corporate year different than plan year

[gregburst]

Assume a corporation has a fiscal 9/30 year end, but it sponsors a DB pension plan with an 11/30 year end. And the contribution for the 11/30 plan year is $120,000, which is deposited before the due date of the 9/30 tax return.

How much is deductible on the 9/30 tax return? The full $120,000, or 10/12 x $120,000?

And does the answer change if the owner (who has most of the income) took the bulk of his income during November (after the corporate year end)?

Any help is appreciated. Thanks, Greg

[My 2 cents]

Assuming that neither the corporation's fiscal year nor the plan year have changed (i.e., both the corporation and the plan are humming along, with there being prior plan years and prior fiscal years), the alignment between the plan year contributions and the deductions is probably governed by past practice. What was done last year?

While there had been informal guidance from the IRS in the past, tying the plan year for which the contribution appears on the Form 5500 Schedule SB and the fiscal year for which the deduction may be taken, it does not appear that there are either any statutory provisions or regulations that would support that. If a contribution is made between the end of the fiscal year and the filing due date, it would appear that the sponsor could take the deduction for either the fiscal year whose filing is coming due or the fiscal year during which the contribution was made. Past practice could impact the extent to which such a choice is available.

If the fiscal year is not a short fiscal year and the plan year is not a short plan year, it would not appear that any kind of proration would be required (unless the practice had been to deduct 2/12ths of one plan year's contribution and 10/12ths of the other plan year's contribution with respect to the two plan years encompassing the fiscal year).

[Mike Preston]

Doesn't 1.404(e)(14) address this?

[My 2 cents]

I just looked it up to make sure. In my opinion, 1.404(e)(14) addresses lining up plan and tax years for purposes of the deductible limit. If the fiscal year and plan year coincide, the deductible limit for the tax year is the maximum amount from the plan year. If they do not coincide,1.404 gives you either plan year beginning in, plan year ending in, or a proration from the two plan years overlapping the tax year.

It is important to distinguish between the deductible limit and the amount to be deducted. Assuming that the deduction limit (as it often will) is substantially greater than either the minimum required contribution or the amount actually being contributed (due to the funding cushion's effect on the size of the maximum deduction limit), the amount actually deductible will reflect the amount actually contributed. And, as I noted before, there is absolutely nothing (of which I am aware) in the law or regulations that says that to be deductible for a tax year, the contribution must be recognized for the applicable plan year. Nothing. So if the tax year and the plan year are both the calendar year and the sponsor makes a contribution (greater than the 2015 minimum and less than the 2015 maximum including the 50% cushion) between January 1, 2016 and the filing deadline for the 2015 fiscal year corporate tax return, the sponsor can surely deduct that amount on its 2015 taxes whether or not the contribution is recognized on the 2015 Form 5500 Schedule SB. The Gray Book question from 2011 that concluded otherwise is irrelevant (in part because it assumes, incorrectly, that the amount to be deducted for a tax year is based on the amount recognized as a contribution for the plan year and in part because the late lamented Gray Book, while providing insight into IRS thinking, had neither the force of law or regulation and was, by its own disclaimers, not to be relied upon).

[Mike Preston]

We have different definitions of "nothing".

[My 2 cents]

We have different definitions of "nothing".

Do you have something you would not define as nothing that is counter to the statement that it is perfectly fine to make a contribution early this year, deduct it for last year and count it towards this year's minimum funding requirements? Anything that would call into question the safety of handling the deduction like that? Assume that the contribution is substantially below the 404 limit for any recent plan year and is not actually needed for the 2015 funding requirements. Assume that the tax filing has been made and also the 5500 filing with a Schedule SB not showing the 2016 contribution as applicable to 2015 (so aligning it with the 2015 plan year would necessitate amending the 2015 5500 filing). Is there any reason to consider that deduction in jeopardy?

[Mike Preston]

Doesn't 404(a)(6) apply? If so, then a contribution made early this year that is deducted last year has to be applied to the prior year's MRC. If so, it has to be on the prior year's SB. If that requires an amended return, so be it.

[My 2 cents]

Doesn't 404(a)(6) apply? If so, then a contribution made early this year that is deducted last year has to be applied to the prior year's MRC. If so, it has to be on the prior year's SB. If that requires an amended return, so be it.

Thank you for the cite.

I looked up 404(a)(6), and found this as the full text of that section: "For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

Has 404(a)(6) been changed subsequently? I am not an attorney, but in my view, the reference is solely with respect to the taxable year, with no coordination required or implied with respect to the application of that contribution to a particular plan year or its MRC. I fully agree that if it did, then it would be necessary to coordinate the handling on the Schedule SB with the sponsor's handling of the tax deductions.