What are the tax effects of depositing profit sharing contributions pa

[Guest Tara Curran]

We have a client who did not pay the Company profit sharing contribution to the plan before the extended due date of the tax return due to an inadvertent ocersight. The contribution was deducted on the Company's Form 1120. According to the rules, in order to deduct the contribution on the current year income tax return, it must be deposited by the due date of the return, including extensions. Is there any lenience with this rule? The IRS has chosen this particular year for audit and we are concerned they may disallow the deduction.

Also, does anything happen to the participants' accounts due to this administrative error? Does the money stay in the plan or does it all have to be refunded?

[Guest Do]

If the contributions relate to a tax year for which the applicable tax return has been filed, that tax return will have to be amended.

[Guest dl]

in my opinion: if the business return is currently under audit, an amended return is not acceptable to irs. when the agent requests a proof of the timely ps contribution, be prepared to confess the discrepancy. you may prepare a strategy to show the irs agent that the ps contribution although not deductible in yr 1, would be deductible in yr 2, providing the ps contribution passes irc 404(a(3). the agent may assess interest only on yr 1. by the way, is the employer's contribution correct on the form 5500 in yr 1? the late ps contribution may trigger dol reg. 2510.3-102 prohibited transaction issue subject to lost interest owe to plan and irc 4975 excise tax depending on when the ps contribution was deposited into the plan.

any asset reverts back to the employer, except for tax- exempt 'er, is subject to irc 4980 excise tax.