Employer has a 401(k) plan with 3% safe harbor and discretionary profit sharing contributions. Plan year and corporate year are 12/31. On the 12/31/05 plan year administration we allocated the employer safe harbor and profit sharing contributions. The contributions were made by the due date of the 2005 corporate filing, but the employer took the deduction on the 2006 corporate return. The employer does not want to amend their 2005 corporate return.

Several questions:

• Is it okay to handle it like this? It seems the safe harbor contribution could be handled in this manner but what about the discretionary profit sharing piece? Can you take the deduction in 2006 but allocate it in 2005?

Assuming it is okay:

• Would the safe harbor contribution be considered an annual addition for 2005 or 2006?

• Would the discretionary profit sharing contribution be considered an annual additions for 2005 or 2006?

Thanks in advance for any responses.

Yes it is ok, and would generally be annual additions for 2005. I'm assuming the contribution was actually made no later than 30 days after the end of the 404(a)(6) period - (which according to your post, they were.)

Yes, the contribution was actually made no later than 30 days after the end of the 404(a)(6) period.

Follow up question: Which year should the contribution show up on the 5500? The allocation shows up on the 2005 administration report and the deduction was taken on the 2006 corporate tax return.

That depends. I would expect that this would normally show for 2005, but if they are prepared for a PS plan on a cash basis, for example, then it would be 2006. I think if you do a search you will find some prior threads on this subject.

What about a situation where an employer wants to allocate based on 2005 plan year compensation, but misses the 2005 deposit deadline (in this case, 9/15/06). Can the employer still make the deposit, allocate based on 2005 comp, but take the deduction on the 2006 company return?

And furthermore, if the employer also makes a 2006 contribution based on 2006 plan year comp, makes the deposit timely (lets say on 3/1/07), can the employer take a 2006 deduction for both the 05 and 06 contribution on the 2006 company tax return (assuming the total is less than 25% of 2006 eligible comp)?

Thanks