We adminstrate the tax withholding checks for our plans in the following manner.


1) Send tax checks to client to deposit under their TIN or plan trust TIN.

Drawback: Clients get the check and don't deposit the check timely, don't know what do do with the check, put the check in a drawer, you get the drift. (If a separate trust TIN was not set up and they are supposed to be remitting checks via EFTPA and semiweekly, then you can see the impending disaster here). Because we prepare the 1099Rs, I have to confirm with each company that they made the deposits and address any outstanding tax deposits and that can be very time consuming in January.

2) Make the deposit for them under the plan Trust EIN and charge for this service, and prepare the 945.

I spoke with an IRS agent a few years back who audits plans etc and, to paraphrase the gentlemen.."We don't really care what TIN is used so long as the 945s match the 1099Rs for tax withholding." So I thought about this and was wondering if we could just use our own company TIN to make all the deposits and issue the 1099Rs under. Other than adminstrative penalty exposure, what downside would there be for doing this? I see it as simplying the adminstration of the 1099Rs/945s etc.

This issue gets kicked around like a soccer ball. If you talk to several different people at IRS, you're likely to get several different answers.

Here's the general rule: use the trust's EIN unless someone other than the trust is "payer". Under Reg. Sec. 1.6041-1(e), a Form 945/1099-R "payer" includes any party that (1) makes payments on behalf of another party and (2) performs management or oversight functions.

A TPA certainly satsifies the second condition -- determining participant eligibility, calculating benefit amounts, etc. I believe that the first condition, however, hinges on whether the TPA holds plan assets and has the authority to approve and distribute benefit checks.

What I've seen: most TPAs aren't "payers" on Form 1099-R and use the trust EINs, rather than their own EINs, on the forms. By contrast, I've come across many 401(k) clients who have self-directed accounts at financial institutions. The financial institutions invest the money in mutual funds, provide daily valuations, and prepare Form 945/1099-R. In those cases, the financial institutions use their own EINs. This approach can cause headaches in the event of a plan audit.