Terminating DB Plan & funding issues

[Guest liljunebug]

I have a client who has already gotten an opinion from his CPA, but I wanted another one. Background: Self-employeed individual, who set up DB plan for he & 1 employee (wife) 3 years ago. HIs circumstances have changed & the money to fund this won't be available. Now terminating plan & setting up a SEP IRA.

First issue: He didn't realized until this week that the cash he was expecting wasn't availabe to fund his DB plan. He sold securities yesterday, but they won't settle until Monday to fund what should've been done before 3/15. Corporate return has already been filed.

Second issue: Let me preface by the fact that I haven't worked with DB plans in 10 years & this got dumped in my lap. Can this plan now be terminated w/o IRS consequences since it hasn't been in existence for very long? They don't have the ability to fund any longer & actually probably should've never set this up.

[Andy the Actuary]

Put tax return on extension before 3/15. Although filed, should have until extended due date to make contribution. Check with CPA about this.

[Mike Preston]

Good thing to check with CPA. I think there is a court case out there somewhere which states that if you file your return before the due date, then an extension request filed later has no impact. Not good news I'm afraid.

So, the question is: did they take a deduction on that tax return for a contribution that they didn't make?