Client missed corp tax filing deadline -- Oops!

[richard]

Employer is a corporation, with a calendar year tax year. Employer sponsors a defined benefit pension plan, also on a calendar year.

Employer's tax filing deadline for 1997 is 3/15/98. Employer extends the deadline to 9/15/98. Employer makes required contribution to pension plan on 8/15/98. However, employer DOES NOT file corporate tax return until after 9/15/98 (oops!).

Is the employer's pension contribution deductible for 1997?

Related question: safe facts except that the employer has a profit sharing plan instead of a pension plan. Is the result different?

[Ervin Barham]

Unless I'm missing something here, this is a tax matter, not a pension matter. An accountant type person should be handling the return issue.

As long as the corporation obtained a properly filed extension, there should not be a problem with any sort of deduction as long as the contribution was made within the time limits. If I'm off base, I'm sure someone will set me straight.

Code Section 404 and the related regs deal with this issue. I would suggest that you search those regs elsewhere in this site for help.

However, since I am not an accountant, I strongly suggest you get in touch with one!

[Guest David Dye]

I agree with Ervin's reply. While not an accountant, I do have some background in this area.

Given the fact that the employer's tax year and the plan year are the same, the plan contribution must be made by the due date (including extension) of the employer's tax return. The fact that the employer was late in filing his tax return will likely result in IRS penalties for late filing -- it does not cause the loss of valid business deductions.

Look at it another way: say you file your individual tax return and you itemize deductions on Schedule A. You miss the April 15th filing deadline and don't have an extension. You file your 1040 return (w/ Sch. A) on April 30th. The IRS will assess a penalty for filing the return 15 days late. They won't take away your deduction on Sch. A for mortgage interest on your house just because you filed late.

[This message has been edited by David Dye (edited 04-07-99).]

[Guest blaster]

How about a slightly different fact pattern? Employer files return on 3/15 and takes his DB contribution as a deduction(no extension). Problem: does not make contribution to plan until sometime before 9/15? Now it appears you have a good contribution for minimum funding purposes, but, do you have a valid tax deduction? No. Now the tougher questions: 1) Do you report non-deductible contribution on Form 5330? 2) How do you fix it to make it deductible, can you?

[Guest ezollars]

As a CPA, I'll attack the tax type matter here. Revenue Ruling 66-144 makes it clear that even an "unused" extension works under IRC Section 404(a). By that I mean you file for extension before a return is filed, then later file the return *before* funding the plan (say even before 3/15). You still have a valid deduction for the contribution so long as the contribution is made prior to 9/15.

Based on that theory, I would start out trying to argue that the same is true even if the return itself isn't filed timely. The counter-argument would be that the extension itself becomes invalid once the return is filed late, but I think the logic of the ruling seems to work against that.

A more troubling problem might be if the plan was depending on the sponsor's extension to grant an extension of time to file the 5500, rather than having asked for specific extension for the 5500 itself. I haven't looked into that issue.

[Guest blaster]

I'm not sure that answers the question. What happens if you file the 1120, took the deduction for the contribution, but did not actually make the contribution until after the 3/15 due date but prior to 9/15? Does this invalidate the deduction, if so, how do you fix it? Also, do you need to file Form 5330?

[Guest ezollars]

The Revenue Ruling deals with the issue of filing a return prior to funding. In essence, so long as the extension is filed *before* the return is filed, the extension runs the period up to the extended due date.

In your facts, if the 1120 was filed before the extension was filed, then there is no extension. However, if you mailed off the extension on 3/1, filed the return on 3/15 and made the contribution on 9/1, the deduction is allowed on the 1120. Check out the Revenue Ruling itself for more details on this one--it's a strange ruling, but basically the above is what I get from it.