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Deduction shown on 7/31/20 filing to be used for 2020 calendar year?


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Hi,

A Corp and their DB Plan was a fiscal year end of 7/31 until 7/31/19.

The corp switched to a calendar yr end by running a short year for 8/1/19- 12/31/2019.

Then they had a regular calendar yr for  1/1/2020 thru 12/31/2020.

The plan  also should have ran a short year 8/1/19 thru 12/31/19, however they forgot to file for this 12/31/19 short year. If they would file now for  12/31/19, they would need to file with the DFVCP to avoid large late fees.

Question:

1. Can the pension stay with another year of a 7/31 year end. Meaning file a 5500 for 8/1/19 thru 7/31/2020. And then switch to a calendar year by running a short year of 08/1/2020 thru 12/31/2020.

2. For the fiscal year end 7/31/2020 (if they can keep the plan with a fiscal year end for an additional year) the company can contribute up to 275,000. This contribution was made in march 2021. Can this contribution that was made for the plan year 8/1/19 -7/31/2020 be used as a deduction  for the 2020 calendar yr on the corporation's return for 2020 (as the company for 2020 was a calendar year)? Thank you very much.

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1. Yes as there is no requirement that the plan year and the fiscal year be the same. This could be continued indefinitely. That said, if you also have a DC plan and need to aggregate the DBP with the DCP to satisfy coverage and nondiscrimination testing, then those plans MUST have the same plan years.

2. If I remember correctly, and someone will correct me if I'm wrong, but I thought you had three options (1) deduct the PY contribution in the tax year in which the PY ends (so $275k for PYE 7/31/2020 would be deducted on 2020 return), (2) deduct the PY contribution in the tax year in which the PY begins (so $275k for PYB 8/1/2019 would be deducted on 2019 return, presumably the short 2019 tax year), or (3) a proration. I also thought that you had to apply whichever methodology consistently from year to year. I don't know how the short fiscal year affects this. 

Unless you had a aggregated plan testing need, I don't think you can do a DFVCP or EPCRS filing for what amounts to forgetting a discretionary amendment to make administration easier.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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5 hours ago, CuseFan said:

1. Yes as there is no requirement that the plan year and the fiscal year be the same. This could be continued indefinitely. That said, if you also have a DC plan and need to aggregate the DBP with the DCP to satisfy coverage and nondiscrimination testing, then those plans MUST have the same plan years.

2. If I remember correctly, and someone will correct me if I'm wrong, but I thought you had three options (1) deduct the PY contribution in the tax year in which the PY ends (so $275k for PYE 7/31/2020 would be deducted on 2020 return), (2) deduct the PY contribution in the tax year in which the PY begins (so $275k for PYB 8/1/2019 would be deducted on 2019 return, presumably the short 2019 tax year), or (3) a proration. I also thought that you had to apply whichever methodology consistently from year to year. I don't know how the short fiscal year affects this. 

Unless you had a aggregated plan testing need, I don't think you can do a DFVCP or EPCRS filing for what amounts to forgetting a discretionary amendment to make administration easier.

CuseFan, your brilliance is much appreciated.

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