Is it clear that compensation under 404 includes compensation for the

[John A]

2 questions:

1) Is it clear that compensation under 404 includes compensation for the full taxable year, even if compensation is limited to amounts after mid-year entry date for other purposes?

2) Does anyone know if there has been further guidance (since the last posts on the topic if February) on whether compensation for a participant eligible to defer, but not actually deferring, is counted under 404

[Guest Phil L]

Revenue Ruling 80-145 specifically states that deductibility is determined based on compensation paid or accrued during the entire taxable year, regardless of the definition of compensation used in the plan.

As for your second question, I don't have a cite, but I do believe you are able to include the taxable compensation of every participant who "benefits" under the plan and I believe the IRS has decided that benefiting for this purpose has the same meaning as the coverage and/or 401(k) reg's. In other words, yes, if an employee is eligible to defer, they are benefiting and you can include their full year taxable compensation in the deductibility calculation.