Amended 1065 - Additional PS?

[austin3515]

1065 is amended and generates extra income for partners. Can the partners make additional profit sharing contributions together with the amended?

I'm assumign the answer is "maybe" but if and only if the return was on extension through octboer 17, and the additional amounts are funded by October 17th. Because the contriubtions are deducted on the 1040, many people suggest that this is when you have to fund the contributions by for a partnership.

Any thoughts?

[Lou S.]

I thought partner deduction deadline got moved up to 9/15 about 2-years ago and that only sole-proprietors still had the 10/15 possible extended deadline (or 10/17 this year).

Am I wrong on this?

[austin3515]

That's certainly what we do with our clients. IT's based on the fact that the 1065 is due on that date. So my official answer is you are correct. BUT there is a school of thought that suggests what I'm saying in situations like this (i.e., this could be a plan B).

[Kevin C]

Was the contribution already allocated before the partners' earned income numbers changed? If so, you may be able to look at it as the contribution was originally allocated using incorrect compensation information and correct the allocation under EPCRS by allocating additional amounts to those who were shorted because of the incorrect compensation information. The extra amounts would be deductible in 2011, not 2010, but would be treated as a 2010 annual addition.

[austin3515]

Is nobody buying my "it's deducted on the 1040"?

[mbozek]

Is nobody buying my "it's deducted on the 1040"?

Partners are treated as self employed individuals, same as a sole proprietor, for tax purposes and report their business income listed on the 1065 on the 1040 Schedule E, line 28. (Sole Prop report their Sked C income on line 12 of the 1040). After adjustments, amount reported on Sked E winds up on line 17 of the partner's 1040. Line 13, Code R of the partner's 1065 includes the amount which the firm contributed to the firm's retirement plan for that partner, e.g. 401k plan. The partner deducts the line 13, Code R amount on line 28 of his 1040, same as a sole prop.

The Q is whether the line 13 code R amount was amended on the 1065 which means that the amount of the firm's contribution for the partner was increased. While I dont do tax returns I am assuming that if the 1065 is amended by the firm, then the partner can file an amended 1040 taking into account the larger pension contribution the same as any other adjustment to income made to the 1065.

Edit: If only the partner's income is amended without changing the line 13, Code R amount, then the retirement plan contribution for the partner remains the same b/c a partner cannot make an individual contribution to the firm's retirement plan. Only the firm can contribute to the firm's plan on behalf of the partner.

[mbozek]

That's certainly what we do with our clients. IT's based on the fact that the 1065 is due on that date. So my official answer is you are correct. BUT there is a school of thought that suggests what I'm saying in situations like this (i.e., this could be a plan B).

The 1065 is an information return filed by the partnership (similar to a 1099-R) reporting payments to the individual partners for the year. The Pship does not pay any income taxes. The amounts reported on the 1065 are included in the partner's 1040 which are filed under the extension for individual returns.

[austin3515]

mbozek -

Sometimes it sounds like you agree with me, but others it does not. Can a partner amend the 1065 and the 1040 today (assuming an extension was filed) to make additional contributions?

[mbozek]

mbozek -

Sometimes it sounds like you agree with me, but others it does not. Can a partner amend the 1065 and the 1040 today (assuming an extension was filed) to make additional contributions?

A partner cannot amend the 1065 b/c that form is prepared by the partnership which is a separate tax entity. The Pship can amend the 1065 to correct an amount reported for the partner in the tax year the same as an employer can amend a w-2 form for an employee to reflect correct income or 401k contributions. The partner who receives a corrected/amended 1065 can then amend his own tax return using the corrected information on it.

As I stated previously a partner does not contribute to the partnerhip's retirement plan. Only the firm can make such a contribution, such as by withholding an elective contribution from the partners draw and contributing it to the plan. So if a partner's business income on an amended 1065 is increased by $10,000 which results in a $9,000 increase on line 17 of the partner's 1040 but there is no change on line 13 Code R of the 1065 in the amount contributed by the partnership to its retirement plan for the partner either as an employer contribution or elective deferral, the retirement contribution made by the pship on behalf of the partner will remain the same and the partner is taxed on $9,000 more income.

Under the IRC there are differences in how income and deductions are reported by partnership and allocated to the owners (partners) on the 1065 and how the partners report the pship income and the corresponding deductions to their partnership income on their individual 1040s.

You still have not responded to my Q of whether the amount on line 13, code R of the 1065 was increased on the amended 1065 given to the partner.

[austin3515]

"You still have not responded to my Q of whether the amount on line 13, code R of the 1065 was increased on the amended 1065 given to the partner. "

Isn't my question "can I increase line 13, Code R"? That's where I report the employer's contributions.

[mbozek]

"You still have not responded to my Q of whether the amount on line 13, code R of the 1065 was increased on the amended 1065 given to the partner. "

Isn't my question "can I increase line 13, Code R"? That's where I report the employer's contributions.

Who is I? ???

As I have said previously only the partnership can change amounts on the 1065. If the plan formula would require an increase in the partnership contribution on behalf of the partner whose k-1 income is increased on the 1065, then yes the amount on line 13, code R would increase. If the maximum contribution permitted under the plan has already been reached the answer is no. It all depends on the plan formula.

This is really an accounting Q. What does the firm's accountant say about increasing the firm's contribution for the partner under the plan if the 1065 income is increased? Will there be any tax issues in making such a contribution?

One further Q which can only be answered by the firm's accountant is whether increasing a partner's allocation to the retirement plan would require reallocation of the firm's income and expense deductions which would result in different income/deductions on the other partners' 1065s. This is why the firm's accountant should be the person answering this Q.

[austin3515]

You're giving a hard time over semantics here...

Practically speaking, the partner can amend the return and he can make individual contributions, BECAUSE HE'S A PARTNER and has control over these sorts of things with respect to the partnership. Both partners are in the same situation. I'm not talking about who's checking account it's comiung out of (I know it's the partnerships). This isn't PriceWaterhouseCoopers I'm talking about, which I believe is the vantage point of your comments. It's Joe Schmoe and his partner Jon Doe.

So let's say:

1) The partnership and the individuals filed extenions.

2) The 1065 AND the 1040 were filed on September 10.

3) New information came to light and the 1065 is being amended to increase earned income by $10,000

Questions

1) If the Plan is a 3% SHNEC, can he contribute AND deduct the extra $300 of SHNEC in 2010 (based on the notion that it is deducted on the 1040)?

2) If no profit sharing was done before, can they now do profit sharing?

Sounds like your answer is going to be no to both, but I'm still hung up on the idea that, as you even indicated, a 1065 is an informational return, so it's arguable (unless some document contradicts) that it is not DEDUCTED until it is reported on the 1040.

[Bird]

Austin, I'm not sure. My notes from when they changed the 1065 due date indicate that all contributions are now due 9/15. But really, if the contribution is deducted on the 1040, and the 1040 is due 10/15, I'm not sure why there should be an earlier due date. i think there's no question that employer contributions for the employees (e.g. PS) are due 9/15, as they are shown and deducted on the 1065.

I think it's one of those things where I'd say up front "contributions are due 9/15" but when push comes to shove as it does in this case, I might say "go for it."

[mbozek]

You're giving a hard time over semantics here...

Practically speaking, the partner can amend the return and he can make individual contributions, BECAUSE HE'S A PARTNER and has control over these sorts of things with respect to the partnership. Both partners are in the same situation. I'm not talking about who's checking account it's comiung out of (I know it's the partnerships). This isn't PriceWaterhouseCoopers I'm talking about, which I believe is the vantage point of your comments. It's Joe Schmoe and his partner Jon Doe.

So let's say:

1) The partnership and the individuals filed extenions.

2) The 1065 AND the 1040 were filed on September 10.

3) New information came to light and the 1065 is being amended to increase earned income by $10,000

Questions

1) If the Plan is a 3% SHNEC, can he contribute AND deduct the extra $300 of SHNEC in 2010 (based on the notion that it is deducted on the 1040)?

2) If no profit sharing was done before, can they now do profit sharing?

Sounds like your answer is going to be no to both, but I'm still hung up on the idea that, as you even indicated, a 1065 is an informational return, so it's arguable (unless some document contradicts) that it is not DEDUCTED until it is reported on the 1040.

It would have been helpful if you had provided this information in your initial post.

Following info is provided so you can decide on a course of action.

1. Pship tax return is due 3 1/2 months after year end. One 5 mo. extention is permitted so pship tax return is due 9/15.

2. Under Rev rule 76-28 employer contribution for 2010 must be made by date tax return is due with extensions, or 9/15.

3. reg. 1.415-6(b)(7)(ii) provides that employer contribution can be treated as annual addition for prior plan year if made to trust not later than 30 days after last date in #2. So it may be possible for pship contribution made between 9/16 and 10/17 2011 to be allocated to partner for 2010 even though it would be deductible by the pship in 2011.

4. If the pship includes the pension contribution as the partners 2010 income on the K-1 which can be deducted from his income on his 2010 1040 but is deducted by the pship in 2011 there is a question of whether the Pship would have to file a form 8202 because the treatment on the amended 1065 is inconsistent with tax treatment to the partner. There is something called a small partnership excepton from this rule which is why this question needs to be reviewed by the firm's accountant.

There may be other accounting rules which I am not aware of or I may have misunderstood the above pship accounting rules (since I disclaim any skill set in accounting) which is why your Q can only be answered by the firm's accountant.