SEP calculation and deduction

[Guest Larry Warner Jr.]

I have a client that was a C-corporation from July 1, 2003 through June 30, 2005 with a June 30 tax year end. They converted to an S-corporation effective July 1, 2005 so they have a short tax year ending December 31, 2005. They would like to establish a SEP plan to cover all of 2005 wages. Can the contribution be calculated on calendar year 2005 wages which encompasses two tax years? If so, can they deduct the entire contribution on the short-tax year 2005 S-corporation return?

[Gary Lesser]

If the C corporations establishes a CY SEP, it could make a contribution based on compensation for the 2005 CY. The C corporation (sucessor entity) will claim the entire deduction since it will be making the contribution.