Employer filed tax return. Can they amend return and make a P/S contri

[Guest S FISCHER]

Can an employer who already filed their tax return for 2000 make a contribution to their P/S plan for 2000 and amend their tax return without any penalties?

[Bill Berke]

I don't believe so. That law requires contributions to be deposited by the due date of the return including extensions and it sounds like the sponsor did not go on extension. You already filed so, I believe, the opportunity is lost. And you also have the corporate governance requirement (if sponsor is a corp) that the Board must declare the contribution - which probably didn't happen timely - but that is a state law issue. I have heard some practitioners argue that if a sponsor files its return before the extension runs out, the balance of the extension time is still available for the deposit.

[Guest]

I am not sure either, however, if the 2000 return has been filed already, you could still make a contribution for 2000 and deduct it in 2001 instead

[AndyH]

Tom, could you elaborate on that? What's the basis, the 30 day annual addition rule?

[edited-30 was omitted]

[Guest]

see 1.404(a)-1©

deductions ... generally allowable only for the year in which the contribution ... is paid, regardless of the fact that the taxpayer may make his return on the accrual ethod of accounting.Exceptions...(blah,blah,blah).....This latter provision is intended to permit the taxpayer on the accrual method to deduct such accrued contribution...in the year of accrual, provided payment is made not later than the time prescribed by the law for filing the (tax) return...

I think the only thing you have to watch out for is annual additions. 1.415-6(B)(7)(ii) contribution must be made no later than 30 days after the period prescribed in 404(a)(6) to be counted as an annual addition in the prior year.

......

If you were not able to 'allocate' a contribution for a prior year and deduct it in the current year, you could never self correct a missed top heavy contribution and still get a deduction for it.

[R. Butler]

Doesn't the answer to the initial question depend on the actual due date of the return. If in fact the employer just filed early and the actaul due date has not passed, why couldn't the employer amend and contribute? It is my understanding that the contribuion must be made by the due date of the return. If the due date is 4/16/01 then I don't see any reason a contribution can't be made and deducted on an amended return.

[Richard Anderson]

R. Butler is correct, the filing date is not relevent for deductibility, the due date is. But if the due date was 3/15/01, then it is to late to increase the contribution and deduct that contribution for 2000.

Tom is correct that the contribution can be allocated for 2000, but will be deductible for the 2001 tax year.

[Guest lforesz]

Hi,

Since we are on the topic. What if the sponsor is a cash basis filer? If the contribution is made in 2002 for 2001, is it deductible in 2002 as long as it is made by December 31, 2002?

We ask because one of our cash basis filers has to make an additional matching contribution for 2001 and have already filed their 2001 tax return. We're afraid it may be a nondeductible contribution subject to a Form 5330, but we're not accountants.

Any help would be greatly appreciated.

[mbozek]

IRC 404(a)(6) requires that a contribution must be made by the the date for filing a return including extensions in order to be deductible. In other words, there is no difference between cash or accrual basis taxpayers. Check with the accountants to see how the deduction is credited but it looks like a 2002 deduction. Also beginning 2002 tax year employee salary reduction conributions do not count toward the maximum deduction of 25% of covered compensation. Contributions made after the due date are deductible only if the employer had filed a valid extension, even if the return is filed by the due date.

[Guest lforesz]

Hi,

Thanks but now I'm really confused. Each year we scramble to an estimated profit sharing contribution so that the client can fund the amount before December 31. Then we finalize the amount after 12/31 and they contribute a generally small additional amount.

If there is no difference between cash and accrual- why do they feel the need to always fund the majority of the contribution by 12/31?

We will check with the accountants, but if the contribution is not deductible in 2002 and it was not deducted in 2001, could it potentially be a Form 5330 event?

Thanks so much for your help.

[mbozek]

Contributions to a PS plan are always deductible for the tax year in which they are actually made or can be carried over and deducted in a following year if they exceed the maximum deduction amt -15% of covered comp in 2001 (25% in 2002)

[Guest Robin Vatalaro]

As far as I know there is no need to scramble. Cash basis taxpayers get an exception to the "cash basis" rules when it comes to retirement contributions. The contribution can be made up to the extended due date of the return (even if the return is actually filed sooner). I'm a CPA and have been doing this for cash basis taxpayers for years.

[mbozek]

If employer files timeley extension Rul 66-144 permits deduction of contribution made during extension period even if tax return is filed by due date. However, contributions made after due date are not deductible if employer has filed tax return without requesting extension. PLR 8526004.