Section 404(a)(5) Deduction

[Guest Buzzman]

Employer X is an S corporation that had a nonqualified deferred compensation plan. In anticipation of the sale of all the stock of X (in which a Section 338(h)(10) election will be made) and the treatment of the deferred compensation plan as an excluded liability by purchaser Y, a C corporation, X terminated and paid out the plan in January 2008. The stock sale occurred March 31, 2008.

With the deferred comp being paid out in the short S year of X (January 1 to March 30, 2008), is there any way under Section 404(a)(5) and Reg. 1.404(a)-12(b)(1) (or other guidance) that X should be able to take the deduction for the contributions attributable to the payout in its short S year?

Any thoughts are appreciated.

[bdeancpa]

Your question was asked in 2008 and I see no response, but I have the same question today. Did you ever figure out the appropriate answer?

Thanks.