Simple Plans - Timing of Deductions

[Guest JD Colville]

IRC 408(p)(2)(A) provides that salary deferral contributions are employer contributions for purposes of a Simple plan. IRC 404(m) and Q.I-7 of IRS Notice 98-4 states that contributions to a Simple plan are deductible in the taxabble year of the employer in which the calendar/plan year ends. This would seem to indicate that for a fiscal year taxpayer (non-calendar) the empoyees salary deferral as well as matching/base employer contributions are not deductible until the end of the fiscal year in the following year. This result seems to be substantially different from the result in 401(k) salary deferrals. Is there a different result than outlined above either based on rulings, notices, etc. or through informal discussions with the IRS? Any guidance would be appreciated.

THANKS JDC

[Gary Lesser]

Your read is correct; the deduction for a fiscal year business is delayed (just like a calendar year SEP adopted by a FY taxpayer).

[Guest Lyle]

Our SIMPLE plan began in April,1998. As an employer, do I contribute 3% of earnings from April through December, or do I contribute for participant's entire 1998 gross income? Also, must my contribution be made by Dec. 31 in order to be called a deduction for the corporation in 1998? We are an S corporation taxed on a calendar year.