Characteristic Code 3B

If the plan covers a 100% owner and spouse can/should we use code 3B on the 5500-SF?

If considered self-employed (sole prop Sched C), yes.

If the plan covers only a 100% owner and their spouse, then they should be filing a 5500-EZ, not SF.

1 hour ago, CuseFan said:

If considered self-employed (sole prop Sched C), yes.

LLC taxed as partnership

18 minutes ago, C. B. Zeller said:

If the plan covers only a 100% owner and their spouse, then they should be filing a 5500-EZ, not SF.

Do they have to?  They may hire someone soon.

Will there be a problem going between SF to EZ to SF...?

Yes, they have to.

Unless the assets are less than $250k, in which case, they don't have a filing requirement at all.

9 minutes ago, C. B. Zeller said:

Yes, they have to.

Unless the assets are less than $250k, in which case, they don't have a filing requirement at all.

They are under $250k ($248, lol)

But the've filed SF's in the past b/c they had an employee.  I'd rather file some form than just skip it and have to deal with that IRS letter.

What's the penalty if they file SF and not EZ?

The same as for not filing the proper form at all, I'd guess.

How would they even know?

The instructions for the SF says who may file the form:

Quote

 

The Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, is a simplified annual

reporting form for use by certain small pension and welfare benefit plans. To be eligible to use the Form

5500-SF, the plan must:

• Be a small plan (i.e., generally have fewer than 100 participants at the beginning of the plan year),

• Meet the conditions for being exempt from the requirement that the plan’s books and records be audited

by an independent qualified public accountant (IQPA),

• Have 100% of its assets invested in certain secure investments with a readily determinable fair value,

• Hold no employer securities,

• Not be a multiemployer plan,

• Not be required to file a Form M-1, Report for Multiple-Employer Welfare Arrangements (MEWAs) and Certain

Entities Claiming Exception (ECEs) for the plan year,

and

• Not be a pooled employer plan. See ERISA section 3(43).

 

The instrux  go on further to say those who cannot file the SF must file either 5500 or EZ.  The plan in question is only 2 people.  So it qualifies under the first bullet.  It does not say the plan cannot be a one-participant plan.

So why can't we just file the SF?

It also says

Quote

Plans Exempt From Filing

Under regulations and applicable guidance, some pension benefit plans and many welfare benefit plans with fewer than 100 participants are exempt from filing an annual return/report. Do not file a Form 5500-SF for an employee benefit plan that is any of the following:

...

9. A “one-participant plan.” However, certain one-participant plans are required to file the Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan, on paper with the IRS or electronically with EFAST2.

Good point.

Turns out, it may be an S-corp....

You need to find out whether it's an S Corp that contributions are based on w-2 wages, or a partnership that bases contributions on line 14a of each K-1.

BG150 I think I would:

1) File a 5500-SF for the final year that included a non-owner for any portion of the year (i.e., if the non-owner closed their account in 2025, then file an SF for 2025).

2) File a 5500-EZ in 2026, even if under $250K but mark it as a final 5500 (unless assets go over 250K by year end).

3) If a non-owner becomes eligible during 2026 then obviously keep filing SF.

Why would I mark it 'final'?

My understanding is that when a 5500-EZ has less than 250,000 you can mark it as a final 5500, which is what tells the IRS that no filing is due for the following year.  I don't see anything in the instructions about this but I think it is better to do this then just not file one in the following year.

37 minutes ago, austin3515 said:

My understanding is that when a 5500-EZ has less than 250,000 you can mark it as a final 5500, which is what tells the IRS that no filing is due for the following year.  I don't see anything in the instructions about this but I think it is better to do this then just not file one in the following year.

As far as I'm aware, this is not an option. It wouldn't pass edit checks since the IRS logic looks for $0 in EOY assets and no participants at the end of the year for a final 5500.  

I mean I am pretty sure I have done this. The alternative is just not filing the one with <$250K but then you run the risk of getting the letter from the IRS looking for the missing filing.  I guess option 3 is to assume "once required to file always required to file" but that hardly seems like a good option.

Curious what others have done.  I don't have 5500 software in my new position so not sure if its a warning or a filing error.  if a filing error than obviously my suggestion would not work (unless filing a paper form). 

If the assets fall below the $250,000 threshold for a Form 5500-EZ filer, no EZ must be filed but you definitely should not check the final filing box.  Keep in mind that a terminating plan for an EZ filer that checks it is a final filing must submit a form showing the assets going to zero without regard to the $250,000 threshold.

If a plan was required to file an SF because the plan covered non-owner participants (including LTPTs), and that plan subsequently only covered owners, the file the SF for the last year in which there were non-owners at any time during the plan year.  For the year in which there are only owners, the plan must file an EZ if the assets are above the threshold, or optionally may file if the assets are below the threshold.  I suggest filing the EZ regardless of the asset level because it will document that a 5500 was filed for the plan for that year.

The SFs are processed by the DOL.  The EZs are processed by the IRS (even though they are filed through EFAST2).  The plan may receive a letter from the DOL noting that there was an SF for the prior year and not the current year.  The plan also may receive a letter from the IRS that the EZ was not an initial filing and the plan had assets at the beginning of the year.  In both cases, the appropriate response is an explanation of the facts.