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What is a Schedule Q Form?

Updated for Tax Year 2016


OVERVIEW

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.


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.

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. By checking “yes” on Line 3 of Schedule Q, a company asks the IRS to rule on whether its plan is nondiscriminatory.

 

 

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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