No document but deposits are made and deducted for a CB plan

Never a dull moment

Company X had a proposal. Did not confirm that they wanted the plan.

In the meantime, opened an account in 2024 without a document, made a deposit, deducted for 2023.

No 5500 filing, no SB, no AFTAP, do not know if PBGC.

Now time for 2024 contributions/deductions.

How do you correct this?

Beg for mercy!

The company would have to document fully that their intent was to establish the plan and had decided on a specific set of plan provisions.  They would have to show the plan was communicated to all eligible employees, and the account was in fact a trust account.  They also would have to get all of the work done that should have been done including the actuarial work and 5500, and then attempt to convince the IRS to accept this body of evidence that the company fully intended for the plan to exist.

There is no guarantee that the the IRS will buy it, but sometimes the IRS in open to a company having made an honest effort.

Definitely work with legal counsel who sincerely embraces this strategy.

The alternative is to restate their 2023 tax return, pay taxes and associated penalties and interest, and put in the plan now retroactively to 1/1/2024.

Some random thoughts:

Can the plan be stated using only IRS-preapproved documents? If so and if the plan sponsor does not apply for an IRS determination, might there be little or no need to persuade the IRS if there is no examination to respond to?

Was the amount deposited at least logically consistent with design elements the proposal suggested?

Might writings made before or around the same time as opening the account, or to count the amount to deposit, suggest the employer adopted plan-design elements the proposal suggested?

Thank you both for your comments and thoughts

@Paul I, good laugh on the mercy and that they have communicated anything to the employees.

Even a better laugh, how they were able to open an account without the document? I have not seen any statements yet but I doubt it is a trust account. I cannot fathom that the legal department of the investment company allowed this.

I am not touching this unless they seek a counsel

@Peter Gulia

I never use a document that is not pre-approved but here, we do not even have one

The amounts deposited were based on the proposal provided but do not even know if the census matches or if the employees were informed of any contributions.

There is nothing in writing, approved/signed proposal or any kind of resolution, not even a verbal contract or a handshake.

18 hours ago, Paul I said:

and put in the plan now retroactively to 1/1/2024

which will likely need the tax return be on extension