Correction of underfuding?

[Guest RONNIE WASEL]

We administer a money purchase pension plan with a calendar year end. The employer made the required funding contribution on 9/18/00 (the due date in 2000) for the plan year ending 12/31/99. Consequently, the check that the employer provided the fund company bounced in late September. The employer then made the deposit again on October 4, 2000 after the due date. Questions - Is this contribution considered late and therefore non-deductible? Will there be a need to file a 5330 for the plan year 2000?

Thank you,

Ronnie Wasel

[david rigby]

Are you sure that the due date was 9/18/00? My calendar says the 8-1/2 months after 12/31/99 was 9/15/2000.

[Guest RONNIE WASEL]

Your corret. It was a mistake. I should have typed in 9/15/00. Any help on the solutions?

[david rigby]

I don't know if there is specific IRS guidance on this. If none is available, I would fall back on common sense.

For example, if the check bounced due to some simple oversight, then you might be able to claim that it was made. If the sponsor wrote the check knowing that there was insuffucient funds, then that looks to me like there was no payment.

How do you prove this? Good question. Seek out anything that could document actions and intentions.

[Guest Tom Geer]

From BNA Portfolio on Deductions, Contributions and Funding:

"In contrast to the employer's own promissory note, the employer may contribute and take a deduction for the fair market value of a promissory note made by a third party. 95 A check also constitutes payment. 96 Nevertheless, the delivery of a check will be inadequate if there are insufficient funds in the account to cover it or if it is delivered with restrictions on its payment. Consequently, in Springfield Productions, Inc. v. Comr., 97 the Tax Court denied a deduction for a check which was returned for insufficient funds and, in Walter Wilger Tire Co. v. Comr., 98 the court concluded that the retention of a check by a corporate officer/trustee until after the due date of the corporation's return because of cash flow problems did not constitute payment.

95 PLR 7852116.

96 Don E. Williams Co. v. Comr., 429 U.S. 569, 1 EBC 1201 (1977).

97 38 T.C.M. 74 (1979).

98 38 T.C.M. 287 (1979)."

Strictly speaking, these are under the 404 deduction timing rules, but it's not going to be worth the effort to argue that the minimum funding standards rules should have a different, less stringent requirement.