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Form 5500-EZ Excess Participant Loans Project

Why did I receive a compliance check letter?

The Employee Plans Compliance unit (EPCU) contacted a sample of Form 5500-EZ filers identified in our records as having participant loans in excess of $50,000 per participant.

What is the EPCU attempting to determine?

Our primary goal is to ensure compliance with participant loan limits.  We also want to make sure participants who received loans in excess of $50,000 pay income tax on the excess amounts and that plans correct the underlying causes for not complying with the participant plan loan limit.

What actions do I need to take?

Please provide a response to the information request within 15 days of the date of the compliance check letter.  If you believe you have complied with the participant plan loan requirements, please provide an explanation. You may also furnish any other documents or clarifying material that you believe will be helpful for us to review. Please make every effort to make your responses as complete and accurate as possible.

Failure to provide the information requested could result in further action or an audit of your return.

If You Have Questions

Please e-mail us and we will be glad to answer any questions you have about the project and how it relates to you. Please include “5500 EZ Participant Loans Project” in the subject line of the message.

Background

Federal law permits most qualified retirement plans to provide for loans to participants and retain tax-favored status under the Internal Revenue Code. We are contacting plans that may have exceeded the allowable limit of $50,000 per participant on plan loans. Retirement plans may face disqualification if the plan does not comply with statutory participant plan loan requirements in form and operation.

Other resources

Retirement Topics – Loans

FAQ – Retirement Plan Loans

Correcting Plan Errors Home Page

Fixing Common Plan Mistakes – Plan Loan Failures & Deemed Distributions

Publication 575, Pension and Annuity Income

Form 1099-R, Distributions from Pension, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Form 1099-R Instructions

Page Last Reviewed or Updated: 22-Apr-2014