Discretionary match intended for 2008, no extension filed

[John Feldt ERPA CPC QPA]

An S-corp employer (calendar tax year) has a 401(k) plan (calendar year) that allows for a discretionary match.

For 2008, they intend to make a matching contribution, funding it sometime this spring/summer. Their speedy tax return prep firm got everything done before March 15, 2009 and filed the corporation's tax return on time without filing an extension (the client has never had their returns completed by the March 15 deadline for any of the prior 10 years. The tax return included a deduction for the 2008 match ($80,000) to 50 employees, which has not yet been contributed.

Under 404(a)(6), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

I think it is too late to contribute a discretionary match now for 2008 since the extension was not filed?

Could they contribute and allocate for 2008 and then file under EPCRS to get the match allocated for 2008? Even if filing under EPCRS, no deduction for 2008 would be allowed anyway, or could EPCRS also allow that? No 415 limit issues and no 404 limitation issue would occur even if 2008 and 2009 both get deducted in the same year. To the client, this is mainly an employee relations issue, since the employees were verbally told that they can expect a match for 2008 based on their deferrals (the plan is clearly written as a discretionary employer amount).

[jpod]

1. Based on the facts stated, no deduction is allowable for 2008. That cannot be cured. Whether client will file amended return is a matter for client to take up with its CPA.

2. It sounds like client doesn't need any EPCRS relief to make an allocation for 2008, unless the plan document has some sort of artificial deadline for making discretionary matching contributions which has been blown for 2008, in which case you will need EPCRS relief, presumably via a VCP filing, although I haven't checked that.

3. Based on what you said an allocation for 2008 (if it can be done per point 2) would be allowable as a deduction for 2009 (although the old "consistency" rule may forbid that unless an amended return for 2008 is filed to back out the deduction for that year).

4. If you have any concerns about your role in client missing the March 15 deduction deadline you may wish to put your insurance carrier on notice. I am not suggesting that you should have a concern, I am just passing this along.

[John Feldt ERPA CPC QPA]

Thanks. I was under the impression that 404(a)(6) would not even allow an allocation for 2008. Are you saying that it simply does not allow a deduction for 2008?

As for point #4, the client is happy with us. We have informed them each year that they need to file a corporate extension if they intend to make the contribution after the March 15 deadline (we are not a CPA firm, we don't prepare corporate tax returns).

[Kimberly S]

How did the CPA file the return without the client signing it or knowing about it?

[John Feldt ERPA CPC QPA]

I'll check, but I think electronic filing authority was provided to the CPA to file the return.

edited to add: yes, the CPA firm filed electronically without confirming if the accrued contributions had been made yet.