What is a Schedule Q Form?
The Internal Revenue Service (IRS) has two very different forms that go by the name Schedule Q. One of them is for people who participate in certain real estate investments; this is known as a Form 1066 Schedule Q. The other Schedule Q deals with employer benefit plans. It's not something an individual taxpayer would normally have to deal with, though a small business owner might need it.
Key Takeaways
- There are two kinds of Schedule Q forms: one for real estate mortgage investment conduits (REMICs) and one for companies setting up or modifying employee benefit plans.
- REMICs typically buy mortgages with investors' contributions, and profits are allocated to investors who report their share of the profit on their income tax returns.
- REMICs typically file a federal tax return using Form 1066 and send a Schedule Q to each investor and the IRS to report their share of the profit.
- Companies use Schedule Q with Forms 5300, 5307, or 5310 to file for a "determination letter" for their employee benefit plans to qualify for special tax treatment.
Real estate investments
You might see the first kind of Schedule Q if you take part in a real estate mortgage investment conduit, or REMIC. Simply put, a REMIC buys residential and commercial mortgages with money contributed by investors. As borrowers make payments on the mortgages, those payments become income for the REMIC and its investors. The REMIC doesn’t pay taxes on its profit; instead, it allocates all profits to its investors. Investors then report their share of the profit as income on their personal income tax returns.
Form 1066 and Schedule Q
Although a real estate mortgage investment conduit doesn’t pay income taxes, it still has to file an annual federal tax return to report its profit to the government. REMICs file returns using Form 1066. They also must prepare a form for each investor telling that person how much of the REMIC’s profit he is responsible for reporting on his tax return. This form is Schedule Q. The REMIC sends Schedule Q to the investor and a copy to the IRS.
TurboTax Tip:
Schedule Q can be used for both REMICs and employee benefit plans so it’s important to know which type of Schedule Q you’re dealing with.
Employee benefit plan determinations
The other Schedule Q can come into play when a company or organization is setting up or making changes to a pension or retirement savings plan, such as a 401(k), or some other employee benefit plan. Companies want to make sure that their plans are structured correctly so that they qualify for any special tax treatment that may be available. A company files Form 5300 with the IRS to ask for a “determination letter,” a document that says a plan indeed qualifies for a certain treatment. A similar form, the 5307, is used when modifying certain plans, and Form 5310 is for use when ending a plan.
Schedule Q and benefit plans
In making a determination about a benefit plan, the IRS looks at the plan rather broadly. However, a company can ask the IRS to make a more detailed examination of particular aspects of its plan by filing Schedule Q along with Form 5300, 5307 or 5310; the same schedule is used with all three forms. This version of Schedule Q is simply a list of yes-or-no questions; if the company checks “yes” for a question, the IRS will rule on that specific item. For example, benefit plans generally cannot discriminate against some employees to the benefit of others.
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