Deduction of Corrective Contribution

[Guest mcw]

I have a profit sharing plan that has 410 problems (numerous years). If we do a VCP amendment to add participants, make the contriubtion, and the lost earnings, can the employer deduct the contribution and the earnings? I believe the proper correction method is in 1.401(a)(4)-11(g). 11(g)(5) states that the amendment adding participants is not given effect for purposes of section 404. I am not sure what that means. Also, Rev Proc 2003-44 6.02(4)(b) says that the corrective allocation is not an annual addition but that the "normal rules of section 404, regarding deductions, apply." Not sure what that means either. Does it mean that the employer can deduct as long as it is under 25%? If so, is that 25% of comp in the year of the contribution or the correction year? If they have to go over the 404 limits, will the excise tax apply? Sorry for the numerous questions but I have looked and cannot find an answer to this anywhere. I have seen the question posted several times but no responses. Any help would be appreciated.

[mbozek]

See IRS publicaton 560 (deduction of contributions) and Rev. rul 76-28 for the timing rules for deducting contributions. Under IRC 404(a)(6) contributions are deductible in the employer's tax year in which they are contributed to the plan, or for the prior tax year under certain conditions described in Pub 560.

[Guest mcw]

Thanks for the response. I guess you are saying that I can deduct the contribution and earnings and they are deductible in the year made. Does 404 apply to the year the deduction is made? Will the employer be subject to the excise tax if it is required to contribute more than 25% of comp? Surely the IRS would not impose the excise tax on a VCP contribution.