Paying property taxes for real eatate in PS

[Jim Chad]

A one person profit sharing Plan has nothing left in it except real estate from a long time ago. The company was slowly shut down and has had no income for a few years now. The Participant (owner) paid a few thousand dollars in taxes and expenses.

I would rather not go into the reason the plan is still open. He actually has a pretty good reason.

1st question: Is it legal for him to have paid the taxes and fees for the property?

Second question: If it is legal, can he treat it as a loan and have tax basis in the plan equal to what he paid?

[QDROphile]

The payment of the property taxes would probably be treated as a contribution to the plan. That might cause problems. If the company had no income, the owner probably had no compensation.

If you want to treat anything as a loan, you probably have a prohibited transaction. I don't know where you get the idea of tax basis out of a loan.

[Guest mjb]

IRS reg 1.404(a)-3(d) permits an employer to deduct under IRC 162 or 212 any expenses incurred in connection with the plan such a trustee's and actuary fees which are not provided for by contributions under the plan. See Rev Rul 84-146 and Ann 98-1. However certain expenses incurred in non recurring transactions such as such a brokerage commissions for purchase and sale of plan assets are treated as plan contributions. Rev Rul 86-142 and Ann 98-1.

[GBurns]

The employer "was slowly shut down and has had no income" raises the question of whether the employer still exists.

In any case the OP clearly states that it was the Participant making the payment NOT the employer. A Participant being an individual has no 162 etc deduction. Treas rega ciited ermits an employer, it do not see where it says individual, person or Participant. Which brings this back to the issues raised by QDROphile.

[jpod]

IF the payment of the expenses would be properly treated as a contribution if payment had been made by the employer (and I agree with mjb that there is some room for doubt on that issue based on the authorities cited), the payment by the owner would be treated as a constructive contribution to the capital of the employer followed by a plan contribution by the employer.