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Guest David Lipkin

Tax Deductibility = "Fast"?

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Guest David Lipkin

We all know that you can deduct NC and 10 year amortizations, because IRC 404 says so. There is one other part of 404, under

404(a)(1)(ii), which talks about spreading deductions out over at least 5 years. Has anyone seen this used in practice? Is this trying to say that you really should not set up a plan at age 64 (if NRA = 65) and take a big deduction right away? Any insights/experiences would be appreciated. Thanks!

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There has never been any guidance on this and the IRS has never mentioned it at any conference or seminar I have attended.

Most practitioners I know either ignore it since there is no guidance re what it means or, like me, assume that if you use an "or 5" for normal retirement age (such as "65 or 5th anniversary of participation") everyone will be funded over at least 5 years and this provision will be satisfied.

If anyone else has any more comforting answer or analysis, I am interested in hearing it.

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Lorraine is correct.

There are brief mentions of IRC 404(a)(1)(A)(ii) in a few places:

1,404(a)-14(f)

1.404A-2

Announcement 98-1

Rev. Rul. 94-75

Rev. Rul. 82-125

Rev. Rul. 80-267

These cites don't really say any more than the IRC language. A logical interpretation of this is that a plain reading of the statute is your only real guidance.

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