404 Deduction Limits and annual additions - question about timing.

[James Matt Ullakko]

I am trying to confirm when employer profit sharing non-elective contributions are deemed credited to a participant's account for a particular limitation year.

The regs say:

An amount is an annual addition if it is credited to a participant for a limitation year. An amount is credited if it is allocated to the account of a participant under the terms of a plan as of any date within that limitation year. See Reg. 1.415-6(B)(7)(i).

In general, EMPLOYER CONTRIBUTIONS are not deemed credited to a participant's account for a particular limitation year unless they are actually made no later than 30 days after the IRC 404(a)(6) period for the tax year within which the limitation year ends. See Reg. 1.415-6(B)(7)(ii).

Is is correct to inerpret this to mean that a plan has until 30 days after the due date for their 2000 tax return to make non-elective contributions that are deductible for 1999 and also count as annual additions for 1999?

[Guest]

I think you are correct.

after that date, they may be allocated for 1999 but are deducted in 2000

[John A]

Tom, I'm not sure I agree, unless I'm misreading what you're saying.

I thought a contribution was only deductible if it was actually made prior to the filing of the tax return. So, for example, a contribution made for a 1999 plan and fiscal year would have to be made by September 15, 2000 at the latest (since that is the last day - with extensions - for filing the tax return) to be deductibe for 1999.

The reg would seem to say that the employer contribution could only be counted as an annual addition for 1999 if made on or before October 15, 2000.

Did I misread something?

[Guest]

you didn't misunderstand me. I mispoke. you are correct - you can only count as annual addition if made with in 30 days. thanks for keeping me on my toes.

[Richard Anderson]

I would like to offer a minor correction to John A's post.

"I thought a contribution was only deductible if it was actually made prior to the filing of the tax return."

The contribution is deductible if made by the due date of the return; the date of actually filing the return does not control timing of deductibility.

[John A]

Richard, thanks for the correction. I agree with you (Rev. Rul. 66-144). However, I would like to add:

If the tax return has been filed prior to requesting the extension, then the contribution is due by the due date of the tax return without extension. (If a timely request for an automatic extension to file is filed before the return is originally due but after the tax return is filed, the period for making deductible contributions will not be extended - IRS Letter Ruling 8336006).

And I think I stated it incorrectly the first time because I've known of situations in which the return was filed expecting a contribution to be made, and then the contribution was not made. So I was probably remembering the policy of a company I used to work for. Sorry about that. And again, thanks for the correction.

[John A]

Follow-up question:

Plan year: calendar year.

Limitation year ends January 31.

Tax year ends March 31.

Employer gets extension of due date for tax return to December 17, 2001.

In what limitation year(s) would the following contributions be treated as annual additions (all of the contributions are allocated as of December 31, 2000 under the terms of the plan):

Profit sharing contribution on December 31, 2001.

Profit sharing contribution on January 14, 2002.

Profit sharing contribution on January 16, 2002.

Profit sharing contribution on January 17, 2002.

Profit sharing contribtuion on January 18, 2002.

Thanks for any thoughts on this.