Match contributions for half year

[Spencer]

I have a new client that has been audited for a plan year in which we did not provide service. But apparently, the client experienced some financial difficulties and suspended their discretionary match contributions beginning Jan. 01, 2003. Mid year, their finances improved and they decided to resume the match contributions as of July 1, 2003. Since the match was discretionary, they thought this was okay. However, the prototype document states that the match contributions are based on the "Plan Year" deferrals. So the IRS is saying the plan is disqualified.

Any solutions to this or creative suggestions we might use to disagree with the IRS's conclusion? any other suggestions?