New DB plan in old company

[Blinky the 3-eyed Fish]

Existing company with a 3/31 fiscal year-end sponsors a 401(k) Plan. All 100 or so employees, except the 2 owners transfer to an new corporation that takes over sponsorship of the plan on 12/31/02.

The old company, I am told, is not a controlled group or affiliated service group with the new company.

Does anyone see problems with setting up a new DB plan with a calendar year-end for 2003 where the old company would take the deduction for the 3/31/03 fiscal year-end?

[Mike Preston]

Not enough information, I think. If the DB wasn't established by 3/31/2003 then establishing it now won't give rise to a deduction on a 3/31/2003 tax return.

So, was it established, or not?

Assume that it was.

Were there other monies deductible on the 3/31/2003 tax return from the 401k plan other than deferrals? That is, was there an employer contribution to the 401k plan that ends up being deducted on the 3/31/2003 tax return? If so, I think you are going to have to deal with 40417, but that may not be a problem in an organization of this size.

Care to elaborate?

[mbozek]

In order to take a deduction for a qualified plan, the employer must adopt the plan by the end of the employer's tax year. Rev. Rul 81-114. The employer can deduct contributions to a qualfied plan adopted by 12/31/03 for the tax year year ending 3/31/04.

[Blinky the 3-eyed Fish]

The plan did exist 3/31. 404(a)(7) is not an issue because of the size. Thanks.