RMD VCP Application

The 14568 Schedule H has this question:

"At least one affected participant is either an owner-employee (see IRC Section 401(c)(3)) or, if the plan sponsor is a corporation, a 10 percent owner of such corporation"

The person in question is NOT a 10% owner (it is a corporation).  They are MARRIED to a 10% owner.  This question makes no mention of attribution, so I am comfortable checking "no" there is no such person involved in the failure.  I looked in 2016-51 and this question is not addressed from what I can see (see 6.09(2)).  I think they would have said "including attribution under 318" if that was what they meant.

Thoughts appreciated!

I agree with your assessment, though I think it could be argued either way.  It appears that the only real difference is you would have to add an explanation.  So if you wanted to be conservative, you could check yes and start the explanation with the fact that the person in question is only a 10% owner though attribution.

Well, one is automatic approval and the other apparently takes facts and circumstances into account.  I much prefer automatic. 

ALSO, if anyone ever suggested I filled the forms out incorrectly, I'm just going to say "no I didn't". I think I'm going to go for it this way.  These guys know about attribution, so they would have said it.

HEre's another thought, maybe it's not too dissimilar from the "innocent spouse" rule.  OR how about this.  Johnny (age 45) owns 100% of a buisness and his father works and needs RMD's.  Perhaps that is a more likely scenario, for which the IRS did not want to add extra hurdles.

Code section 401(a)(9)(C)(ii)(I) which gives the RBD exception for 5-percent owners says to look to Code section 416 for the definition of "5-percent owner." 

Section 416(i)(1)(B)(i)(I) references to the attribution rules in Code section 318. 

Section 318(a)(1)(A)(i) provides for attribution to the spouse.   

No argument from me. The questions isn't whether I have to do an RMD but rather if I have to provide an explanation on the VCP app.  None of the logic you just sited is stated or implied when they ask if anyone is a 10% owner.

I see the bind you are in more clearly now.  I have not dealt with this personally but my gut reaction is that the owner through attribution would be in the same position as the actual owner and would likely be viewed as such for purposes of the VCP application since the Service would be asking the question in the context of the law cited above.  But I certainly understand your uncertainty given that the instructions do not reference the attribution rules.

I'm erring on the side of not mentioning it and if they ever came back to me, I can say with a straight face why I did what I did.  They're big boys and girls over at the IRS/Treasury, and it's important to choose your words carefully.  I'm not going to subject myself to a rule that isn;t written down. Things say what they say and they don;t say nothin' else!

I recently had a somewhat related  situation.  The participant whose RMD was missed was a 5% owner for purposes of 401(a)(9) because her P.C. was an adopting employer of the firm's plan and she is the 100% owner of her P.C.  The P.C. was less than a 5% owner of the firm sponsoring the plan.  The 401(a)(9) definitions leads to 416 definitions and those specifically provide that the rules of 414(b), (c) and (m) don't apply for determining 5% owners.  To answer the VCP question, however, there is no direction of what is meant by a 10% owner of the plan sponsor. If they wanted to say that 414(b), (c) and (m) don't apply for this purpose, they could have - or they could have referenced 401(a)(9) or 416.  Since they did none of that, we felt comfortable checking "no".  

Quote

 

T-17 Q. Who is a 5-percent owner of the employer?

 A. If the employer is a corporation, a 5-percent owner is any employee who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the value of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation. If the employer is not a corporation, a 5-percent owner is any employee who owns more than 5 percent of the capital or profits interest in the employer. The rules of subsections (b), (c), and (m) of section 414 do not apply for purposes of determining who is a 5-percent owner.

 

Now, I of course know exactly they mean by this.  But I thought maybe you would do the rest of the readers a favor and explain the practical implications of this statement with an example?  Because to me.... errr... I mean to the other readers , it might not make sense at first glance.

On ‎12‎/‎21‎/‎2017 at 3:35 PM, austin3515 said:

The 14568 Schedule H has this question:

"At least one affected participant is either an owner-employee (see IRC Section 401(c)(3)) or, if the plan sponsor is a corporation, a 10 percent owner of such corporation"

The person in question is NOT a 10% owner (it is a corporation).  They are MARRIED to a 10% owner.  This question makes no mention of attribution, so I am comfortable checking "no" there is no such person involved in the failure.  I looked in 2016-51 and this question is not addressed from what I can see (see 6.09(2)).  I think they would have said "including attribution under 318" if that was what they meant.

Thoughts appreciated!

 

Hello! What was the resolution of this issue?

I have encountered a similar situation that involves family attribution for VCP submission and would like to know how the IRS has interpreted the 10% owner question.

Thanks!

If I remember this was right when the user fees went through the roof and my client refused to pay the increased user fee.  It was a large plan.  We ended up doing the "please waive the excise tax approach" to the IRS (which worked).