owner sells assets of company, does not sell his company

Confused...senior moment?

Sponsor of a plan has had 401(k) under existing company for many years.  

Sells assets of company, not the company, the employees stay with original company and receive the W-2 under the name of the newly formed company.

Buyer keeps company name, keeps employer ID number; my client changed the name of his company and has a new EIN, keeps the employees and the plan remains intact, no distributions.

I have been told by IRS (after being on hold for over an hour), that IRS agents have been advised to treat this in only one of two ways, neither of which makes any sense in this instance:  1. merge the plans or 2. terminate the existing plan and the new sponsor has to set up a new plan and file as an initial return.

This totally makes no sense, as the assets are not being merged, they are with, let's say Hancock.  Hancock just changed the sponsor to the new name and the contracts under the plan with the name change.  The plan is not being terminated, the  sponsorship has been terminated.

In the past, we have entered the name of the new sponsor in Box 1 and noted the change since the last 5500-SF had been filed in Box 4.  Doing so has been a disaster in previous years.

This has led to IRS Letters, Notices and Invoices ad infinitem asking for the 5500s for the old sponsor, and the client has really gotten angry and of course, blames the TPA.

Client receives letter from IRS, sends to accountant as client does not know what to do, accountant sends back to client at least one month later, after the response due date, and TPA, with POA of course answers.

Wouldn't it spare the client, TPA and accountant a lot of time and trouble if we mark the existing plan as terminated, do a final return; and an initial return under the name of the new sponsor and show either distributions or trustee-to-trustee transfer, as the Trustee has not changed. 

But then, wouldn't IRS be on the lookout for 1099Rs?

After the first couple of paragraphs I was confused by who you meant when you said company and client etc. Can you add names like Old Co and New Co for clarification?

Because I've worked on these situations lots of times. Sometimes Old Co keeps the plan going. Sometimes New Co takes over sponsorship. Shouldn't be an issue either way.

"Old company" (seller) keeping the plan going, but buyer keeps the old company and its EIN.

Apparently, buyer keeping name of seller's corp as well as the EIN of the seller's company; insisting seller file under a new corporate name and new EIN.

I have done this before, and always kicked back by IRS.  This is just a Sponsorship change.  They are looking for the following years' 5500 for the "old" company" with that EIN and obviously we haven't prepared, as this would be for the "old company", which the seller does not control any longer.

We generally have prepared the 5500 in the year of change using the new company, new EIN and mark off box 4 on Form 5500, showing name of prior years' Sponsor and EIN.  IRS does not recognize this and sends out letters and invoices asking for the 5500s under the old sponsor.

Gets a bit exasperating after about 2 months and at least 2-3 letters from IRS, which we answer and the matter eventually closed.  Of course, we as TPA, do not get paid for this as the client thinks we did something wrong.

I was told by an IRS individual, in such a case they will only recognize that we file either as a "merger" of the two plans OR a "termination"  of the existing plan and the start up of the "new" plan they call it.

I filed for an extension, which is now due January 3rd.

Does this explain a bit better?

I don't understand how someone can sell the assets of a company, but not the stock of the company and the buyer gets the EIN.

Something is wrong with your information. The EIN and the stock of the company are inseparable. I don't care so much about the name, that's an asset.

WCP

Nothing I can say would be charitable.

Well, I assume someone approved this, either one of the attorneys or one of the accountants.

My question remains the same concerning the 5500s.

Under the "facts" you've provided, there is no correct answer. You'll need to go back to the attorneys.

I think I did not pose my question correctly, my question was concerning Form 5500 and a change in Sponsorship.  Either done correctly or not, the facts are that the sponsorship of said plan has changed."

In the past, if there is a name change in the sponsorship of a company and its retirement plan, we generally have prepared the 5500 in the year of change using the new company, new EIN and mark off box 4 on Form 5500, showing name of prior years' Sponsor and EIN.  IRS does not recognize this and sends out letters and invoices asking for the 5500s under the old sponsor.hey are looking for the following years' 5500 for the "old" company" with that EIN and obviously we haven't prepared, as this would be for the "old company", which the seller does not control any longer.Gets a bit exasperating after about 2 months and at least 2-3 letters from IRS, which we answer and the matter eventually closed.  Of course, we as TPA, do not get paid for this as the client thinks we did something wrong.

I was told by an IRS individual, in such a case they will only recognize that we file either as a "merger" of the two plans OR a "termination"  of the existing plan and the start up of the "new" plan they call it.

Suggestions on how to handle Form 5500 in this instance, please.

Based on what you just said, I think the IRS is just wrong and you need to escalate to a manager. The plan is still the same plan, just with a different sponsor. That happens pretty regularly.

Yeah, this has never been a big deal, just change the sponsor, show it on the 5500 and done.  In fact I was speaking to a client about this yesterday as he will need to do so. I told him this is one of the few things in this business that is still relatively straightforward, the IRS hasn't mucked it up yet.   I guess they realized their oversight and are now working to complexify something that has never previously been a problem.