LLC Taxed as S-Corp - Family Attribution for Form 5500

[401kWhisperer]

Hi, 

I know this has been posted a few times over the years but our actuary is questioning the reasoning. 

We have an LLC that is taxed as an S-corp.  The owner only has one employee, her mother.  Based on several discussions, I thought they would file an EZ.  However, our actuary disagrees and based on 29 CFR §2510.3-3 says that it is should be an SF.  The 2025 Form 5500 filed for the 401(k) plan by a big box TPA filed as SF.  

What say you?  Does it matter that it's an LLC taxed as an S-corp - does it actually have to be an S corp? 

I used these prior discussions to build my case:

 

 

Solo 401(k)Plan - 401(k) Plans - BenefitsLink Message Boards

2% Sharholder of S-corp: attribution included for 5500-EZ - Form 5500 - BenefitsLink Message Boards

 

thanks!  Hope you are all having a nice long weekend.  

[Peter Gulia]

There might be more than one plausible interpretation of the Form 5500 instructions.

It might matter whether the particular limited-liability company is, for Federal income tax purposes, treated as a disregarded entity, a partnership, or an S corporation.

But for a limited-liability company that is not actually a corporation, a classification for Federal income tax purposes might not matter.

Have you considered asking EBSA’s Office of the Chief Accountant for a view about which interpretation EBSA might prefer?

Whatever might be required or permitted Form 5500 reporting:

If the owner’s mother (even if she might be an attributed owner for one or more purposes) is not an actual owner and is an employee within the meaning of and to apply ERISA § 3(2)(A), the retirement plan likely would be ERISA-governed.

If so, and if the plan administrator’s interpretations of the Form 5500 instructions do not point in a clear direction, might the administrator prefer a form used widely for ERISA-governed plans over a form used most often for non-ERISA plans?

This is not advice to anyone.

[Bri]

I think that the 5500 is based on 318 attribution, whereas PBGC coverage uses 1563 but requires spouses to be in a corporation (not just an LLC electing tax treatment). 

So maybe they're a little of each, an EZ with PBGC coverage? 

for )

[Peter Gulia]

The Form 5500-EZ instructions include this:

“A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which:

1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or

2. Covers only one or more partners (or partners and their spouses) in a business partnership (treating [a] 2% shareholder of an S corporation, as defined in IRC § 1372(b), as a partner); and

3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses).”

Some might read that text’s mention of Internal Revenue Code § 1372(b) as relating only to finding whether an individual is a deemed partner because she is an actual shareholder or an attributed shareholder of a business organization that actually is a corporation.

Others might read that text’s mention of I.R.C. § 1372(b) as also relating to a limited-liability company that, although not a corporation, elected to be treated as an S corporation for Federal income tax purposes.

Nothing in the quoted instructions directly mentions Internal Revenue Code § 318. That section is brought in to the extent the instructions apply I.R.C. § 1372(b) regarding an S corporation.

Nothing in the quoted instructions directly mentions a tax-law attribution concept regarding an employer that is a limited-liability company that for Federal income tax purposes is treated as a partnership, or as a disregarded entity.

The Form 5500-EZ instructions attempt to follow an incomplete Labor department interpretation about who is not really an employee, for common law rather than tax law, because the worker is a business owner.

In the Labor department’s rule about whether a plan covers an employee or covers only self-employed individuals, there is no direct mention of a deemed or attributed ownership for a family member beyond a proprietor’s or partner’s spouse. 29 C.F.R. § 2510.3-3 https://www.ecfr.gov/current/title-29/section-2510.3-3.

More than one interpretation about which 5500 form to file might be a plausible interpretation.

This is not advice to anyone.

[truphao]

Since the Plan will be subject to Title I I do not belive you would be eligible for EZ.  I belive the instructions are more or less clear.

[Paul I]

Rev Proc 2014-32 Section 4. Program Eligibility .02 reads:

.02. One-participant plans. For purposes of this revenue procedure, a one-participant plan is a retirement plan with one or more participants that:
• Covers only the owner of the entire business (or the owner and the owner’s spouse); or
• Covers only one or more partners (or partners and their spouses) in a business partnership; and
• Does not provide benefits for anyone except the owner (or the owner and the owner’s spouse) or one or more partners (or partners and their spouses).

While the Rev Proc is a "Pilot Penalty Relief Program – Late Annual Reporting for Non-Title I Retirement Plans (“One-Participant Plans” and Certain Foreign Plans)", it is clear that the IRS means one person plans can cover an owner and literally the owner's spouse, and there is no attribution of ownership in determining who is eligible to file an EZ or SF.

In this case, the owner's mother is not the owner's spouse, so the plan should file an SF.