Timing of Deduction

[Dougsbpc]

A 20 participant DB is sponsored by a professional corporation. The company and plan have a December year end.

Suppose the pension contribution is $100,000 for 2003, the corporation goes on extension and the full $100,000 is funded by September 15, 2004. However, the accountant files the tax return prior to the final $10,000 deposit and only deducts $90,000 for 2003.

Question: can the $10,000 plus the 2004 contribution be deducted on the 2004 return? Or, could $10,000 of the 2004 contribution be pushed to 2005? Assume there is no 404(a) limit problem.

I seem to think they cannot because the last $10,000 deposit was contributed timely for the 2003 return and the only way to remedy the problem is for the accountant to file an amended return for 2003.

Anyone disagree?

Thanks much.

[Blinky the 3-eyed Fish]

the incluble contribution rules apply to this exact situation. i have posted on this before so do a search. if the ffl is no a limiting factor you should have no issue deducting the contribution missed.

this keyboard i am typing on stinks.

[mbozek]

Under RR 76-28 once the amount of the deduction is claimed on the tax return it cannot be changed. Under the RR the 10k can be claimed on the tax return for the year contributed to the plan, subject to the condition mentioned by Blinky.

[SoCalActuary]

One additional wrinkle to this is the actuary's adjustment of plan assets for 404 cost calculations. Assets in the trust would be reduced by $10,000 to reflect the undeducted contributions. Thus if assets were $105,000 at year end 2, the assets for minimum funding are 105,000, but the assets for maximum deduction are 95,000.

[david rigby]

And the other wrinkle is the possible use of an AVA.

[Dougsbpc]

What is an AVA?

Socal, if the assets were adjusted by $10,000 this would only effect the maximum contribution but would not effect the minimum, right? They could always choose the minimum, but in any case we do need to properly adjust for the valuation as you mentioned.

[david rigby]

Actuarial Value of Assets. That is, some technique to "smooth" asset fluctuations.

[SoCalActuary]

Part of the purpose of my comment is that the next year deduction limit might be affected by the full funding limitation. For maximum deduction purposes, the FFL needs to be calculated with the proper assets, that is, by removing any contributions not previously deducted.

Doug.. yes, you understood.

A final note, if assets grew dramatically, the yield alone could result in assets that produce a full funding limit, so the contribution would not be deductible in the next year.