More PPA Potholes

[Andy the Actuary]

A calendar plan and fiscal year dB plan sponsor claims a contribution on the 2007 Schedule B that is made in fiscal year 2008 prior to the filing deadline of the 2007 federal income tax return. The Plan sponsor prefers to deduct this contribution in 2008 rather than in 2007. No problem. In the good ole days, we would have included the contribution in the assets for 412 and not included the contributions in the assets for purposes of 404. This was done in accordance with IRS Reg. 1.404(a)-14(d)(2)(i).

Enter PPA. Section 404(o)(2)(A)(ii) determines assets for maximum deductibility purposes in accordance with 430(g)(2), which means assets for 430 and 404 are one in the same. Clearly, this result does not make sense.

Is anyone aware of technical corrections to this particular reference or is it believed the cited IRS regulation would continue to apply.

[david rigby]

Nothing in Gray Book. IMHO, not sure the cited code section will be a problem. I can't find a cite in IRC 404 that corresponds to the 404 reg you cited; have I missed it? If no such cross reference, the adjustment to assets appears to be a regulatory creation. Is it reasonable to assume the IRS will make similar adjustment under the new 430/404 structure?

But I'm willing to be educated about other perspectives.

[Andy the Actuary]

I can't find a cite in IRC 404 that corresponds to the 404 reg you cited

Max_Deductible___Assets.PDF

[david rigby]

Yes, I've found the reg. Perhaps my phrasing is flawed. What I meant is that the asset adjustment developed in the reg does not have a corresponding Code reference. Or does it?

[Andy the Actuary]

Yes, I've found the reg. Perhaps my phrasing is flawed. What I meant is that the asset adjustment developed in the reg does not have a corresponding Code reference. Or does it?

Sorry, my misreading. To my knowledge and depleted reading ability, there is no such specific provision in the code to treat contributions as "not yet made" because they hadn't been deducted. However, 404(a)(1)(A) contains "as determined under regulations prescribed by the Secretary" numerous times. So, perhaps this is the license to apply the old reg. Agreed, there is no reason to believe that if you didn't deduct a contribution that the opportunity would be lost.

Best holiday wishes,

andy t. a.

[tymesup]

Suppose a small plan began in 2008. No contributions were made during 2008. The end of year valuation has a Target Normal Cost, there are no assets, the TNC is deductible. The employer makes the deposit 1/1/09 and all is well.

Now suppose the employer jumps the gun and makes the deposit on 12/31/08. There are assets. If the un-deducted contributions are not excluded, then there is no deductible contribution, an absurd result. (The minimum under 430 would override for this example, but it shouldn't be too hard to come up with a scenario where 430 doesn't help.)

Until we get new 404 regs or the old ones are discarded, it must be reasonable to rely on the old ones.

Happy New Year

[david rigby]

Now suppose the employer jumps the gun and makes the deposit on 12/31/08. There are assets.

Shouldn't the 12/31/08 AVA (for IRC 430 purposes) = actual assets minus contributions already made for the PY = 0?