Jump to content

PS funding deadline - not 12 months?


Recommended Posts

Currently working through an IRS audit on a calendar year plan, and the auditor mentioned that the 2017 profit sharing contribution was due next week.  Casually, I said, "Sure, if they want to deduct it for 2017, otherwise they have until the end of 2018."  He directed me to Publication 560, which says that the last date to make a contribution is the due date of the employer's return (including extensions) - link, see Table 1.

And now I see the 401(k) Fix-It Guide supports the same timing:
 

Quote

Timing of other contributions: 

Rules about the timing of matching contributions or other employer contributions are different from those for elective deferrals. The employer must meet the following rules to obtain a current tax deduction:

<>

  • Employer contributions that aren't tied to elective deferrals must be made by the filing deadline of the employer’s tax return, including extensions.


What?  I'm looking for anything to refute this, but I'm coming up empty.  Is this real life?

Link to comment
Share on other sites

Well, my understanding has always been that you can ALLOCATE it for the prior year as long as you make the contribution within 30 days after the expiry of the 404(a)(6) period. So in your case with an extension to 9/15/2018, you could contribute the PS contribution for 30 days after the extended deadline, and ALLOCATE it for 2017. Then you'd deduct in 2018. See 1.415(c)-1(b)(6)(i)(B).

Link to comment
Share on other sites

That is my understanding as well - contribute by 10/15 to allocate on basis of prior year (and be annual addition for such year), unless some other exception (corrective contribution) applies.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

Link to comment
Share on other sites

The 10/15 rule is because of Treas. reg. 1.415(c)-1(b)(6), which for a for-profit employer gives you until 30 days after your 404(a)(6) deadline to still count the amount (for which, obviously, you would have missed the deduction deadline) as a prior year annual addition. If you miss the 1.415(c)-1(b)(6) deadline, then the contribution is both deductible in the year it is made and treated as an annual addition for purposes of the 415 limit in the year it's made, not "for" which it was made. I'm not sure there is any clear deadline for 401(a)(4) general test purposes. See Treas. reg. 1.401(a)(4)-2(c)(2)(ii).

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

Many years ago (early 2000s or late '90s) I was assigned a plan takeover of a balance forward PSP.  When I got the data from the prior TPA there was this 5 year old PS contribution receivable.  I asked the prior TPA about it and they said the sponsor never paid it but it was  allocated.  I asked the sponsor about it and they said they had initially told the TPA they were going to make the cont but changed their minds and told the TPA to not allocate it. 

This receivable was part of everyone's balances.  The sponsor decided they were not going to tell employees 5 years after the fact their certs had been wrong all this time.  So they were going to deposit the money.  We talked to our in house attorney about this and we were told it could be allocated all those years ago but not deducted until year of deposit.  The 415 rules was the big problem as people had left and had their balance including that "phantom" money paid to them as you can borrow from Peter to pay Paul in a balance forward plan. 

So I think you can deposit the money even years after the allocation.  I have always been curious if we needed to do some kind of discrimination testing in the year of deposit.  If not, I can imagine some interesting abuse of the law if the facts fall into place just the right way. 

Link to comment
Share on other sites

ESOP Guy, there are current rules for corrective allocations that let you make the deposit when the mistake is discovered, even if it is years later, in 1.415(c)-1(b)(6)(iii)(A).  It's also in Rev. Proc. 2016-51, 6.02 (4)(b) with different wording.  But, I don't think these rules allow retroactive allocation or deposit of a discretionary contribution beyond the normal annual additions deadline of 30 days beyond the tax return deadline. 

 

In a case like the one you had, I think you would have a strong argument that the operation of the plan after the erroneous allocation made it part of their account balances, so it would be a required corrective deposit.

Link to comment
Share on other sites

Well, at least the auditor and I were both wrong...

So for a 2017 calendar year plan year for an S-corp on extension (so due 9/15... which I know is a Saturday), the allocation can be either:

  1. Made by 9/15 and deducted on the 2017 return;
  2. Made by 10/15 and deducted on the 2018 return.

And that's it.  Any deposit after 10/15 is not considered "for 2017" and shouldn't be allocated based on 2017 information?  With the exception of things like SH and QNEC as Tom pointed out (which may be what I was thinking of in the first place).

Thanks, everyone.

Link to comment
Share on other sites

Albany - something in your comment reminded me of an IRS comment at a Q and A session - dang, there it is 2010

 

someone asked about the issue with safe harbor contributions (but also QNECs to correct a failed ADP test. Basically what happens if made after 10/15. what year do they count for 415.

the IRS response was

Contributions made after the Section 415 timing date of 30 days after the tax return due date are considered to be annual additions for the following year. However, if consider the contribution a self-correction under EPCRS, it is permissible to relate this back to the earlier year. If the contribution is made after 12/31, you are clearly under EPCRS. [One of the exceptions to the 415 timing rule is an erroneous failure to allocate. See Treas. Reg. 1.415(c)-1(b)(6)(ii)(A). EPCRS clearly treats post-415-period deposits that relate back to a prior plan year as an annual addition for the year to which it is meant to be paid, but EPCRS applies only after the 12/31/09 deadline. Therefore, there is a lack of guidance for the period between 30 days after the tax return due date and the end of the 12-month regulatory correction period.]

......

basically saying, this makes no sense to say "for 415 purposes I'm better off not to make the required safe harbor contribution between 10/15 and 12/31, and simply wait and correct the following year under EPCRS"

Link to comment
Share on other sites

  • 1 month later...
On 9/12/2018 at 7:41 AM, Tom Poje said:

Albany - something in your comment reminded me of an IRS comment at a Q and A session - dang, there it is 2010

 

someone asked about the issue with safe harbor contributions (but also QNECs to correct a failed ADP test. Basically what happens if made after 10/15. what year do they count for 415.

the IRS response was

Contributions made after the Section 415 timing date of 30 days after the tax return due date are considered to be annual additions for the following year. However, if consider the contribution a self-correction under EPCRS, it is permissible to relate this back to the earlier year. If the contribution is made after 12/31, you are clearly under EPCRS. [One of the exceptions to the 415 timing rule is an erroneous failure to allocate. See Treas. Reg. 1.415(c)-1(b)(6)(ii)(A). EPCRS clearly treats post-415-period deposits that relate back to a prior plan year as an annual addition for the year to which it is meant to be paid, but EPCRS applies only after the 12/31/09 deadline. Therefore, there is a lack of guidance for the period between 30 days after the tax return due date and the end of the 12-month regulatory correction period.]

......

basically saying, this makes no sense to say "for 415 purposes I'm better off not to make the required safe harbor contribution between 10/15 and 12/31, and simply wait and correct the following year under EPCRS"

1

Tom--

Do you have this Q&A? I'm going through a similar issue and looking at the JCEB Q&A for 2010 and don't see this response.

Could you point me to it?

Thanks.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...