EGTRRA Deduction For Terminating Plan

[Guest merlin]

I have a calendar year plan with a proposed termination date of 3/31/02.The estimated plan termination liability @ 3/31/02 is $302000.The actual number will be determined and contributed after the PBGC's 60-day mandatory look expires,probably late in July or early August.The plan sponsor's FYE is 2/28/02. His normal plan contribution for PYE 12/31/02 would be deducted at 2/28/02.Assuming the plan term liability is at least equal to his 412 minimum,can it be deducted under 404(a)(1)(D)(iv) as amended by EGTRRA 652(a) @ 2/28/02 ? The plan's attorney and CPA are nervous about the fact that the term date is after the FYE,but I think the deduction is still OK because it's attributable to the 02 Plan Year.

Any comments or thought would be appreciated.

[MGB]

First, I assume you are talking about a plan with less than 100 participants, or else the reference to EGTRRA would be irrelevant (this provision already applied to larger plans).

The effective date is for plan years in 2002, not tax fiscal years.

The key question is how have they taken deductions in the past? If contributions for plan year X were deducted in the fiscal year ending 2/28/X, then the plan termination contribution is deductible in the fiscal year ending 2/28/2002. However, if the prior pattern was to take the deduction in the fiscal year ending 2/28/X+1, then the termination contribution must be taken in the fiscal year ending 2/28/2003. To accelerate it into the prior year at this time would be a change in a tax accounting method that is only allowable with prior IRS approval.