Contrib. within Deductible Limits but not deducted

[JAY21]

Kind of a different situation....

Client has a 2008 DB funding range with approx. 50k-250k funding range due to past service and 50% cushion on max end.

Client actually funded 150k during 2008 but CPA only wants to deduct about 100k for 2008. Since the extra 50k was entirely contributed within 2008, but 50k is not going to be deducted, is it subject to 10% penalty tax. CPA said they'll pay the 10% penalty tax if it applies.

Seems odd to pay a penalty tax on a contribution within the deduction limits but "optionally" not deducted. Does the 10% penalty apply ? I'm thinking it would apply.

[Belgarath]

No, I think they are fine. IMHO, the contribution is subject to the penalty tax under 4972 only to the extent that it has exceeded the allowable deduction limit. That hasn't happened. The fact that the employer chooses not to take the deduction to which the employer is entitled is immaterial.

[david rigby]

IRC 4972 refers to "nondeductible contributions".

Does not refer to "nondeducted".

[Andy the Actuary]

Agree with Mr. B. The 10% penalty is applied only to the extent actual contributions to the Plan exceed the maximum deductible limit -- whether or not they are deducted.

Interesting comment about the 10% penalty.

In one gray book, JH indicated the 10% was applied once. In a later year, JH indicated the 10% continued to apply until all the nondeductible contributions had been absorbed.

I suspect the accountant would opt for Mr. H's initial conclusion?

[jpod]

Ok, I'll bite. Why not deduct in 2008? IF it was paid in 2008, it can't be deducted in 2009. Please educate me.

[JAY21]

I'm not sure I fully understand the CPAs position. I'm thinking he plans on deducting it in 2009 and doesn't need it in 2008. I generally leave the deduction timing up to the CPA.