Partner - negative earned income but deferral and match

Partner in plan had ordinary business loss on K-1 of -470,100 but had guaranteed payments of 302,576.  Line 14 ED loss of -168,060.  Partner made $17k in deferrals during year and received match of $7500. 

Question 1 - Is it correct that due to the negative SE earnings he should not have been able to do deferrals or recieve a match?

Question 2 - Plan terminated and all participants including partner have been paid out.  Partner rolled his assets to IRA.  If he could not do deferrals for year - I believe we have to get the IRA custodian to liquidate and pay him out the excess deferrals - correct - most likely with some sort of earnings.

Question 3 - if he can't have the match - that too has to come out of the IRA with earnings - but since the plan participants have all been paid out and the CPA doing the plan audit and TPA who did the compliance work have both been paid in full in advance - what if any options exist for the excess match?  Does it have to be allocated to all the participants in the plan and supplemental distributions be complete?

If he has $0 or negative earnings from self-employment his 415(c) limit is $0.

The $17K in deferrals is an excess annual addition correctable EPCRS - usually involves a refund plus earnings and code E on the 1099-R. Check your document for 415 overage corrections.

Since the deferrals need to be refunded, the related match of $7,500 (plus earnings) needs to be forfeited to the Plan. Since it was rolled out, the Plan is supposed to recover those funds. But with the Plan terminated that might be difficult.

The fact that the Plan has been terminated and assets rolled out complicates things, especially with respect to the match that can't be forfeited back to the plan that I assume the trust is no longer in existence. I'm honestly not 100% sure on the correction but at minimum the $17K and $7.5K are NOT ELIGIBLE for rollover so you have excess IRA contributions that need to be corrected.

Maybe someone else can add some thoughts or has come across this particular fact pattern in the past. It might be a situation where you might consider a VCP filing with the proposed correction being withdrawing the $24.5K plus earnings from the IRA as a taxable distribution to the partner.