Top Heavy Contributions(- not made)

[Guest LBH]

I have a client that did not make a Top Heavy contribution for 12/31/01. The client did not go on extension so it should have been made on or before 3/15. The amount of the Top Heavy Minimum is only (approx.) $6,500.

If the client deposits the money on 6/15/02 then they would also need to contribute earnings from 3/15-6/15 ??? and file for correction under VCP/VCS????? Is the fee is a flat $350??

Can they deduct the contribution and earnings on the 2002 tax return?

If anyone has any guidance in this it would be greatly appreciated as I have never filed for correction under VCP/VCS.

:confused:

Thank you

[mbozek]

What kind of plan? There is no specific date for making th contributions to a ps plan under IRC. Don't need to file VCS with IRS for one time failure. Just make contributions.

[Blinky the 3-eyed Fish]

Making or not making a contribution by the due date of the tax return is always a deduction issue for the employer and nothing else. So, there is no need to add earnings.

The $6,500 can be deducted on next year's return. Even if the plan has otherwise reached its deduction limit, it can be classified as an "includible contribution" and deducted anyway. An includible contribution is one that was not deducted merely because it was not made prior to the tax return being filed.

[AndrewZ]

Another issue - To be treated as "annual additions" for 415 testing for a plan year, contributions must be made no later than 30 days after the filing deadline for company's fiscal year in which the plan year ends (Reg 1.415-6(B)(7)(i)). Otherwise, even if you allocate the contributions in a prior year, you must test them for 415 in the following year.

Also, the 2001 contribution is subject to the 25%-of-compensation deduction limit for 2002, so a full 25% contribution would not be able to be allocated and deducted in 2002.

Blinky, I've never heard of the "includible contribution" rule, and can't find it under IRC 404(a)(3) - I'd really appreciate if you can give me more info on this. Thanks.

[Blinky the 3-eyed Fish]

Well, now that I looked up a cite, I am not so sure of my answer. I had thought that "includible contributions" would apply to non-412 plans, but from my search, that doesn't appear to be the case. Too many DB plans I guess.

Anyway, see Announcement 98-1 1.2.1.1(2).