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C-Corp 10/15 1120 deadline vs 430 9/15 funding deadline


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An accountant called me, has a calendar year 2016 C-corp client with a DB plan.  Because C-corps 1120 deadline now extends to 10/15, client just funded the 2016 DB contribution this week, after 9/15.

So there will be a 10% excise tax on the minimum required contribution, but because the 2016 contribution was made within the filing time for the 1120 including extensions, do they still get the DB plan deduction for 2016?

IRC 404(a)(6) hasn't changed, still says "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

I carry stuff uphill for others who get all the glory.

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A contrary point of view:  If the contribution could not be reflected on the SB, then the IRS has in the past opined that it could not be made on behalf of that prior year. 

Of course, this creates chaos and a disparity between DB vs DC and SEP plans.

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Yes I've read about the IRS tying the contribution to what is reflected on the Schedule B.  I've also seen opinions by a couple of reputable actuaries that disagree with IRS on this - for good reason.  404(a)(6) says the contribution must be "on account of such taxable year",  referring to the employer's tax year, not the plan year.  While the two years may actually coincide they are still different years for different purposes.  If the employer makes the contribution by 10/15 and deducts it on the 2016 1120, then the employer is designating the contribution to be on account of the 2016 taxable year.  

I carry stuff uphill for others who get all the glory.

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  • 1 year later...

Bumping this in case anything new thing has come up in the last year.

We have sole proprietor who had a $0 RMC so no contribution was made by 9/15/18. However now that his CPA has completed his Schedule C he might like to make a deductible contribution if possible for 2017. He will have a required contribution for 2018 and his income varies by year. So if possible we would like to have him make a contribution this week which he would deduct on 2017 return but would be reflected on the 2018 schedule B.

 

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8 hours ago, Lou S. said:

Bumping this in case anything new thing has come up in the last year.

We have sole proprietor who had a $0 RMC so no contribution was made by 9/15/18. However now that his CPA has completed his Schedule C he might like to make a deductible contribution if possible for 2017. He will have a required contribution for 2018 and his income varies by year. So if possible we would like to have him make a contribution this week which he would deduct on 2017 return but would be reflected on the 2018 schedule B.

 

My understanding is this is not allowed. I'm not aware of anything contrary to this gray book example, but I could be mistaken:

Gray Book 2011-7

Funding: Grace Period Contributions

A company has a calendar taxable year and sponsors a pension plan with a calendar plan year. Which of the following combinations are acceptable for a contribution made during the 2010 §404 contribution grace period (January 1, 2011 to September 15, 2011)?

a) Deduct contribution in 2010, reflect on 2010 Schedule SB.

b) Deduct contribution in 2010, reflect on 2011 Schedule SB.

c) Deduct contribution in 2011, reflect on 2010 Schedule SB.

d) Deduct contribution in 2011, reflect on 2011 Schedule SB.

 

RESPONSE

a), c), and d) are acceptable. IRC §404(a)(6) deems a contribution made after the last day of a taxable year to be made on the last day of a taxable year if the payment is made on account of such taxable year. A contribution is considered to be on account of the 2011 plan year when reported on the 2011 Schedule SB and thus cannot be deducted on the sponsor’s 2010 tax return.

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On 10/5/2018 at 9:27 PM, figure 8 said:

My understanding is this is not allowed. I'm not aware of anything contrary to this gray book example, but I could be mistaken:

Gray Book 2011-7

Funding: Grace Period Contributions

A company has a calendar taxable year and sponsors a pension plan with a calendar plan year. Which of the following combinations are acceptable for a contribution made during the 2010 §404 contribution grace period (January 1, 2011 to September 15, 2011)?

a) Deduct contribution in 2010, reflect on 2010 Schedule SB.

b) Deduct contribution in 2010, reflect on 2011 Schedule SB.

c) Deduct contribution in 2011, reflect on 2010 Schedule SB.

d) Deduct contribution in 2011, reflect on 2011 Schedule SB.

 

RESPONSE

a), c), and d) are acceptable. IRC §404(a)(6) deems a contribution made after the last day of a taxable year to be made on the last day of a taxable year if the payment is made on account of such taxable year. A contribution is considered to be on account of the 2011 plan year when reported on the 2011 Schedule SB and thus cannot be deducted on the sponsor’s 2010 tax return.

For what it's worth, Kevin Donovan and Kurt Piper quoted this same section of the gray book in their presentation at the 2016 ASPPA Annual, and argued that (b) is allowed as well. See the last slide here: https://www.asppa-net.org/Portals/2/PDFs/2016AnnualHandouts/WS18 - Deduction Limits for DB Plans and Combined Plans.pdf

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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