Deduction Rules

[Guest PGladieux]

Employer is a professional corporation. The tax year of the corporation is the calendar year. The corporation maintains a money purchase pension plan. The plan year ends on June 30. Each year the corporation deducts on its tax return the contribution for the plan year which ends within the corporation's tax year.

The corporation adopted a 401(k) plan, effective January 1, 1999. The plan year is the calendar year.

The corporation is contemplating changing the plan year of the money purchase pension plan to a calendar year, effective July 1, 1999.

Can the corporation deduct on its 1999 tax return the money purchase pension plan contribution for the year ended June 30, 1999, the 401(k) contribution for the year ended December 31, 1999, and the money purchase pension plan contribution for the short year ended December 31, 1999, so long as the amount deducted does not exceed 25% of taxable calendar year eligible compensation?

The shareholders will receive a $30,000 allocation under the pension plan for the year ended June 30, 1999. They will contribute $10,000 to the 401(k) plan for the year ended December 31, 1999. Furthermore, they will receive a $10,000 allocation under the pension plan for the short plan year ended December 31, 1999. Does this create any 415 problems?

Are there any other issues which should be addressed?