Late deposit of employer matching contribution

[bzorc]

Client established a SIMPLE IRA plan during 2001. The matching contribution was calculated properly, and deducted on the 2001 corporate (S-corp) return. However, the matching contribution was not deposited with the bank trustee until September 28, 2002. The bank will not classify the matching contribution as being attributable to 2001, due to the lateness of the deposit.

What are the options available? Should the 2001 corporate return be amended (which would also cause a trickle-down effect to the owners Form 1040, as it is an S-corp), and can the corporation take 2 deductions (the late 2001 contribution and the regular contribution) for 2002?

Thanks for any assistance.

[BPickerCPA]

It's been many years since I looked into this (meaning the law may have changed or the memory may be wrong), but my recollection is that you surely lose the deduction for 2001 since the deposit was late, and you cannot claim the deduction for 2002 since it relates to 2001 so it does not qualify as a 2002 expense.

[Gary Lesser]

Agreed (assuming the tax return due date had passed).

Amended returns all the way around. The employer is also subject to the 10 percent tax on nondeductiible contributions under Code Section 4972 for 2001. The employees may also be subject to the 6 tax on excess contributions under Code Section 4973 for 2001 (unless they were corrected timely) -- however, a good argument can be made that the 6 percent tax doesn't apply to a SIMPLE-IRA (since it isn't enumerated in Code Section 4973 and the Form 5330 doesn't provide for it). The excess amounts if reflected on the 2001 Form W-2 will avoid the 10 percent penalty tax next year (2002). There also may be state-law considerations.