max deductions, allocation, application

[Gary]

say a plan has a MRC for 2008 and 2009 of $0.

In 2010 the:

MRC = 1,000,000

Max deduction is 1,300,000

Say plan sponsor contributes 1,000,000 by 9/15/11 to meet 2010 MRC. However, they are one year behind with tax deduction so they intend to deduct in 2011 (we'll get back to that).

When preparing the 2011 valuation the 2010 contribution is included as a plan asset for 2011 valuation.

My understanding is that the 2011 max deduction is computed as the greater of:

1) cushion calculation

2) sum of 430 MRCs calculation

The cushion calculation is only 200,000 since the sponsor made that 1,000,000 contribution for 2010 plan year.

So if that were the maximum the outcome would be that sponsor would only deduct 200,000 of 1,000,000 contribution in 2011.

Under the sum of MRCs under 430 my understanding is that computation is:

= 2008MRC + 2009MRC +2010MRC +2011MRC less deductions taken through 2010 ($0 in this case)

this would be = 0 + 0 + 1,000,000 + 0 = 1,000,000

2011 MRC = 0 as shown above.

So conceptually the max deduction for 2011 would be computed as 1,000,000 which is the amount contributed in 2011 for 2010 min funding.

So in the example above, the conclusion is that sponsor made 2010 MRC of 1,000,000 timely and then deducted that amount for 2011 instead of 2010.

Does the above seem to apply the post PPA max tax calculation properly?

As a final footnote:

A practioner believes that as a general rule if a max tax deduction is say 300k for say 2009 that contribution can be used as a 2009 contribution to meet min funding but can be deducted in 2010 if desired.

My feeling of the above sentence is that pre PPA it was probably true but post PPA I don't think such statement applies. That is, a plan contribution to meet MRC for 2009 is part of plan assets for 2010 and thus the cushion max tax will be lower as that contribution is now an asset for 404 purposes and pre PPA 404 assets could be different from 412 assets. Comments?

Thanks much.

[Calavera]

In this case I think I would calculate the max deduction as (Target Liability + Normal Cost + Cushion - (AVA - Contribution made for prior year but not deducted)) (Pre-PPA adjustment to the Assets).

A practioner believes that as a general rule if a max tax deduction is say 300k for say 2009 that contribution can be used as a 2009 contribution to meet min funding but can be deducted in 2010 if desired.

I am sure you can do it if contribution was made during 2010 year before the 2009 deadline. I believe you cannot do it if contribution was made during 2009 year.