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Nonprofit Insider L

September 2010

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
Vol. 4 • No. 4

6851 Oak Hall Lane Suite 300 Columbia, MD 21045 410-423-4800 Fax 410-381-5538

What do they Hybrids are

mean by “timely”? popping up
by Mike Kirby, Principal
T imely. What a
useful word.
Equally, it can seem
and remittance of pension plan con-
tributions should occur as promptly
as the number of days it takes the
these days
by Carol Shepherd, Senior Staff
rather vague when employer to segregate and remit its
it comes to regula-
tions. Particularly
regulations with
form 941 payroll taxes. Thus, if the
employer is able to segregate and
remit payroll taxes in two or three
S o you might
just be asking
yourself, “What is
fines associated for business days, that same employer an article about
not being “timely.” If you’ve ever should also be able to segregate and hybrid vehicles
wondered what the Department of remit participant pension contribu- doing in a financial
Labor considers “timely” but tion funds to the plan in two or three newsletter?”
haven’t been exactly sure, you’re business days.
certainly not alone. Let’s review Good question. This new hybrid is
The result of these regulations is not a car; it’s a business structure: a
some of the rules that have been in
that many employers, as well as low-profit limited liability company,
place covering contributions to
their advisors, continue to be uncer- or L3C for short, and it has character-
401(k) plans.
tain as to how soon such funds must istics of both for-profit and non-prof-
The Department of Labor (DOL) has be forwarded to the plan in order to it organizations. Just as the hybrid
a general rule in Regulation 2510.-103 avoid the consequences associated vehicle was created by combining
that states, “amounts paid to or with- with holding plan assets. two different sources of power, the
held by an employer become plan L3C combines the powers of enter-
In fact, the DOL cites in a footnote
assets on the earliest date on which prise and social consciousness into a
that since the inception of the
they can reasonably be segregated new vehicle called the L3C.
Voluntary Fiduciary Correction
from the employer’s general assets.”
Program in 2000, close to 90 percent The L3C business structure allows
The DOL outlined an outer limit in of the applications for correcting for the partnership of businesses,
its 1996 amendments to the general violations have involved delinquent
rule as “the 15th business day of the participant contributions.
month following the month in PREFER TO GET YOUR
But recently there has been a refine-
which participant contributions are
ment of the rules that brings some
received by the employer,” but did Sign up to receive our newsletter
clarity to this matter. On January 14,
not declare that as a safe harbor date through email. Just email Kathy
2010, the DOL issued final regula-
to deposit the funds. at, and
tions on the Definition of Plan Assets
The DOL has regularly taken the - Participant Contributions which she’ll take care of the rest.
position that segregation of funds continued on page 2

UHY LLP brings specialists in nonprofit solutions in accounting and tax.

September 2010
Vol. 4 • No. 4

What do they more participants, the DOL decided rule. Even if an employer remits
not to extend this revised safe har- participant contributions within
mean by “timely”?
bor rule. Thus, large plans should 15 business days, the DOL could
continued from page 1 continue to deposit contributions in consider many, if not all, of such
establishes a safe harbor period for accordance with the fourth para- remittances to be delinquent,
certain employers to deposit partici- graph of this article to ensure the thereby representing prohibited
pant contributions on a timely basis. timeliness of its remittances. transactions.
For small plans, defined as plans To summarize, what we have is the 3. The final regulation recently issued
with fewer than 100 participants at following: by the DOL provides a safe harbor
the beginning of the plan year, the for small plans (less than 100 partic-
1. The DOL continues to expect an
safe harbor rule states that remit- ipants) if the employer remits par-
employer to remit participant
tances are timely if the funds are ticipant contributions within seven
contributions and loan repay-
deposited with the plan no later business days from the pay date.
ments as promptly as it remits its
than the seventh business day fol-
form 941 payroll taxes. There are 4. There continues to be no safe har-
lowing the day on which such
significant penalties for late bor for large plans (100 or more
amount is received by the employer,
remittance. participants).
or the seventh business day follow-
ing the day on which such amount 2. The DOL’s general rule of 15 busi- If you have any questions or wish to
would otherwise have been paid to ness days for remitting partici- discuss your plan, please contact us
the participant in cash. For large pant contributions and loan for assistance. But make sure you do
plans, defined as plans with 100 or repayments is not a safe harbor so in a timely manner!

Hybrids are popping up The heart of a nonprofit. a charitable purpose, they are not
everywhere these days charities as defined by the IRS, and,
The body of an LLC.
therefore, are not tax exempt. L3Cs
continued from page 1
Although an L3C may be profitable, are taxed as an LLC with its income
governments, nonprofits, and indi- profitability is secondary to accom- passed through to its members.
viduals to further the accomplish- plishing a charitable purpose. There
As of August, 2010, the L3C busi-
ments of a charitable goal. The L3C are three requirements that an L3C
ness form is legal in seven states:
was initially created to facilitate pri- must meet:
Vermont, Illinois, Maine, Michigan,
vate foundations in making pro-
1. The company must significantly North Caroline, Utah and Wyom-
gram related investments (PRIs).
further the accomplishment of ing. Vermont legislation has allowed
PRIs have some bureaucratic issues
one or more charitable or educa- L3Cs formed there to operate in any
which, in turn, have forced many
tional purposes, and must be of the 50 states. L3C legislation is
foundations to under-utilize the PRI
formed for that purpose; currently pending in at least six
in favor of charitable grant-making.
more states.
Supporters of the L3C believe that 2. No significant purpose of the
this new structure will encourage company is the production of L3Cs are really rather new. As of
investing by foundations, thus income or the appreciation of May, 2010, there were approximately
potentially increasing the number of property; and, 180 in existence. As with many
sources from which grants can be things new and untested, controver-
received. Whether there will be a 3. The company must not be organ- sy and differing opinions abound.
significant shift from foundation ized to accomplish any political The L3Cs have their supporters,
grant-making to PRIs is yet, of or legislative purpose. their naysayers and a long road
course, to be determined. ahead full of scrutiny and debate.
Although L3Cs are formed to further

The statements contained herein are provided for informational purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal,
state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. Furthermore, such statements are not presented or intended as, and should not be taken
or assumed to constitute legal advice of any nature, for which advice it is recommended that you consult your own legal counselors or professionals.
UHY Advisors, Inc., provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc.,
and its subsidiary entities offer services from offices across the United States. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent
CPA firm that performs attest services. UHY Advisors, Inc., and UHY LLP are independent U.S. members of Urbach Hacker Young International Limited.