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Five Ways to Lose Your Tax Exempt Status Part 5

A failure to timely remit contributions and loan repayments


The best practice is to simply remit contributions and loan repayments on the withholding date. Theoretically, if withholdings were not being made, then the monies would be paid to the employees. The Department of Labor, quite justly, does not take kindly to misappropriation of employee monies to give the employer an interest free loan. An employer that can remit the monies within a business day should do so and consider that to be the yardstick by which the DOL will measure. An employer that can remit monies within a week should do so and consider that to be the yardstick by which the DOL will measure. The employer is held to this yardstick for its remittances made during the year. The rule about remittances being made by the 15th business day of the subsequent month is a maximum time tolerated, not a best practice for compliance. A failure to remit contributions timely results in a prohibited transaction. This means under IRS Code 4975 that at 15% excise tax will be levied and a Form 5330 will be submitted. Also, the plan must be made whole with respect to earnings from the administratively feasible date (yardstick noted above) to the date actually remitted.