I am preparing a valuation for 12/31/01 (the first plan year). The client has just acquired Fiduciary Bonding in 2002. Do I have to note on the 2001 form 5500 that the client did not have bonding since they did not acquire it until 2002, even though it's their first plan year?

If it is a small plan, it files Schedule I. On item 4e of Part II, it asks if "During the plan year" "Was the plan covered by a fidelity bond?". That is straightforward, and the answer is "no". Of course if it is the first plan year, contributions were not even required to be made until the tax return, including any extensions thereto, is due.

I believe that the IRS factors in whether it is the first plan year before setting out to audit a plan due to purchasing the bond after the end of the plan year. In any event, some plans are not even subject to the bonding requirement, so answering "no" does not automatically trigger an audit.

Answer the question truthfully.