When is it deductible - plan year vs fiscal year

[ombskid]

Corp's fiscal year is 4/30

DB plan is on calender year.

Can employer make 2007 plan year contribution in December 2007, then the plan year 2008 contribution in April 2008, and decuct both in 4/30/2008 fiscal year?

Any different answer if they make 2007 plan year contribution in Jan 2008?

[John Feldt ERPA CPC QPA]

What deduction method was established when the plan was first established? Did they deduct in the fiscal year in which the plan year started, ended, or pro-rata? I think that establishes the precedent for future years, but I could be wrong on that.

[Mike Preston]

You are not wrong.

[tymesup]

Note that when PPA applies, you will have to map the plan year ending 12/31/xx to the fiscal year ending 4/30/xx+1.

[Penman2006]

I don't know about PPA but I thought that 404 says that for this type of situation you could take the deduction one of three ways:

1. For the plan year beginning in the fiscal year.

2. For the plan year ending in the fiscal year.

3. A weighted average.

Then, once you establish a method you're supposed to stick with it.

In the example, I guess you would be saying that the you are using the plan year beginning in the fiscal year but for the 4/30/07 fiscal year the tax return was filed before the 2007 plan year contribution was made and therefore it is considered an includable contribution on the 4/30/08 tax return. You would have a problem with that though if the 4/30/07 tax return was extended (regardless of when it was actually filed).

[tymesup]

The gotcha is if you were using the plan year commencing within the taxable year, PPA makes you switch to the plan year ending within the taxable year and there's a year with no deduction.

PPA - Effective for years beginning after 2007

404(o) DEDUCTION LIMIT FOR SINGLE-EMPLOYER PLANS. -- For purposes of subsection (a)(1)(A) --

"(1) IN GENERAL. -- In the case of a defined benefit plan to which subsection (a)(1)(A) applies (other than a multiemployer plan), the amount determined under this subsection for any taxable year shall be equal to the greater of --

"(A) the sum of the amounts determined under paragraph (2) with respect to each plan year ending with or within the taxable year

[Penman2006]

I propose that we just start referring to PPA as "GOTCHA" since that seems to be it's primary utility.

[SoCalActuary]

You may be over-reacting here.

Before PPA, the same words were applied for deductions. The IRS by its regulatory authority allowed the alternative choices for deduction policy.

I do not believe it was the intent of Congress to drop a year of deductions, and I do not believe the IRS has that intent either. I would expect the IRS to continue their authority to allow the same treatment as before.

[tymesup]

You may be over-reacting here.

Before PPA, the same words were applied for deductions. The IRS by its regulatory authority allowed the alternative choices for deduction policy.

I do not believe it was the intent of Congress to drop a year of deductions, and I do not believe the IRS has that intent either. I would expect the IRS to continue their authority to allow the same treatment as before.

Agreed the statutory language hasn't changed. It's not clear where IRS got the authority when they wrote the reg - the statute looks pretty cut and dried. Perhaps this goes back before ERISA.

This hasn't got a lot of attention and the reg hasn't been rescinded, so you might very well be right.