Sponsor did not fully fund the profit sharing contribution deduction shown on 2001 tax return; how to handle 2001 allocation report?

[eilano]

Employer took a deduction for a $25,000 profit sharing contribution for the 2001 plan year. $25,000 was not deposited by the filing deadline of 10/15/02 (sole proprietor). From what I understand, the 2001 tax return needs to be amended. If the client deposits the $25,000 by 10/15/03 and takes a deduction on the 2002 tax return, can we leave the 2001 allocation report as is or should we revise the 2001 allocation report and take away the $25,000 allocation for 2001 and allocate the contribution as a 2002 allocation? What else would need to be done to correct the late deposit?

[g8r]

Under the 415 regulations, if the amount is contributed more than 30 days after the due date of the tax return, then it's treated as an annual addition for the year in which it was contributed.

Whether you can still allocate it based on 2001 data is unclear (at least to me) but I wouldn't do it. You'd be making a 2002 contribution that's an annual addition for 2002 but you are allocating based on compensation figures for 2001. If any employee terminated in 2001, then you'd violate 415 in 2002 b/c the person would have no compensation. Also, it's not clear how the allocation should be tested under 401(a)(4). Arguably you'd have to take the allocation and compare it to 2002 compensation and then determine whether the allocations are nondiscriminatory. The bottom line is it could get pretty ugly if you try to allocate based on 2001 data. And, I understand it could get ugly if 2001 statements went out to participants showing an allocation.

[eilano]

The problem we have is that a terminated participant received a contribution and has since received a distribution. Could we go through the correction program and leave the allocations as is for 2001? What other options are available?