Deduction under 404(g)(2)

[WDIK]

A defined benefit pension plan covers a controlled group consisting of a sole-proprietor and a C corporation. Is it correct, based on the wording in 404(g)(2), that the corporation can make and deduct the entire required contribution, including any portion attributable to the sole-proprietor's Schedule C income?

If so, is it also possible to split the contribution and deduction between the sole-proprietor and the corporation in any arbitrary fashion?

[Blinky the 3-eyed Fish]

Yes to both is my understanding.

[Belgarath]

I'm not so sure - depends upon what you mean by the "required contribution." Are you talking about a termination liability? If so, then I'd agree, and please ignore the rest of my blathering.

If you are talking about a "regular" contribution, it gets murkier. 404(g)(2) is discussing payments under (g)(1), which refers to termination liability amounts under ERISA 4041(b), 4062, 4063, and 4064.

You still may be able to do as you suggest, but I wouldn't rely on (g)(2) to support that stance. I've seen arguments for both sides on this - some that the other participating employer(s) can deduct the contribution as they wish, and some that say you can't. And I'm not convinced either way, although I have a tendency to think that the cost should be allocated proportionately to the businesses that incur the expenses, and not arbitrarily to another business, even if owned by the same individual. I haven't found any consensus among CPA's on this either, (and I queried 4 in the last week on this very question, since it came up on a potential takeover situation.) Three of them said you couldn't arbitrarily allocate to one entity or the other of the sole owner, and one said you could. But even the three who said you couldn't also siad they didn't see it as a "high risk" - whatever that means. FWIW.

[Blinky the 3-eyed Fish]

To clarify, I did not look up that cite, nor did I base my statement on it. I should too have clarified that this is not a clear cut issue.

[WDIK]

I appreciate your feedback.