No plan was set up but contributions made/deductions taken

During 2020, did a proposal and never heard from the prospect and thought went away somewhere else.

Just got an email from the CPA stating that, the prospect has been making contributions and taking deductions with no actuary and paperwork. No 5500 forms were filed but that is the easy part.

They are now asking me to fix this.

Is this something that can be self-corrected starting with 2020 plan year?

Any thoughts/comments appreciated.

No, you can't self-correct the initial failure to adopt a written plan. See Rev. Proc. 2021-30 4.01(b) and Notice 2023-43 A-2(1).

Was a plan document ever prepared?  If so, maybe they have a signed copy in their drawer? 

Did they create a trust?  Where have the contributions been deposited?  Generally you shouldn't be able to create a trust without a plan document.

Are 5500's required?  What is value of the assets?

Any other plan participants?

We need more information to give you better ideas.  I agree with C.B. that if he never opened a trust, it would be difficult to justify that he has a qualified plan.  However, if he has a trust and a plan doc, then you could go back and prepare 5 years of valuations and 5500's under DFVC. 

I would think twice (thrice) before taking this assignment.  The facts presented do not bode well for a good consultant/client relationship. 

12 minutes ago, Effen said:

Was a plan document ever prepared?  If so, maybe they have a signed copy in their drawer? 

Did they create a trust?  Where have the contributions been deposited?  Generally you shouldn't be able to create a trust without a plan document.

Are 5500's required?  What is value of the assets?

Any other plan participants?

We need more information to give you better ideas.  I agree with C.B. that if he never opened a trust, it would be difficult to justify that he has a qualified plan.  However, if he has a trust and a plan doc, then you could go back and prepare 5 years of valuations and 5500's under DFVC. 

 

No nothing, zilch, nada was prepared as far as the documents go. No 5500 was filed (yes, required), no actuarial certifications were done (no actuary was involved). They just made the deposits and took the deductions.

6 minutes ago, david rigby said:

I would think twice (thrice) before taking this assignment.  The facts presented do not bode well for a good consultant/client relationship. 

Agree but the CPA is a friend of mine and would like to help out, if I can and with an attorney involved. They know my requirements if they want me involved.

1 hour ago, C. B. Zeller said:

No, you can't self-correct the initial failure to adopt a written plan. See Rev. Proc. 2021-30 4.01(b) and Notice 2023-43 A-2(1).

Agree but wanted to check anyway. Thank you for the reference.

Where did he make the deposits?  What type of an account?

Any other employees?

Based on your prior answers, I don't see any reasonable path forward.  When you run into stuff like that, do you really want to get involved with a potential client with such a low business acumen?  I means seriously, how could he think they would be deductible?

Thanks for the advice/warnings, at this time I am researching on what can be done if anything. Nothing would be done without a lawyer.