404 and 415

[Guest tmills]

If an ESOP has participants with 415 excesses, 404(j) limits the amount of the contribution subject to the 404 limit (and therefore deductible) by reducing the contribution by the 415 excesses. However, in the case of a C Corp. ESOP, 404(a)(9) says there is a 25% of comp. limit on the principal payments and no limit on interest. Therefore, assuming the interest paid at least equals the 415 excesses, is there any reason why the 415 excesses can't be deemed to be interest payments and therefore deductible in spite of 404(j)?

Seems too good to be true. Any help would be appreciated.

[BeckyMiller]

Leveraged ESOPs have two special rules for 415 limitations also. For a C corporation, if no more than 1/3 of the allocations go to the HCEs, interests and forfeitures of shares associated with this loan are disregarded. See IRC 415©(6). See Reg. 1.415©-1(f) for guidance on this and on the special rule for measuring the annual addition by the lesser of the employer contribution or the FMV of the shares allocated.

[Guest tmills]

Leveraged ESOPs have two special rules for 415 limitations also. For a C corporation, if no more than 1/3 of the allocations go to the HCEs, interests and forfeitures of shares associated with this loan are disregarded. See IRC 415©(6). See Reg. 1.415©-1(f) for guidance on this and on the special rule for measuring the annual addition by the lesser of the employer contribution or the FMV of the shares allocated.

I should have mentioned in my question that the items you mention above have already been taken into account and there is a 415 excess. The plan does not pass the 1/3 rule so interest and forfeiture shares are included, and we are using the market value b/c it is less than the contributions. With that in mind, how would the 415 excess work with 404(j), given that the interest paid exceeds the excess?