Wrong Form Filed

A PSP covering only a 100% owner has been filing the 5500-EZ for years.  It was recently revealed that his son was employed several years ago and met the plan's eligibility requirements but the owner kept filing the EZ.  The son is still employed but he's not owed any allocations since there haven't been any contributions since he was 'hired'.  What would be the recommended course of action - amend the returns to SFs?  DFVC?  Ignore and just have the owner file the correct form going forward? 

Your description of the facts describes father as the 100% owner. But might his son have become a partner or shareholder (and someone forgot to tell you)?

That is not the case - dad still owns 100%.

While whether and what to file is one’s client’s choice, wouldn’t the mainstream advice be to file amended reports (including changes from -EZ to -SF) for the years affected by the mistakes?

One addition, if the first year was 2020 that the son became eligible, if the sponsor is an s-corp, 5500EZ is ok, it is on the 2020 5500-EZ instructions.

"Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner);" This was discussed on this forum sometime early last year, might be worth checking out.

Prior years may need to be redone.

I agree with Peter that the obvious answer is simply to file the 5500-SF for the applicable years as soon as possible. The delinquent filer fee is capped at a very reasonable amount.

If, for some reason, that is not an option, you might also consider:

PPA sec. 1103 amended the definition of "one-participant plan" to include a plan that covers only 2% shareholders in an S-corporation, including attribution. This change was not reflected in the instructions to the 5500-EZ until the 2020 plan year (as Jakyasar noted). If the entity sponsoring the plan is an S-corp, and the years in question do not predate the effective date of sec. 1103 of PPA, then the plan sponsor, if they found themselves under investigation by the government, might claim that they were interpreting the definition of "one-participant plan" under the changes made by PPA.

If the plan sponsor decided at some point not to allow the son to participate in the plan, they might have memorialized that decision somehow, possibly by a formal resolution, or a note scribbled on a cocktail napkin, or something in between. Depending on the circumstances, that could have the effect of closing the plan to new entrants, including the son. If the plan was later restated but without the participation freeze, you might see if it would be possible (for example, under EPCRS) to retroactively amend the plan to conform it to operation.

Unfortunately, it's a C-corp, and the issue stretches back several years, but we will ask if they can find the signed paperwork regarding the participation freeze.  Thank you all for your input. 

Just amend to SF.  Get a bond going forward.

And/or do a current amendment to preclude the kid's participation.