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Chapter 13 Bankruptcy Offices - What Type of Entity?


Guest YATPA

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Is anyone familiar with or have any experience with these types of entities? I see on freeERISA that there are a number of these "companies/offices" around the country that sponsor qualified retirement plans.

We have been approached by one in our state about taking over the admin for their 401(k) plan and we've been trying to determine what type of entity they are.

This is what we've been told by the plan sponsor:

- Chapter 13 Bankruptcy (nationwide) is supervised by the Department of Justice

- Congress created a U.S. Trustee who appoints trustees nationwide to run the office

- Chapter 13 Bankruptcy offices collect fees from debtors and this is what is used to run the office

- Chapter 13 Bankruptcy offices are non-profit organizations (however, trustee says there was nothing like a 1023 Form Application for Exemption filed)

- The appointed trustee for each office has control over the employees – they are not federal employees

- The trustee files a Schedule C for income received from the Chapter 13 Bankruptcy office but does not claim the wages paid to the employees

- The employees receive a W-2 from the Chapter 13 Bankruptcy office which has their own tax identification number – the IRS assigned a tax identification number based upon a filing status of “other – tax exempt trust”

- Chapter 13 Bankruptcy office files the W-2’s but there is no "company" return (either state or federal)

- Chapter 13 Bankruptcy office does not have a local business license

- The trustee says there was nothing like articles of incorporation or any other paperwork when they were set up

- Trustee says they are not part of any state or governmental agency.

Any ideas?

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what/who is the entity that you are describing who sponsors the 401(k) plan? Is it the individual trustees who receive schedule Cs as independent contractors, the employees who receive w-2s, or the office of the trustee. You need to retain counsel to determine who is the employer who sponsors the plan. Bankruptcy trustees are appointed to administer the estates of bankrupt companies and individuals under the Federal bankruptcy code and there is no incorporaton or regulation under state law.

mjb

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The trustee who is appointed is not covered by the plan, only the "employees" who are paid W-2 wages. Secondary to determining what type of "entity" they are, we just wanted to be sure they were allowed to sponsor a 401(k) plan.

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The sole proprietor ("trustee") may establish a retirement plan.

The "Chapter 13 Bankruptcy office" sounds like it is supposed to be an entity of some type, but the situation implies a myriad of questions not answered in your bullet points:

Does supervision by the DoJ preclude regulation by the IRS and state of domicile? No! Federal laws do not create entities unless the statue specifically does so, like the Federal Reserve Bank. They permit entities to provide certain functions.

You state that the "entity" is a "non-profit organization" but not that it is tax exempt. If so, it would need to file 1120 (if a corporation or similar) or 941 (if a trust or similar).

On what basis did they claim to be a tax-exempt trust? Trusts are not tax-exempt unless IRS has so ruled. Even if they were a tax-exempt trust, a federal return would be required. A state return may be required depending upon the state.

The entity was either created by articles of incorporation, a trust indenture or otherwise. Otherwise it does not exist.

It would be unwise to take on any responsibility for a retirement plan of a non-existent entity.

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