Lori Friedman

Hi H, I've been in Tax Season Hell (I work on Form 990s, so my own big deadline is May 15th, not April 15th). I hadn't visited this message board in ages. How nice it is to return here and see that you and AndyH have been keeping the faith.

It's difficult to find succinct guidance about the various effects of late plan contributions. For example, an employer's income tax return is due on 03/15/05 (no extension) and includes an accrued PSP contribution. Oops...the employer goofs and doesn't make its contribution until May 2005. 1. When it deducted the contribution on its return, the taxpayer made an irrevocable election to pay the amount. The employer can't amend its tax return to rescind the contribution. Even though the contribution's late, the taxpayer still must pay it. 2. Sec. 404. The taxpayer isn't entitled to a 2004 deduction. Doesn't the employer amend its 2004 return to remove the deduction (although not the contribution)? And, doesn't the contribution now have to squeeze into 2005's Sec. 404 limit, based on 2005 compensation? 3. Sec. 415. This deadline (04/15/05) also passed. Aren't the contributions included in the 2005 Sec. 415 limit (not 2004, as had been intended)? 4. Is the employer subject to any excise tax or penalty for the late payment?

I believe Katherine's referring to IRS Field Directive: Exclusion of part-time employees from plan participation, 11/22/94. The IRS's position is that Sec. 410(b) prohibits employers from excluding part-timers solely on the basis of their part-time status, even if the plan would otherwise satisfy the mechanical coverage tests.

For a Schedule C filer: First, use Form 8881 (Credit for Small Employer Pension Plan Startup Costs) to compute the credit. The calculation is somewhat involved and considers other tax credits, the regular income tax, and the alternative minimum tax. Second, carry the allowable credit to Form 1040, Line 54. Specify "Form 8881" in the blank space at Line 54c.

40. Because if Mike comes back, there'll be at least one more person for AndyH, PATA, and Lori to annoy when they post messages about the Red Sox.

Operational failure. For obvious and numerous reasons, you don't want that to happen.

43. I always make stupid and careless typos. Mike never did. 42. Someone here will have the knowledge and experience to answer AndyH's questions (see #50).

I believe it'll be broadcast on ESPN, which will be nice for those of us out here in the diaspora. It's Wells v. Johnson, right? You gotta love it...both guys are over the age of 40.

But of course! Kirk, I apologize if my wording led you to believe otherwise. Your clear and concise writings are the very opposite of gobbledygook. So, H, what are your plans for this Sunday evening? getaxa, the IRS provides an "advance ruling" (new organization) or "definitive ruling" (established organization) concerning 501©(3) non-private foundation status. But, the term "definitive ruling" is somewhat misleading. The recognition is a really just a snapshot of the organization's status at one given time. The true determination is ongoing, and a public charity can "tip" to private foundation status if its circumstances change. You also wanted to how a public charity avoids being classified as a private foundation. As I mentioned earlier, certain organizations (schools, hospitals, churches, etc.) are public charities simply because of what they do, not because of how they're funded. These organizatins don't have to jump through any Sec. 509(a) hoops. Other organizations, however, have to demonstrate: 1. Public support - Sec. 509(a)(1) support test, or 2. Public support - Sec. 509(a)(2) support test, or 3. Supporting organization - Sec. 509(a)(3) The two mechanical support test are too complicated to describe here. They look similar at first glance, but they're actually very different in execution. The Sec. 509(a)(1) is the preferred method; an organization uses the Sec. 509(a)(2) test only if it has to do so. I hope this is helpful. I had no idea that so many participants at a benefits message board would be interested in this stuff!

Don't you often sing along with "The Joker" by the Steve Miller Band? You know the one: "Some people call me the space cowboy, yeah..."

Ritchie, I think you were smiling when you wrote that. You go, girl!

The short answer: Yes. The long answer: First, you'll need to review the plan document and find out if the limitation year is the same as the plan year. The plan's limitation year determines the amount of the dollar limit. Second, the COLA-adjusted limit is set for an entire calendar year and applies to limitation years that end during the calendar year [Reg. Sec. 1.415-6(a)(2)]. For a limitation year ending on 31/31/05, the ceiling is $42,000.

Pax, you cynic, you.

Kirk, I'm fully agreeing. The premiums are taxable to the partner. It's as if the partner used his own after-tax dollars to pay life insurance premiums (which, if you think about it, is exactly what happens...just indirectly).

Kirk, thank you for saying that I'm gifted with the tax code, but I'm afraid that's not true at all. I just happen to work with Sec. 509(a) on a daily basis. People actually seem to be interested in this esoteric subject (go figure?), so I'll take a stab at explaining it. Sec. 501©(3) creates both (1) public charities and (2) private foundations. For a number of very compelling reasons, every Sec. 501©(3) organization wants to be a public charity. Certain 501©(3) organizations automatically have public charity status because of what they do -- schools, hospitals, religious institutions, etc. For other organizations, Sec. 509(a) determines the classification. Sec. 509(a) provides 3 methods for public charity status. The first 2 methods involve mechanical tests of broad-based public support. The 3rd approach is to be a "supporting organization" -- not publicly supported itself, but very closely aligned with one that is. Kirk's gobbledygook describes the types of organizations that can qualify as "supported". Of course, other public charities qualify. Also, a Sec. 501©(4) civic group, Sec. 501©(5) labor or horticultural organization, and Sec. 501©(6) business league can be supported if it would otherwise satisfy one of the public support tests. Here's a real-life example from my own practice. A labor union formed a 501©(3) scholarship fund. The hope was that the scholarship fund would receive tax-deductible contributions from a wide variety of sources. That never happened, and the scholarship fund still receives 100% of its contributions from the union. This 501©(3) organization isn't publicly supported at all. But, it's a supporting organization for the 501©(5) labor union, which certainly has broad-based public support (all those individual membership fees).

Kirk, I'm more than a little embarrassed to admit that your quote makes perfect sense to me.

But, I'm grateful to QDROPhile for trying to bail me out.

kaie, I think you might be confusing the qualified transportation fringe rules with the Sec. 125 rules. Even though a transportation benefit walks-talks-looks-acts a great deal like a cafeteria plan, the governing laws are very different (and, in general, a lot less strident). A qualified transportation fringe must be elected before the coverage period, and the election can be revoked or changed before the start of the next coverage period. Most arrangements define the coverage period as a very brief timeframe -- usually a month.

Guilty as charged! As the kids like to say, "Duh".

You don't mention the type of plan. If your plan has a minimum funding requirement (e.g. a DBP or MPPP), please be sure to keep the 8-1/2 month deadline in mind. The plan funding rule is independent of the tax deduction rules. Example. A partnership sponsors a DBP for its employees. Both the partnership and the plan have a calendar year-end. The partnership extends its Form 1065 filing date until 10/17/05. The employer has until 10/17/05 to make a deductible contribution. For the purposes of the minimum funding requirement, however, contributions are due within 8-1/2 months of the end of the plan year, or 09/15/05.

rffahey, I have the same problem with my firm's tax software. I override the total SIMPLE contribution and document my calculations in the workpapers.

But, aren't there some nasty consequences of excluding bonuses, commissions, overtime, etc. from the definition of compensation? Wouldn't this fall outside of the Sec. 401(a)(4) safe harbor and result in some extensive plan testing? Example. Use only base salary as compensation. HCE pays himself a $100,000 salary and a $5,000 bonus. A NHCE's pay is structured as $15,000 base pay plus $25,000 bonus. A 10% profit sharing contribution provides $10,000 to HCE but just $1,000 to NHCE. These contributions don't bear a uniform relationship to Sec. 414(s) compensation.

In your opinion, is sick pay (other than payments to a decedent's estate or beneficiary) ever reported on Form 1099? Employer pays the benefits -- report on Form W-2, filed by the employer Employer's agent pays the benefits -- report on Form W-2, filed by the employer An independent third party makes the payments -- report on Form W-2, and the third party may or may not transfer the filing obligation back to the employer I'm working with a VEBA that provides sick pay benefits, withholds no taxes, and reports the payments on Form 1099. I can't think of any reason why this approach could be correct and acceptable.

French, Would you please clear up our confusion about the number of family members? I think we all assumed that the new baby is Child #2.

I believe you're looking for Reg. Sec. 1.125-4©(2)(ii)