Deduction for Short Taxable Year

[RLR]

ER adopts a PS plan with a PY 7/1/13 - 6/30/14. Tax year ends 6/30. ER contributes 20% of comp for 6/30/14. Tax year changes to calendar year for 12/31/14, so plan amended and return will be filed for short plan year 7/1/14 - 12/31/14. ER adopts a DB plan 12/31/14. Effective date is 1/1/14 and PY is calendar year. Val date is 1/1 and the MRC is $157,000 and the max is $190,000.

Does the short taxable year of 7/1/14 - 12/31/14 affect the amount that can be deducted for the DB plan? There will be no contribution to the PS plan for 12/31/14.

Does 401(a)(7) apply since there was a contribution to the PS plan for 6/30/14 and the DB plan is effective 1/1/14? If so, to what time period does it apply?

Any guidance will be appreciated. I've been pouring through the ERISA Outline Book and thoroughly confused.

[Lou S.]

I think if you always deducted the contribution for the Plan Year Ending in the Taxable year you don't have any problem. The PS contrib is deducted for the Taxable year 7/1/13 - 6/30/14 and the MRC for the DB is deducted in the Taxable year 7/1/14 - 12/13/14.

I think you would run into issues if you tried to deduct the DB MRC on the 6/30/14 Taxable year.

Am I missing something obvious?

[RLR]

Thanks for your reply. I thought that if there was a short taxable year of the ER that the deduction would be prorated, but I'm not sure.