Plan year different from Tax Year of Corporation - Help !

[Guest rffahey]

I just ran into a C corp professional firm who has had a money purchase plan and a profit sharing plan with a June 30 year end. Their tax year is December 31 . The plan year ended for example 6/30/02 bases contributions on the 12 months of compensation ended 12/31/01.

They took this deduction on the 12/31/01 tax return. Is this correct ?

When is the plan contribution due for the tax return as well as minimum funding standards?

This is very confusing and I get different answers from TPA's.

Thank you.

[Belgarath]

I'm not surprised that you get different answers, because it can be an extremely confusing set of circumstances - particularly where there are plan/fiscal year changes!

IMHO -

1. It certainly can be correct. (And in my experience, this is the most common approach.) The deduction can be taken for either 2001 or 2002 fiscal year, depending upon what they want and what their CPA advises them.

2. If they want to deduct it for 2001, the contribution must be made by the tax filing deadline(including extensions) for 2001.

3. Minimum funding standards are based upon the plan year, not fiscal year. Of course they don't apply to the PS plan, but for the MP, it is 8-1/2 months after the end of the plan year.

[Guest quinn the car fixer]

i have a mpp with a 3/31 pye and the er is on a calendar yr basis. we pro rate the contrib over 2 plan yrs to get the deduction for the corresponding calendar yr

for 12/31/04 deduction -- we would use 25% of the 3/31/04(1/1/04-3/31/04) plan yr contrib and 75% of the 3/31/05 pye contrib(4/1/04-12/31/04) .

[mbozek]

I thought that only comp earned in a plan year that ends in the employer tax year can be used to figure the deduction. Comp earned in a plan year that ends after the close of the employer's tax year is not deductible for that tax year. Rev. Rul 90-105. The employer can claim a deduction for contributions made in the tax year or for the prior tax year which are made by the date for filing the return with extensions. Rev. Rul 76-28. However under IRC 412 contributions to a mp plan must be made no later than 8 1/2 months after the close of the plan year in order to avoid the late payment penalty. Contributions made to a qualfied plan after the date for filing a tax return are deductible for the year in which the contributions are made.