Failure to make profit sharing contribution.

[ErisaGeek]

Client A has a calendar year profit sharing plan. Client A has not made the profit sharing for 2002. However the client has claimed the deduction for 2002. What are the consequences of not depositing the profit sharing amount into the plan? How can it be corrected? Do you have to pay an excise tax? What is the time frame by which the profit sharing needs to be deposited?

Any help would be appreciated.

Thanks.

[RCK]

Can you provide more details? Was the profit sharing contribution declared through board action or whatever your plan requires? Was it communicated to participants?

In general, the contribution must be made by the sponsor's tax return due date including extensions.

So I'm wondering if you could claim that the profit sharing contribution was never really made/declared/accrued, and then file an amended tax return, removing that deduction.

RCK

[Kirk Maldonado]

That client is in for serious trouble with the IRS. If it took a deduction for a payment that it knows it didn't make, that sounds like tax fraud to me.

[ErisaGeek]

The profit sharing contribution was declared by a board resolution. I am not sure whether the participants were informed about it.

[mbozek]

At the minimum the client must amend its 2002 income tax return to eliminate the deduction for the 2002 pension contributoins and pay any penalities. The client needs to retain counsel to determine if there is any liability to the participants which would require that the contributions be made along with attributable earnings in 2004 or whether the 2002 resolution can be rescinded.

[J2D2]

Following on the concerns raised by mbozek - Was the profit sharing contribution included on any participant statements? If it was, have any participants received distributions that included the phantom contribution?