deduction for profit sharing contribution not actually made

[k man]

employer took a deduction but failed to actually make the contribution. can they make it now or what is the procedure for dealing with this?

[ERISAnut]

He has until the extended tax filing deadline to actually fund the contribution; even though he may have sent in his tax forms already. Please provide more detail, as there may not be a problem.

[k man]

He has until the extended tax filing deadline to actually fund the contribution; even though he may have sent in his tax forms already. Please provide more detail, as there may not be a problem.

its way best the deadline. i believe we are talking about the 2006 tax year.

[ERISAnut]

"""I think""" we are looking at two distinct issues:

1) The deduction for 2006 was only available to the employer to the entent the contributions were actually funded by the appropriate deadline. This did not happen. Therefore, an amended return for that year to accurately reflect what did happen is in order.

2) Was the contribution discretionary. If so, then nothing else is required. However, if the contribution was mandatory, then it must be made to the plan; with the deduction being taken in the year it was actually made.

Hope this helps.

[k man]

"""I think""" we are looking at two distinct issues:

1) The deduction for 2006 was only available to the employer to the entent the contributions were actually funded by the appropriate deadline. This did not happen. Therefore, an amended return for that year to accurately reflect what did happen is in order.

2) Was the contribution discretionary. If so, then nothing else is required. However, if the contribution was mandatory, then it must be made to the plan; with the deduction being taken in the year it was actually made.

Hope this helps.

it helps alot. it was discretionary and i am inclined to agree with your answer but is there a way to actually make the contribution. of course i think they want to make it.

[ERISAnut]

Well,

You can always make a contribution for a previous year while it would count against your deduction limit for the year actually deposited.

Other items to beware of, however, this contribution will count as an annual addition in the year of funding as the deadline for having it considered against the 2006 415 limit has passed (I think it would have been 30 days after the tax filing deadline for that year). Assuming the owner maxed out each year (i.e. 2007 and 2008), it doesn't seem as if this can happen considering the 415 implications.

I get the impression that you are a financial advisor and this is your client. Interesting, how easy you guys are to identify. I could be wrong, though.

[k man]

Well,

You can always make a contribution for a previous year while it would count against your deduction limit for the year actually deposited.

Other items to beware of, however, this contribution will count as an annual addition in the year of funding as the deadline for having it considered against the 2006 415 limit has passed (I think it would have been 30 days after the tax filing deadline for that year). Assuming the owner maxed out each year (i.e. 2007 and 2008), it doesn't seem as if this can happen considering the 415 implications.

I get the impression that you are a financial advisor and this is your client. Interesting, how easy you guys are to identify. I could be wrong, though.

you are way off my friend. i hope your tax knowledge is more reliable than your instinct.

[ERISAnut]

LOL!!! They may both suck. Just appear to be an interesting scenario.

[JanetM]

Kman, you get off lucky on this. Amend return for higher income tax (possible penalty and interest) if the service takes time to review the filing. ERISAnut explained the gotchas of make the 2006 contribution now. The one other thing, if you make the contribution now, has anyone terminated and taken balance who would be due contribution?

[Guest Sieve]

Don't know whether or not you listed the expected 2006 contribution as a receivable on the Form 5500. If so, then I would think there may be some amended filings to make (whether or not you actually make the delinquent 2006 contribution).

This may be way out in left field, but you always could establish a DB plan this year if there's lots of cash sitting around that you want to contribute now--that might complicate the deduction issue, but it's an approach to consider if the census is appropriate and the employer is willing to make the long-term commitment.

[K2retire]

Larry,

I usually agree with your suggestions, but recommending a DB plan to a client who can't figure out a PSP seems beyond reason to me!

[Guest Sieve]

K2 -- I don't disagree with you about my suggestion/recommendation. After all, I did preface it with "out in left field". It was a response to the stated strong desire to somehow make-up that long-lost DC contribution and therefore, it seems to me, a DC contribution for this year may not be enough to fill the employer's desires/needs. A DB plan is a stretch, to be sure, but perhaps the employer is simply ready to contribute more than 25% of compensation. And, of course, there is some masochistic beauty about a DB plan for the advisors of an employer who doesn't get it and abuses the word "discretionary": "you MUST make a contribution this year between $X and $Y--no choice, no argument, go do it!! And start putting aside some $$ for NEXT year!!"

And I wish my own clients usually agreed with my suggestions . . .

[Bird]

Don't know whether or not you listed the expected 2006 contribution as a receivable on the Form 5500. If so, then I would think there may be some amended filings to make (whether or not you actually make the delinquent 2006 contribution).

In additiona, I don't see that anyone has mentioned employee communications (participant statements). They would have to be re-done. Not always easy to go back and say "oops, this new statement with no contribution on it replaces that old one with a contribution. Have a nice day!" That might be the root of the desire to go ahead and make the contribution now.

[Guest Sieve]

Good point. But, of course, the missing contribution never should have appeared on a benefit statement--and maybe never did. Generally, aren't statements generated form actual entries on the system made only as contributions are physically received and allocated (I'm not a TPA)? If the contribution never physically appeared in the trust (which apparently it never did), yet those amounts appeared on a participant statement (even though the particicipant statement did not tie in to actual $$), then the TPA (or whoever) has some real issues of its own aside from the employer's issues!

[Guest Boots]

Good point. But, of course, the missing contribution never should have appeared on a benefit statement--and maybe never did. Generally, aren't statements generated form actual entries on the system made only as contributions are physically received and allocated (I'm not a TPA)? If the contribution never physically appeared in the trust (which apparently it never did), yet those amounts appeared on a participant statement (even though the particicipant statement did not tie in to actual $$), then the TPA (or whoever) has some real issues of its own aside from the employer's issues!

That's not always true, if the plan is a balanced forward the contribution can be reflected on the participants statements (accrued on the balance sheet). Now when they completed the 2007 valuation (really long before then) they should have reconciled the receivable to ensure that the 2006 contribution was deposited timely.

[Guest Sieve]

So, how long would a TPA go without correcting statements if they discovered that a contribution reflected on an annual participant statement had not been made? What if it's not balance forward, but daily valued--would an employer's contribution accrual ever appear on a participant statement?

[Guest Boots]

So, how long would a TPA go without correcting statements if they discovered that a contribution reflected on an annual participant statement had not been made? What if it's not balance forward, but daily valued--would an employer's contribution accrual ever appear on a participant statement?

Usually not, I have on a daily valued plan reflect the contribution at a receivable on the statement (no earnings or purchases for the money) clients wish - but I would hound that client big time for the funding! And if not received by due date of return, I would issue new participant statements. Not always popular....

[JanetM]

Most daily valued plans don't accrue contributions for this very reason. They post contribution then someone has to come up with more funds that contstitute the earnings if contribution dollars aren't deposited quickly.

[K2retire]

But with a balance forward plan, it could be an entire year before the TPA had the information to discover that the deposit was never made. Based on the timing of this question, I suspect that may be the case here.