profit sharing deposit deadline

[gregburst]

I think a corporation can have a Sep 15 deadline for filing its tax return (showing a deduction for profit sharing), yet the profit sharing contribution may be deposited as late as Oct 15 without jeopardizing the deduction. Can anyone verify this?

[mbozek]

I think a corporation can have a Sep 15 deadline for filing its tax return (showing a deduction for profit sharing), yet the profit sharing contribution may be deposited as late as Oct 15 without jeopardizing the deduction. Can anyone verify this?

I thought that corps are required to file 1120 2 1/2 months after end of tax year with automatic 6 month extension which means that corp contribution must be made by 9/15 for calendar year plan.

Self employed persons file 1040 returns on 4/15 which with 6 month extension requires PS payment to be made by 10/15. However DB/MP plan contribution for plan subject to ERISA must be made by 9/15

See IRS pub 560 P15.

[Tom Poje]

I believe what you are thinking of is the 415 deadline

1.415©-1(b)(6)(i)(B) which is 30 days after the deduction deadline.

In other words, for a calendar year plan ending 2011, if the contribution is made, lets say 9/30/2012 it is deductible in 2012, but can be applied toward the 2011 plan year, and count aginst the 415 limit for 2011 and not 2012.

[shERPA]

What Tom said. See IRC 404(a)(6), the due date for deductibility is the due date of the tax return, including extensions, absolutely NOT 30 days after.

The 30-day-after rule allows contributions within the 30 day period to be treated as IRC 415 annual additions for the prior year. This is sometimes useful for other reasons, but it doesn't affect deductibility, governed under 404.

[BG5150]

Then what IS the purpose of the 30-day "extension" for 415? Why not just make it last day of the next plan year?

[Tom Poje]

shhhhhhhhhh.

I sort of have this in my presentation on Top Heavy issues for the next ASPPA Conference.

A similar type question was asked in 2010. It was in regards to safe harbor, but the (ill-)logic is all the same.

An employer had a safe harbor election for the plan year 2008. The plan

and company both operate on a calendar year. The plan is a trustee

directed, balance forward plan. The required 3% contribution was, say,

$15,000. Employer does not go on extension; employer puts the $15,000

into the plan in September of 2009. The contribution is not deductible for

2008 (they'll deduct it in 2009). However, under Section 415, it is not an

annual addition for 2008, since it was not contributed within 30 days of the

tax deadline. However, it is SUPPOSED to go in for 2008 and be allocated

for 2008. Is there a failure to provide the safe harbor contribution for 2008?

If so, how to correct? (Note, this could also be an issue anytime a QNEC

needed to pass ADP or ACP testing is deposited more than 30 days after

the tax return due date but within the 12 month correction period under IRC

401(k).) What if the deposit is not made until after 12/31/09 - that is, more

than year after the plan year end to which it applies?

Contributions made after the Section 415 timing date of 30 days after the tax return due date are considered to be annual additions for the following year. However, if consider the contribution a self-correction under EPCRS, it is permissible to relate this back to the earlier year. If the contribution is made after 12/31, you are clearly under EPCRS. [One of the exceptions to the 415 timing rule is an erroneous failure to allocate. See Treas. Reg. 1.415©-1(b)(6)(ii)(A).

EPCRS clearly treats post-415-period deposits that relate back to a prior plan year as an annual addition for the year to which it is meant to be paid, but EPCRS applies only after the 12/31/09 deadline. Therefore, there is a lack of guidance for the period between 30 days after the tax return due date and the end of the 12-month regulatory correction period.]

2010 ASPPA Q and A (sorry they didn't number the questions - it was on page 4)

so, in my way of thinking Fred worked in 2011 and quit real early in Jan 2012. He is owed the top heavy for 2011. If the contribution is made during the 'lack of guidance' period then supposedly you have to use 2012 comp to determine 415 limit. But poor Fred quit so early that his comp isn't large enough to cover the 415 limit. therefore under those rules it becomes impossible to make a contribution for him during that period. you have to wait until after the end of the year and fall under EPCRS. Now that makes a lot of sense!

[Gadgetfreak]

I don't mean to hijack this thread but I was just thinking of something today that is (loosely) related to this topic.

I believe IRS Notice 98-52 says that matching contributions to a safe harbor 401(k) plan must be deposited no later than 12 months after the close of the plan year. Putting aside deductiblity issues, what happens if the Company doesn't make the contribution by 12/31 of the following year? Is there specific guidance from the DOL or IRS? I assume they need to make up for lost earnings. Is there also an excise tax with a 5330? Can they still rely on the safe-harbor to pass ADP?

Thanks.

[JustMe]

Can you confirm that no 4972 excise tax would apply to this situation since it is just a late funding situation that created the nondeductible issue and not an over-funding issue?