considered late for about 8 months?

Thanks.

[RatherBeGolfing]

11 hours ago, Dougsbpc said:

We are thinking of filing an amended Form 5500-SF for the 2023 year, the way it should have been filed. Does anyone think there will be trouble doing this?

Yes.  You cant file an amended 2023 5500-SF since there is no original 2023 5500-SF.  You can file a 5500-SF, but not amended one at this point.  Btw, if you have never filed a 5500-SF for this plan, this filing must also indicate "first return".

 

12 hours ago, Dougsbpc said:

In other words maybe the IRS will come back and indicate that the original filing did not qualify for an EZ, therefore the amended return (the 5500-SF) is considered late for about 8 months?

Unlikely, but the IRS will send you love letters, and it may take a bit to get it fixed.  

What will happen is:

- The IRS will say that the 2023 Form 5500-SF was late.

- You will need to respond with your explanation that you filed an EZ, then found out that the circumstances were different. I have never had an issue doing this.

- The IRS will probably contact the client again looking for a 2024 Form 5500-EZ since you filed a 2023 Form 5500-EZ.  Respond with the explanation.

Side question, how many years of EZ's do you need to fix, assuming 2023 was not the first year for the plan?

[Peter Gulia]

Beyond Dougsbpc’s query about practical difficulties, what do BenefitsLink mavens think about a possibly related question:

Even if not during 2023, was the third worker a partner when (in 2024 or 2025) the employer/administrator signed the Form 5500-EZ?

Some might interpret the Form 5500-EZ Instructions to measure in the present tense the fact condition that a plan “covers” no employee. Others might interpret that the Instructions look for whether the plan covered no employee as at any time in the reported-on year. Or maybe as at the last day of the reported-on year. Many might find these Form 5500-EZ Instructions ambiguous.

[Paul I]

@Peter Gulia, I think considering circumstances as of the date a 5500 filing is signed is not acceptable.  The form reports on activities occurring during the time period specified in the Part I at the very top of the form. (Arguably, financial information reporting accruals does this, but accruals are linked directly to the reporting period.)

Similarly, when reporting other information on the form ranging from counts to the compliance questions, the proper entries report information occurring at any time during the reporting period.

The fundamental question here is whether the plan was subject to ERISA, and the existence of a non-owner employee who was eligible to participate sometime during the reporting period says the plan was subject to ERISA.  Hence a Form 5500-SF should have been filed.

I suggest @Dougsbpc find out how long the plan had an employee and weigh the time and effort to file Form 5500-SF under DFVCP.  While I agree with @RatherBeGolfing that the IRS likely will be accommodating if the client can demonstrate that some form of 5500 was filed for each year, the DOL more likely will not be as accommodating should they get involved.  The Form 5500-SF is the DOL's baby and they have been known to act as if Form 5500-EZs don't exist.

If, in this instance, the plan started out as an owner-only plan filing Form 5500-EZ and then of the owners became a non-owner employee, then ideallythe last Form 5500-EZ should be amended as a final return and Form 5500-SF should be filed for subsequent reporting period as an initial filing.

This is all feels like discussing how many angels can dance on the head of a pin.

[RatherBeGolfing]

29 minutes ago, Paul I said:

While I agree with @RatherBeGolfing that the IRS likely will be accommodating if the client can demonstrate that some form of 5500 was filed for each year, the DOL more likely will not be as accommodating should they get involved.  The Form 5500-SF is the DOL's baby and they have been known to act as if Form 5500-EZs don't exist.

Good point.  I have done a few of these and have not had the DOL reject the explanation, but it is not a guarantee. 

 

37 minutes ago, Paul I said:

If, in this instance, the plan started out as an owner-only plan filing Form 5500-EZ and then of the owners became a non-owner employee, then ideallythe last Form 5500-EZ should be amended as a final return and Form 5500-SF should be filed for subsequent reporting period as an initial filing.

You wouldn't amend to a final return on the 5500-EZ just because the plan is no longer required to file the 5500-EZ.  The plan still exists, it is just filing a different Form 5500 at the moment.  It could return to filing EZ's in a future year if it returns to one-participant plan status. 

[Paul I]

14 minutes ago, RatherBeGolfing said:

The plan still exists, it is just filing a different Form 5500 at the moment.  It could return to filing EZ's in a future year if it returns to one-participant plan status. 

@RatherBeGolfing thanks for the catch!  Everyone should note your comment about a final return and disregard mine.  Checking a final return would require the assets to go to zero, and if they don't it would trigger an inquiry.

[Dougsbpc]

In this case, 2023 was the only year in which a mistaken 5500-EZ was filed.

As was mentioned, they might receive love letters but I cant imagine that you cannot amend a filing after a mistake was uncovered.