Facts: A client established a Profit Sharing Plan back in 2002 (amended in 2006) to follow new IRS rules. In 2012 the PSP was transferred from old custodian to National Financial Services (Fidelity Investments). The account was set up as a Non-Prototype plan with the client as the administrator, as NFS do not do administrative services. NFS is holding the account (showing the PSP info and tax ID), but does not have the registration as PSP, but as a Non-prototype/corporate Trust. They indicated they will hold the funds, but the client is responsible for any reporting requirements. The client does not do a return as she is the only employee and the plan has less than the $250K required to file. For some reason the CPA was reporting for a few years the plan was a SEP-IRA, when the statement at the previous company showed it was a PSP with the client as Trustee. A section on the NFS system describes the account as tax-deferred, but they still issued two 1099’s-DIV for both 2012 & 2013. The client never received one before the transfer to NFS.

Is there anything the client can/needs to do? does anything need to be corrected? The main concern here is:

1. Making sure the assets are still maintaining the tax-deferred feature and no taxes are triggered on the principal.
2. That the client do not pay taxes on dividends as it is supposed to be a tax-deferred account.
3. Making sure an IRS audit is not triggered for those two years due to inconsistency on the returns.

Probably makes sense for the client to close the PSP and rollover the funds into a Rollover IRA if still possible.

Any help is greatly appreciated and thank you so much in advance.