EGTTRA -- Employer Credit for Plan Start Up Costs

[Jean]

Is the credit available to an employer with a plan effective date of 1/1/2002, but the plan establishment fee is paid in 2001?

[Alan Simpson]

This actually was a question posted to an IRS representative from the EP division and the answer in general terms was: While the information that I have seen appears to allow the credit, the real question is whether the tax return will have the line items that will allow you to take the credit.

[MJ Hartman]

I have another question. In reference to the first three years of a new plan; if a plan was started in 2001 could they get 2 years of tax credits (in 2002 and 2003) or does this tax credit only apply to plans newly established in 2002 and beyond?

[actuarysmith]

My understanding is that the tax credit is allowed for costs incurred after December 31, 2001.

This could mean that you could set up a profit sharing plan late in 2001 (effective 1-1-2001) and possibly bill your client for the set up work early in January of 2002 and have the employer take the tax credit for paying your bill in 2002.

They would also be eligible to receive the tax credit for 2003 and 2004 for administration fees.

[MGB]

No, that is not true. The credit is ONLY for plans established after 12/31/01. Exact language of the law:

"Effective date -- The amendments made by this section shall apply to costs paid or incurred in taxable years beginning after December 31, 2001, with respect to qualified employer plans established after such date."

For a complete description of the new law, see the following Legislative Information Bulletins (long) that I was the main author on:

http://www.milliman.com/empl_ben/publicati...eginfobulletins

[Guest Roman]

Another question regarding start-up cost tax credits --

Will an employer be eligible for the tax credit, if he has a SEP to be terminated in 2001 under which only he & his wife became eligible and if he sets up a new 401(k) Profit Sharing Plan in 2002 under which a total of 8 employees would become eligible?