ADP/ACP refunds taxable in current year regardless of timing of refund

[Pension Nerd]

Just want to see what other people believe the following means:

Effective Date "The amendments made by this section shall apply to plan years beginning after December 31, 2007, except that the amendments made by subsection (f) shall take effect on the date of the enactment of this Act.

This is on page 1039 of Public Law 109-280, the Pension Protection Act of 2006.

The change in the taxation for ADP/ACP refunds is amended in the section referred to above....

So, if a plan fails the ADP test in for the 2007 plan year and the refunds are processed within 2 1/2 months, the refund will be taxable in 2007 or 2008.

I think 2007 since the plan year that failed did not begin after December 31, 2007.

Any thoughts?

[Tom Poje]

if I remember correctly, PPA changed the year things were taxed.

for plan years beginning 1/1/08 distributions will be taxed in the actual year of distribution rather than the goofy 2 1/2 month rule where they are taxed in the prior year, so your statement sounds right on the money.

[stephen]

Thus, for ADP refunds beginning in 2009 (for the 2008 plan year) they will be taxable in the year refunded.