late deposit of non-elective contribution

[Chippy]

My client deposited their 2007 non elective contribution on 9/19/2008, so it was late. How is this corrected in regards to the corp. tax return and the plan? If they amend the corp tax return, can they deduct 2007 and 2008 on their 2008 return? Will that affect any testing for the plan 415, 401a4? I have never had this happen so I'm not sure what all is affected by the late deposit.

[Below Ground]

Why do you think this deposit is late?

[Chippy]

Why do you think this deposit is late?

The due date of their tax return was 9/15. Shouldn't it have been deposited by that date?

[JanetM]

To be deductible in 2007 the contribution must be made by filing date of return. I non-elective they have until last day of following year.

[Below Ground]

Adding to Janet's point, no impact for IRC 415 if before 30th day following due date of return. I think you have no problem beyond deductibility for 2007 return. You can deduct on 2008, provided that maximum deductible (25% aggregate for DC) is not exceeded.

[Guest Sieve]

If the corporate tax year is the calendar year, then they are indeed 4 days late from the extended return due date. My recollection is that, for Section 415 purposes, the contribution is still considered a 2007 contribution as long as it is contributed within 30 days of the deductible deadline (in this case, that deadline was 9/15/2008)--I assume, of course, that the plan permits the contribution to be made at that late date and still be considered, and allocated, as a 2007 contribution. If not, then it would be a 2008 contribution.

If it is still considered a 2007 contribution, then the deduction for that amount could be taken in 2008, along with the amount of the timely-made 2008 corporate contribution, as long as the aggregate amount of the contributions does not exceed the limit of IRC Section 404 (i.e., for a profit sharing plan, 25% of participant compensation). Compensation, in that case, would be for 2008 (since the deduction would be taken for that year). Otherwise, if the sum of the 2007 plus 2008 amounts exceeds the deductible limit for 2008, the excess could be carried to the next year of 2009 (and, in that case, I think the non-deductible portion of the contribution would be subject to an excise tax under IRC Section 4972).

[Chippy]

So as long as the 2007 and 2008 contributions do not exceed 25% of compensation, then the client may deduct both contributions for 2008. And as for testing in the plan, 2007 can stay as is, and for 2008, I would only test the 2008 contribution? I just want to make sure I have this straight. Thanks

[Lou S.]

Why do you think this deposit is late?

The due date of their tax return was 9/15. Shouldn't it have been deposited by that date?

Are you sure it is really late? If they have a post mark or some other record of mailing on 9/15 I think they are OK, even if the trust didn't post it until a few days later. It would be late for minimum fiunding which I believe says the money has to be in the trust but for tax deductibility, timely mailing is timely filing as I understand it.

[Chippy]

It was wired on 9/18, and posted to the participants on 9/19. No postmark.

[Guest Sieve]

Your statements in post #7 are correct. This assumes, however, that there was an extension to the calendar year taxpayer's 2007 federal income return, and that the plan's limitation year is the calendar year.

If the tax return was not under extension, then the 9/19/2008 contribution will be considered a 2008 contribution, and then you would have do all tests for 2008 based on the total of the 2007 (9/19/2008) & 2008 contributions. (See Treas. Reg. Section 1.415©-1(b)(6)(ii)(B).)