Profit Sharing Not Made by Tax Filing Deadline

[Guest MS TPA]

The Plan Sponsor failed to make the Discrentionary Profit Sharing Contribution by the Tax filing deadline. The Plan Sponsor now wants to make the contribution. What are the implications?

[mbozek]

The Plan Sponsor failed to make the Discrentionary Profit Sharing Contribution by the Tax filing deadline. The Plan Sponsor now wants to make the contribution. What are the implications?

What do you think the tax consequences are?

See IRC 404(a)(5) and IRS pub 560 P 15.

[Guest MS TPA]

Correction-The Employer contribution was a Fixed Match. Is this late contribution reportable on the 5330 & subject to the Exise tax? The benefit was due to the plan by the tax filing deadline w/extensions (9/15/2009); however, it was made 12/02/09.

[Lori H]

I want to piggyback on this thread as I have a similar situation and I don't think Mbozeks cites really answered the OP's question. The OP asked what are the implications for late contributions on a PSP. I have a small plan that has less than 10 participants. The plan sponsors filing deadline was 3/15 and they did not contribute the PS cont until about 2 weeks later. The plan sponsor's father died and some other extenuating circumstances caused the delay in making the contribution 2 weeks late. Their CPA is concerned and wanted to know if he should do an amended return on their behalf showing no deduction. If so, can they deduct the 2010 cont and 2011 contribution, when they file the 2011 return?

[Jim Norman]

The 2010 contribution is not deductible in 2010 as it was funded after 3/15. However, since it was funded within 30 days of the deadline so the 2010 contribution still counts as annual additions for 415 in 2010.

Because the contribution was made after the due date, it now comes under the general rule of deductible in the year made. So it is a 2011 deduction.

2010 tax return should be amended to reflect no deduction.

The 2011 contribution can be determined normally and contributed timely for 2011 in addition to the 2010 contribution deducted in 2011. HOWEVER, you need to watch the 25% deduction limit for 2011, based on 2011 compensation. The total deduction cannot exceed this limit. Might need to limit the 2011 contribution or carry some over to 2012 if the limit is a problem.

I want to piggyback on this thread as I have a similar situation and I don't think Mbozeks cites really answered the OP's question. The OP asked what are the implications for late contributions on a PSP. I have a small plan that has less than 10 participants. The plan sponsors filing deadline was 3/15 and they did not contribute the PS cont until about 2 weeks later. The plan sponsor's father died and some other extenuating circumstances caused the delay in making the contribution 2 weeks late. Their CPA is concerned and wanted to know if he should do an amended return on their behalf showing no deduction. If so, can they deduct the 2010 cont and 2011 contribution, when they file the 2011 return?

[Lori H]

The 2010 contribution is not deductible in 2010 as it was funded after 3/15. However, since it was funded within 30 days of the deadline so the 2010 contribution still counts as annual additions for 415 in 2010.

Because the contribution was made after the due date, it now comes under the general rule of deductible in the year made. So it is a 2011 deduction.

2010 tax return should be amended to reflect no deduction.

The 2011 contribution can be determined normally and contributed timely for 2011 in addition to the 2010 contribution deducted in 2011. HOWEVER, you need to watch the 25% deduction limit for 2011, based on 2011 compensation. The total deduction cannot exceed this limit. Might need to limit the 2011 contribution or carry some over to 2012 if the limit is a problem.

I want to piggyback on this thread as I have a similar situation and I don't think Mbozeks cites really answered the OP's question. The OP asked what are the implications for late contributions on a PSP. I have a small plan that has less than 10 participants. The plan sponsors filing deadline was 3/15 and they did not contribute the PS cont until about 2 weeks later. The plan sponsor's father died and some other extenuating circumstances caused the delay in making the contribution 2 weeks late. Their CPA is concerned and wanted to know if he should do an amended return on their behalf showing no deduction. If so, can they deduct the 2010 cont and 2011 contribution, when they file the 2011 return?

Thanks Jim

[Lori H]

Couldn't they just pay an excise tax and have the contribution for 2010? it was 10 days late. Also could they not write in and request abatement of the tax? Seems 4971(a) applies here.

[Jim Norman]

Couldn't they just pay an excise tax and have the contribution for 2010? it was 10 days late. Also could they not write in and request abatement of the tax? Seems 4971(a) applies here.

4971 relates to failure to meet minimum funding standards, not applicable to a PS plan. Even if it were, that doesn't change the deductibility timing under 404(a)(3)(A)(i) or 404(a)(6).

[mbozek]

Couldn't they just pay an excise tax and have the contribution for 2010? it was 10 days late. Also could they not write in and request abatement of the tax? Seems 4971(a) applies here.

IRC 4971 only applies to plans subject to the minimum funding standards of IRC 412. PS plans are not subject to the minimum funding standards. Therefore no excise tax is imposed for late contributon to a PS plan. See Rev Rule 76-28 or review PUb 560 P15 for explaination of which tax year contributions can be deducted.