2004 rec'ble for a ps plan was $29,067.99. Client makes a deposit 4/28/05 of $30,000 anticipating a contribution in 2005. Medical practice not doing well, does not want to make any contribution, Oh, the plan is top heavy!

Client's accountant says to pay out the difference of $932.01 to us as TPA for our services. (He shows $29,067.99 as the deduction in 2004) I'm trying to convince the client this is not correct(or is it?) since she clearly made a one time deposit of $30,000 and intended it all to be contributions and contributions cannot be re-characterized.

Any references in the code that I can send to the accountant? Thanks.

Linda Michals

I personally would recommend that the 932.01 be re-characterized as a 2005 contribution. The 2004 contribution is completely discretionary.

12/31 pye? 3/15 is deadline to make contrib and take deduction for 2004. did they file for extension on corp return?
i agree with archimage. the excess is 2005 contrib. does plan doc allow plan to pay expenses?
isn't it hard to argue mistake of fact and w-d money from qual plan?

Was there in fact any documentation that actually characterized it as such? I'm assuming no resolution in re to it being a contribuiton? No communication to participants? And it wasn't allocated? So it was just extra dollars put into a cash suspense account with the intent that at a LATER date it would be characterized as a contribution? So, if before that happens, they decide to characterize it as reimbursement of expenses instead (and plan allows that), what's the problem?

some plans will "pre fund" during the year to a pooled fund(p/s plan that is trustee directed)--not suspense or cash acct-- and after the close of the yr the tpa will allocate it among the ee's. jsut b/c it is not allocated when deposited doesn't mean it isn't a contribution to the plan.

My point is that simply rounding up the contribution and over-depositing it -- with the idea in mind that it can be used later as a contribution -- does not by itself require the rounding to be characterized as a contribution. It's only if you add other facts -- e.g., a resolution, deposit in something other than some sort of general suspense account, communicate to employees, allocation -- that will cement that conclusion.