Employee Plans Compliance Unit (EPCU) - Sole Proprietor Participation Project

Why did I receive an EPCU compliance check letter?

Our Form 5500-series return records, when compared to Form 1040, Schedule C, show that you have not been contributing to your qualified plan on behalf of employees.

What is EPCU attempting to determine?

The Employee Plans Compliance Unit (EPCU) wants to whether you have employees who meet your plan’s eligibility requirements for plan participation and if our records reflect accurate information.

What actions do I need to take?

Please complete the information request. You may also furnish any other documents or clarifying material that you believe will be helpful for us to review. You should make every effort to be as complete and accurate as possible in your responses and respond by the due date.

If you need additional time, make sure to contact the EPCU representative (located on the letter) to request an extension. Failure to provide the information could result in further action or examination of your plan.

If You Have Questions

Feel free to e-mail us and we will be glad to answer any questions you have about the project and how it relates to your situation. Please include “Sole Proprietorship Participation project” in the Subject line of the message. You may also telephone, fax or e-mail the contact person listed on the letter.

Background

IRC Section 410(a)(1) provides statutory minimum eligibility requirements of age 21 and 1 year of service. IRC Section 401(a)(3) defines a year of service for eligibility. Most plans provide a year of eligibility service is a 12-month period in which an employee completes at least 1,000 hours of service. A plan may provide a 2 year eligibility requirement if it also provides for full and immediate vesting. In order for a plan to be qualified, the plan document must contain language defining the eligibility requirements, year of service, eligibility computation period and plan entry dates.

A sole proprietor/owner deducts plan contributions allocated to the sole proprietor/owner as an adjustment to income on his or her Form 1040, U.S. Individual Tax Return, line 28 (Self-employed, SEP, SIMPLE, and qualified plans). The sole proprietor/owner sponsor deducts plan contributions allocated to employees on Form 1040, Schedule C, Profit or Loss Form Business (Sole Proprietorship), line 19 (Pension and profit sharing plans). For a calendar year plan, the sum of these dollar amounts should equal the contributions shown on the sponsors Form 5500 series return.

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