2024 first year 5500-SF, prior year no filing owner only plan

12/31/2023 was first plan year for an owner only 401k Plan.  No 5500-EZ filing needed due to assets under $250k.  In 2024, there's now an employee.  I will be filing a 5500-SF and indicate it's the first year to file.  There will be a 1/1/2024 beginning balance of $50,000.  Will the IRS look at a first year 5500-SF filer with a $50,000 beginning balance and send a notice to the employer wondering why a 5500-SF wasn't filed in 2023? 

Thank you! 

I don’t know whether EBSA’s software is smart enough to process as not an error the situation you describe.

Consider attention to some details to help lower the risk of a query.

Part 1 line B: “Box for First Return/Report. Check this box if an annual return/report has not been previously filed for this plan. For the purpose of completing this box, the Form 5500-EZ is not considered an annual return/report.” Form 5500-SF Instructions, page 8 left column.

Does this suggest the software might be smart enough to see that an opening balance greater than $0 is not necessarily inconsistent with a first Form 5500-SF report because the preceding year might have permitted a Form 5500-EZ report (or none at all)?

Part II line 1c: “the date the plan first became effective”.

Part II line 5 about the counts of participants.

While this might not prevent a query, a count of 1 or 2 might support an explanation that the plan was a one-participant non-ERISA plan for the preceding year.

This is not advice to anyone.

The Form 5500 Preparers Manual notes:

"Entity Control: Edit tests or checks programmed into the EFAST2 system that are used to determine whether certain identifying data was being reported each year for a particular filer in order to maintain accurate year-to-year records for each filer. Such data as the employer identification number (EIN), plan number (PN), plan name, sponsor name, effective date of the plan, and total assets (beginning and end of plan year) are items commonly targeted for matching a current year filing to the prior year's report for the same entity."

Reporting a plan with a beginning balance and also checking the box that say this is the initial filing should not trigger a rejection of the filing.  However, if the EBSA undertakes one of its periodic reviews of the 5500 data, they could send a letter to the plan sponsor questioning the circumstances.  Should this happen, responding with the facts should suffice to answer the question.

However, we went from 2022 with no filing, under $250k for owner only; in 2023, employees eligible.  Filed 2023 as first year with beginning balance and IRS sent the standard "where is prior year."  Took 2 months to straighten out.

I have sometimes suggested an employer/administrator file a Form 5500 even when the rules excuse it for a small one-participant plan.

With other potential advantages, which might include starting the running of a statute-of-limitations period and setting up other defenses:

An expense to file an unrequired Form 5500 might be less than the expense of informing EBSA or IRS about why a report or return for an earlier year was not required.

This is not advice to anyone.

We all have our war stories of skirmishes with the IRS and EBSA.  We had a plan that went from a one-participant only plan with assets under $250,000 and no EZ filing to a plan that required a 5500.  The 5500-SF showed it was an initial filing and had a beginning balance, and the client received a love letter from the IRS.  We called the IRS and spoke with an agent who took down the information, submitted it for review, and the issue was closed.  All in, we spent more time on hold waiting for an available agent when making the initial call than the time we spent speaking with the agent.