CPA & Business Advisory Blog

Is Preparation of an Annual Tax Return Necessary for Your One Participant Qualified Retirement Plan?

As the Internal Revenue Service continues to move into the electronic age, it has adopted the EFAST-2 filing system to electronically file tax returns related to employee benefit programs.  For the 2010 tax year, the IRS provides a choice of filing mediums for tax-qualified retirement programs that cover ‘one-participant’ plans—the paper Form 5500-EZ or the electronically filed Form 5500-SF.  Let’s briefly go over the filing rules:

  1. What is a “one participant plan?”  A ‘one-participant plan’ is a tax qualified retirement plan (defined benefit, defined contribution or money purchase) that:
    a. covers only the taxpayer (and spouse) and the taxpayer (and spouse) owns the entire business, or covers only one or more partners (and their spouses); and
    b. provides benefits only for the taxpayer/partner (and spouses)
  2. Must a ‘one participant plan’ file electronically?  No.  Form 5500-EZ can be filed by anyone, but must be filed if the plan is a foreign plan which is required to file an annual return.  Also, the paper form must be filed in the final year of the plan (the year in which all plan assets are distributed).
  3. Must all ‘one participant plans’ file a return?  No.  Returns are mandatory only for those plans that have assets which exceed $250,000 at the end of the plan year.  However, if this is the final year of the plan, a return must be filed.
  4. If I need to file, when is the return due?  Returns for the 2010 year are due on August 1, 2011 (the normal due date is July 31, but it falls on a Sunday in 2011).  Filing a Form 5558 will result in an automatic 2 ½ month extension.  An automatic (no Form 5558 is needed) extension for filing  occurs if:
    a. The plan year-end and the employer’s tax year-end are the same
    b. The employer has been granted an extension to file its federal income tax return to a date later than the normal due date for the Form 5500-EZ/SF; and,
    c. The plan keeps a copy of the federal extension request.
  5. Is there a benefit to filing electronically? The taxpayer does have a record of when the return is filed; paper filers create a record of filing by using certified mail to file the return.

We would be pleased to assist you with questions related to your Form 5500-EZ or 5500-SF.  For more information on this topic, post a comment below or contact our Compensation & Benefits Advisory Services Group at 440-449-6800.

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