When do deferrals of partners in a partnership or LLC need to be funde

[Guest Micahel Gheen, CPA]

I am having difficulty finding guidance on this topic. If anyone should have an answer for this and particular guidance to support the answer it would be greatly appreciated.

I have received conflicting answers of 30-days after the end of the year or by the due date of the partner's individual tax return.

[Alf]

Is there a third possibility? Why wouldn't the general rule about contributions being funded before the due date for the ENTITY'S tax return apply?

[Jean]

Does any one know the answer to the original question?

We require that that the election must be made before the end of the plan year, but the contribution does not have to be paid until the partnerhships tax filing due date. Would be interested to know if this is correct.

[BeckyMiller]

Know the answer? Probably not, we but have come up with an argument. Note, I am assuming that the plan is subject to ERISA.

The 401(k) regulations at 1.401(k)-1(a)(6) provide that the same rules will apply to partners as to common-law employees. Further, they provide that the compensation is deemed available as of the last day of the tax year. (This would be the tax year that falls within the plan year.) The regulations provide that the election must be made before the last day of the plan year.

The ERISA regulations provide that the funds must be deposited as soon as possible within the time frame that the amounts are withheld from the participant.

So the question comes - when are the amounts withheld from the partner? That becomes a fact issue. If a partner gets cash distributions of current earnings through-out the plan year and his or her last distribution of income for the year is reduced by the amount of any salary deferral - then I would argue that the ERISA rules hit and the amount must be deposited as soon as possible following that date, but not later than the due date of the return.

However, I don't see that it can be done like a regular profit sharing contribution where the partner gets distributions of cash whenever available and the partnership merely funds the contribution from other cash(including cash earned in the subsequent plan year) by the due date of the return. I think there needs to be some effort to treat the partners in the same manner as the common-law employees.

[thepensionmaven]

I feel as though I'm missing something here.

You seem to be discussing two different points, one being the timeliness of an employee deferral, the other about when a contribution in general must be made to the plan for a deduction to the entity.

How about the DOL regs that state the deferral contribution has to be remitted to the plan in a "reasonable" time-frame, and I believe they consider "reasonable" to be between 15 and 30 days after the date the contribution is withheld from pay.

Isn't it the same thing for a common law employee??

To be deductible, the contribution has to be paid by the due date of the tax return.