Plan with bad loans

16 hours ago, J Simmons said:

I have been asked to assist in a situation where a solo 401k plan had loans taken from the plan without promissory notes, pledges of account balances, etc.  The loans at one time years ago exceeded $50,000.  Repayments have not been made.  The sole participant now wants to withdraw what benefits there are and close the plan.  It has been a couple of years since I prepared any corrections under EPCRS for any plan failing, much less one like this.  Any insights and suggestions will be greatly appreciated to get me started off in the right direction.

John, you don't have ANY loans from the plan, you had distributions made that were taxable and subject to penalties if appropriate.  Calling an elephant a horse doesn't make it so.  You have no loan procedures followed and no loan payments made. That ain't a loan; it's a withdrawal.  Depending on how much money is still in the plan could impact my analysis of how to handle this.  If the amount left is small and he is planning on taking it all out and paying tax on it (not trying to roll it over), I would suggest that:

1) He failed to report taxable distributions when he took the money out; 1099Rs need to be prepared for those years and submitted.  He needs to talk to his accountant about filing amended returns (there are substantive questions as to statute of limitation issues, but IRS could claim longer than the normal 3 year period would apply).

2) Take the balance out and report it as taxable income. Don't try to roll it over because there are questions as to the qualification of the plan.