DOL Investigation - Tax Deduction for "Lost Earnings"?

[Guest notapensiongeek]

We have a client that went through a DOL investigation last year (a participant called the DOL and "turned them in" for not depositing deferrals timely). The result of the investigation was for the client to deposit lost earnings on the late deferrals and pay excise taxes on the amounts involved.

Are these "lost earnings" deposits deductible on the company's tax return? If so, any thoughts as to where?

What about the excise taxes the company paid? Are they deductible?

Any thoughts on this would be greatly appreciated.

Thanks!

[BeckyMiller]

The excise taxes are not deductible as they are a penalty. But, the payment to the plan for lost earnings has been repeatedly ruled by the IRS to be a deductible expense - basically as a normal trade or business expense. There are many, many PLRs that conclude this. Just search for correction and 415 and you should pull them up. I realize we can't rely on a PLR that is not issued to our client, but this is such an overwhelming trend, that you should be able to rely on the same logic as the Service.

[PAL]

Is there anything you can point me to regarding the (lack of) deduction for these amounts? Thanks.

[Guest Sieve]

Look at Code Section 275(a)(6). The excise taxes you paid were for prohibited transactions (merging of plan assets with employer asssets), and those taxes are imposed by Chapter 43.

[PAL]

Will do - Thanks!