DB plan was not funded timely

Hi

This is a general question.

A DB (one lifer) plan did not fund the 2021 MRC - minimum required contribution - by 9/15/2022.

The MRC was 25k as of 9/15/2022.

It was not funded by 12/31/2022 either.

Let say they want to fund 2021 MRC by 7/1/2023.

How is the amount calculated? Using EIR (effective interest rate) for 2021 all thru 7/1/2023 or 2021 EIR until 12/31/2022 plus 2022 EIR?

Assuming that there will be room for it under 404, this amount can be deductible for 2022, correct? (assume corporate tax return is on extension)

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As for excise taxes, from 5330 under 4971, it is very clear.

It would be 10% for 2022 plus 100% for 2023.

Schedule D. Tax on Failure To Meet Minimum Funding Standards (Section 4971(a))

In the case of a single-employer plan, section 4971(a) imposes a 10% tax on the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year.

Additional tax for failure to correct.

For single-employer plans, when an initial tax is imposed under section 4971(a) on any unpaid minimum required contribution and the unpaid minimum required contribution remains unpaid as of the close of the taxable period, an additional tax of 100% of the amount that remains unpaid is imposed under section 4971(b).

So is there anyway to have the IRS accept 10% for each year or 2023 has to 100% which is very steep?

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I have not researched this in quite some time and have thankfully not had to deal with it. My understanding would be the 10% penalty for failure to meet minimum funding does apply and at this point would likely have penalties and interest for late filing of Form 5330.

But with respect to the 100% penalty, I though that was imposed by the IRS ONLY if the funding deficiency wasn't corrected by the time they contacted you.

If you are making up the 2021 funding deficiency and the 2022 MRC that should all be 100% deductible as required contribution unless something odd is going on like that is more than a Self-employed individual's earned income.

I think the instructions for Schedule SB Q19 tell you how to discount the contributions; your unpaid minimum from the prior year goes into your reconciliation in Q28.

23 hours ago, Lou S. said:

But with respect to the 100% penalty, I though that was imposed by the IRS ONLY if the funding deficiency wasn't corrected by the time they contacted you.

That was my recollection as well, and similarly (thankfully) had not had to deal with in a long time.