Schedule C Negative but 401k already funded

I'm trying to find something that is written by the IRS or perhaps a prestigious law firm that talks about the proper treatment when a schedule C proprietor has negative self-employment income but has already funded his or her simple IRA contribution.

Does anybody have such a resource? My assumption is the contributions are refunded, adjusted for gains.  Because the deduction will not be taken in 2020, my assumption is that solely the investment earnings will be taxable in the year distributed. But I would still like to find something written on the topic in a formal way that  I can provide to a CPA I work with.

I don't have such a resource, but this is from the IRS - although it doesn't specifically break out Schedule C filers. Is this sufficient? 

https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-you-made-incorrect-employer-contributions-for-eligible-employees

As long as you agree it would be reasonable to assume that the treatment would be the same for employee and employer contributions. I suppose it makes sense that it would be the same? Do you agree?

It actually doesn't really seem to fit...

How about relying on this though from the EOB.  It appears to only relate to 401ks/PS but it seems to be pretty on point...

"9. IRS permitted return of “excess” contributions due to errors made in computing earned income. In PLR 200639003, a limited liability partnership encountered a number of errors made with respect to the LLP’s accounting, as a result of a change in accounting systems, including: (1) overstatement of certain income, (2) treatment of certain non-billable costs as billable, (3) double inclusion of certain advances, (4) certain income understated as a result of a failure to implement certain accounting changes, and (5) certain income that was reported not being supported by journal entries. The net result of these errors was that the LLP’s income was overstated. As a result, the earned income of the equity partners was overstated, resulting in excess profit sharing contributions made to their accounts. The IRS ruled that the profit sharing contributions made with respect to the overstated income were made as a result of a mistake of fact. Therefore, the plan could return the excess contributions to the employer without violating the exclusive benefit rule"

What is the CPA's position on this?

His position to ask me the proper treatment..

21 minutes ago, austin3515 said:

His position to ask me the proper treatment..

I thought he disagreed with something. He's just leaning on you for free research and tax advice.

It’s a nice little arrangement we have, he relied on me flr free advice and I rely on him for free referrals!

Understood. 

Austin,

See end of page 4 through beginning of page 5 in the following for IRS suggested correction method:  https://www.irs.gov/pub/irs-pdf/f14568d.pdf

Looks like if you refund employer contributions by the due date for the tax return you can avoid the 10% penalty under 4972.