When does distribution occur?

[DLavigne]

This may sound stupid, but when exactly does a distribution occur?

This is an ADP refund question. If the process to pay out a refund was started on 3/14/16, ie the shares were sold and converted to cash, but the trust account doesn't reflect that the money actually left until 3/16/16, is it beyond the 2 1/2 months?

Our recordkeeping software will show the distribution on 3/14/16 even though the money didn't leave the trust account until 3/16/16.

I know the safest answer is 3/16/16 is the distribution date but technically, did we make the 3/15/16 deadline?

Thanks.

[ErisaGeek]

I have seen IRS auditors go by the check cut date which would be 3/16/16 based on your scenario.

[Bill Presson]

I'm afraid that I agree with ErisaGeek and the IRS/DOL people are going to use the check date. Now, I've also seen an argument where the check was cut on 3/14 and wasn't cashed until after 3/15 and that was acceptable. Perhaps you can use the same argument here, if needed?

[david rigby]

It might be the "mailbox rule". Was it e-sent or postmarked by X date?

[Peter Gulia]

A relevant rule states: "No tax is imposed under this section on any excess contribution or excess aggregate contribution ... to the extent the contribution (together with any income allocable thereto) is corrected before the close of the first 2 1/2 months of the following plan year[.]" 26 C.F.R. 54.4979-1©(1).

A plan's administrator might want its lawyer's advice about how to interpret the sentence's use of the word "corrected".

And if the word "corrected" might be interpreted to follow the statute's use of the word "distributed", an administrator might want advice about interpreting the meaning of "distributed". Might it might something different than paid?

All that said, I don't doubt anyone's description about what an IRS examiner might do.

But is there room for a plan's administrator to find "substantial authority" (within the meaning of 26 C.F.R. 1.6662-4) for a reporting position that no excise tax is due?