Limit Audits on your 5500 filings

At a recent conference an IRS employee talked about what are some of the triggers for an audit of a form 5500.

The various triggers were:

1.  Line items that were left blank when they shouldn’t have been.
2.  Items on the forms contradicted each other.
3.  A big drop in the number of participants from one year to another.
4.  A large percentage of assets in the “Other” asset category.

Number 4 was interesting due to the fact that most of my clients have given up on the stock market and no invest primarily in the “Other”category.  What was even more interesting was a proposed fix to the audit trigger of the large amount of assets in the Other category.  The fix was merely to apply code 2R on the 5500.  2R is a code for saying that each participant in the plan has the opportunity to invest on their own via a brokerage window, and this could cause a large amount of the assets to appear in the Other category.

Simple fix to the problem.

Be careful though, if you put the 2R code on the return, that could affect your ability to have the plan invest in precious metals.