Contributio Made After Corporate 1120S Filed

[Guest San Diego Benefits Guy]

Hello All:

An S-Corporation adopted a defined benefit pension plan ("DBPP") on December 28, 2006, that was effective January 1, 2006. DBPP was drafted by client's new law firm/CPA firm. As he was set to be terminated, the client's existing CPA, who did not know of the DBPP's existence, prepared the 2006 Form 1120S and sent it to the client on March 8, 2007. Client filed said return without realizing that no DBPP contribution was included on the 2006 Form 1120. As the Form 1120S was filed prior to March 15, 2007, no extension to file the corporate return was filed. Any arguments that client can make and deduct a DBPP contribution for 2006?

I had to try.

Thanks in advance for your comments.

Ed

[John Feldt ERPA CPC QPA]

Your client wants to take the deduction for the tax year in which the plan year begins, right? Well, if they actually made the contribution by March 15th, then I think an amended return could be filed.

Otherwise, I think you are left with the option under 404 where the deduction is made on the tax return in which the plan year ends. Since the first plan year ends in the 2007 tax year, then the 2007 tax return can take the deduction. That won't be good for planning purposes. As you know it's certainly better for the plan's future to be able to freeze a plan (if it's a business necessity) after a bad year before the participants accrue another benefit toward that tax year's minimum required contribution.

The other 404 option, to prorate, is probably not available now either.

I'm no CPA, so let's see what the other folks here say too.

[Guest mjb]

If tax return is filed by 3/15 without requesting extension 1120 cannot be amended to claim tax deduction for 06 contribution which is made by due date for extension 9/15/07. See Rev rul 76-28. Contribution in 07 will be deductible on 07 tax return. This situation is different from taxpayer who files both extension and tax return on 3/15 which gives taxpayer 6 months to make contribution.