timing of profit sharing deposits and filing of corporate return

[joano]

I seem to recall that an employer contribution for a dc plan had to be deposited prior to the employer's filing of the corporate return if the corporate return was not extended (e.g. 12/31 pye, 1120 filed 2/15, deposit had to have been made by 2/15).

Can anyone refute or corroborate this recollection?

[Lori Friedman]

Yes, and the authority is I.R.C. Sec. 404(a)(6).

Not to be too picky, but a calendar year-end taxpayer's Form 1120 is due on 3/15, not on 2/15.

[joano]

Thank you, Lori.

My question had to do with the date the 1120 was actually filed (e.g. 2/17) versus the date the 1120 was due (3/15).

Does the deposit have to be made by 2/17 or do they have until 3/15?

[Alf]

2/17 on those facts.

[Lori Friedman]

Alf, I respectfully disagree. Under these facts, the taxpayer has until 3/15 to make a tax-deductible contribution for the prior year. A contribution is timely if it's made before the income tax return's due date (including valid extensions), even if it's made after the return's been filed. The grace period is through the due date of the return, not the actual filing date.

What if a corporation files its return on 2/17, decides that it needs more time (beyond 3/15) to come up with the cash for its plan contribution, and then files an extension until 9/15? That won't work! It has to file the extension form BEFORE it files the tax return.

[JanetM]

I am agreeing with Alf. If the return was filed before the due date that is now the due date.

[joano]

Alf or Janet,

I have been unable to find a cite reference anywhere to back this up.

Any ideas?

[Lori Friedman]

joano, This issue was muddied by a 1987 private letter ruling.

I.R.C. Sec. 404(a)(6) states that "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is...made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof) [emphasis added].

Neither the law nor its regulations cuts off the grace period at the time when the tax return is filed, nor do they distinguish between contributions made before and after the filing of the return. Additionally, both the IRS and the courts have consistently used a very literal interpretation of the statute. In Rev. Rul. 66-144, the IRS confirmed that contributions made after year-end are deductible on the prior year's return, even if the contributions were made after the return had been filed. This ruling was later amplified by Rev. Rul. 84-18.

So, what happened to confuse people? PLR 8714008 restates Sec. 404(a)6) as follows: "...a contribution made after the close of the taxable year, but prior to the time the appropriate return is filed, will be deemed to have been made on the last day of the preceding taxable year" [emphasis added]. This reiteration doesn't agree to the law. The ruling's author seems to have made an extrapolation and given his/her own spin to the statute. Fortunately, private letter rulings aren't substantial authority.

I can tell you that many of my clients extend their returns for the sole purpose of having more time to make a plan contribution. They wait until the end of the extension period to pay their contributions, often long after they're filed their returns. I've had this approach stand up under IRS examination.

[mbozek]

RevRule 76-28 provides that a deduction may be claimed for a contributon if made not later than the due date (with extensions) and the employer claims the contribution as a deduction on the tax return. There is no requirement that the contribution must be made by the date the tax return is filed if such date preceeds the last date for filing the return. This rule is similar to the rule for IRAs which permits a deduction to be claimed on a tax return filed before April 15 even though the contribution is not made until April 15.

[Guest ritchie]

yesss.