BINGO to Avoid an Audit Trigger on Your ESOP Form 5500

Jun 11, 2015 | Employee Stock Ownership Plans, Latest News

2I – 2O – 2P – 2Q – 3I, Bingo!

Entering incorrect information on the return or report, or leaving a field blank when there should be an entry increases the likelihood that you’ll be selected for an Employee Plans Compliance Unit compliance check.

Plan characteristic codes under item 8 are one of the four specific items on the annual Form 5500 that are unique to ESOP plans.

  1. Codes are used to identify various characteristics of the plan or plan sponsor. Specific to an ESOP are:
    • 2I – stock bonus plan
    • 2O – ESOP other than a leveraged ESOP
    • 2P – leveraged ESOP
    • 2Q – plan sponsor is an S Corporation
    • 3I – plan requiring employer contributions be invested in employer securities
  2. Financial Information on Schedule H for Large Plans: Specific items to report in Part I, Part II, and Part IV include employer stock at Fair Market Value, exempt loan liabilities, interest expense paid on exempt loans, dividends or S Corporation distribution income, unrealized gain/loss on employer stock and compliance questions related to the employer stock assets.
  3. Financial Information on Schedule I for Small Plans: Specific items to report in Part I include current Fair Market Value as well as other assets, outstanding principal on exempt loans, dividends or C Corporation Distributions, interest paid on exempt loans and value of employer securities held by the plan.
  4. Retirement Plan Information on Schedule R:
    • Part IV – ESOP Information
    • Line Item 10, 11a, 11b, and 12 must be completed Yes or No

If you are preparing the Form 5500 yourself, look at each line item and instructions carefully.  Do not copy line items from year to year as it easy to make an entry on the wrong line or use an incorrect code.

If a Third Party Administrator prepares your return, take the time to examine it before it is submitted.  The ultimate liability for its accuracy and completeness rests with the plan administrator.  Consult your benefits administrator when concerns arise.

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