Post year-end contributions...when good employer contributions go bad

[Lori Friedman]

It's difficult to find succinct guidance about the various effects of late plan contributions. For example, an employer's income tax return is due on 03/15/05 (no extension) and includes an accrued PSP contribution. Oops...the employer goofs and doesn't make its contribution until May 2005.

1. When it deducted the contribution on its return, the taxpayer made an irrevocable election to pay the amount. The employer can't amend its tax return to rescind the contribution. Even though the contribution's late, the taxpayer still must pay it.

2. Sec. 404. The taxpayer isn't entitled to a 2004 deduction. Doesn't the employer amend its 2004 return to remove the deduction (although not the contribution)? And, doesn't the contribution now have to squeeze into 2005's Sec. 404 limit, based on 2005 compensation?

3. Sec. 415. This deadline (04/15/05) also passed. Aren't the contributions included in the 2005 Sec. 415 limit (not 2004, as had been intended)?

4. Is the employer subject to any excise tax or penalty for the late payment?

[mbozek]

Under Rev Rul 76-28 the 2004 contribution is deducted in the year it is contributed (05) but it is subject to the 25% of comp and 415 limits for 05 contributions. The irrevocablilty of the payment for the year it is designated or claimed on the tax return only applies if the payment is made no later than the due date for claiming the deuction on the prior year'as tax return. The 04 return must be amended to reflect the lack of a contribution. There is no penalty tax for the failure to make a timely contribution to a PS plan. I dont know if an employer incurs a legal obligation to make a discretionary contribution because a deduction is claimed on the tax return. The obligation may arise if the er told employees about the contribution.

[Guest Gordy]

Along similar lines:

Despite assurances, one self employed partner (doctor) did not deposit the full $40,000 for 2003. We can revise his '03 contribution to be the Safe Harbor and Profit sharing amounts (no deferral nor match) which total $20,000. $11,000 of this was timely deposited (2/04). His next $50,000 deposit was not until 2/05.

Where I'm getting lost at is what is the time frame from having made the balance of the contribution in order for it to be treated as an '03 allocation? Funding it if you will, not the deduction issue.

His lack of making the balance of $9,000 now creates a "failure to follow the terms of the document issue" and a voluntary compliance filingand/or 5330? What date is this triggered by? Same date as above?