IRS FORM 5500 AND PLAN AUDIT

Federal law requires employee benefit plans with 100 or more participants to be audited. The audit report must be filed with the IRS Form 5500. You may already be familiar with this requirement if you have other qualified retirement plans or if your ESOP has been in place for a few years. Pay close attention to this requirement if you have a new ESOP or if you are getting close to the 100 participant mark. Also be aware that if the number of participants as of the beginning of the year is between 80 and 120 and an audit was not required in the prior year, than no audit will be required in the current year. This exception may give you another year to prepare for the audit requirement.

The IRS Form 5500 is due seven months after the end of the plan year (July 31 for calendar year plans). If IRS Form 5558 is filed, then the due date is extended two and one-half months (October 15 for calendar year plans). You can rely on the corporate extension instead of IRS Form 5558, but that will only provide you with a one and one-half month extension (September 15 for calendar year plans).

Just like obtaining a stock appraisal, it is important that you plan ahead with the audit. You should discuss the timing with your auditors, obtain specific dates, and have your deliverables ready to go so you do not hold up the audit. You should also look at the last year’s audit report and any other notes and correspondence from the auditors to ensure that you have addressed any problem areas from the prior year.

[APPRAISAL OF EMPLOYER SECURITIES]