Employer Deductible Contribution

[Guest KevinP]

What happens if a corporation sends their TPA a matching contribution before march 15th, and the TPA forgets to deposit the money into the account? The corporation filed their tax return on the March 15th deadline. Would there be additonal penalties other than the corporation losing the deductibility of the money in the 2001 calendar year? The corporation could deduct the amount in 2002, couldn't they?

I would appreciate any feedback you may have on this topic.

[AndyH]

It seems to me that the answer depends upon what the plan document says. Is the match discretionary or required? Is this part of a safe harbor arrangement where employees were told there would be a match, and therefore there is a requirement to deposit a match?

What I find interesting is the TPA question. I thought TPA meant third party, i.e. not the sponsor and not the investor. If so, why does the TPA have the check to deposit in the first place?

[Guest KevinP]

Sorry, I shouldn't have said TPA, what I meant was a bank. The bank, who is also the trustee, failed to deposit the funds. The match is discretionary, but the employees were told the match was going into the plan.

I am looking to the deductibility of an employer contribution made after the corporations tax filing.

[mbozek]

The critical question is what do you mean by "failed to deposit"? Was the check placed in the bank's possession to be deposited into the plan's account on March 15 and the bank failed to negotiate the check? If the bank had a duty to deposit the check (which it should since it is the trustee) then the employer had done everything required in order to take the deduction and made a timely contribution. The Bank's obligation to negotiate the check is separate from the employer's obligation to make the contribution by March 15th. For example an employee can make a deductible IRA contribution as long as the contribution is mailed by April 15th to the IRA custodian.The date the custodian receives the funds is irrevalent. This is really an accounting/audit issue. The employer needs to talk to their accountant to see how the contribution will be viewed for deduction purposes.

[AndyH]

I agree, and would guess the employer's deduction is fine. The money is in the hands of the Trustee, so it is no longer a company asset. If a check in the mail is ok, so would a check in the hands of an independent Trustee.

[Guest KevinP]

Thank you both for your input, what you say makes complete sense.