2022 415c failure distributed September 2023 - taxation?

Maybe because I see this so rarely now, and partially because I mix up my 415c and 402g deadlines, but...

Just got word that a sole prop who had already deposited $27K in pre-tax 401k deferrals for 2022 is going to have a negative Schedule C net income.  This is the double-tax situation, where when it is distributed it's taxed for 2022 and then again in 2023 because it was refunded after 4/15/23... ?

Thanks.

There isn't a 415(c) refund deadline discussed in the code or regs. The concept only appears in EPCRS. And under the newly-expanded EPCRS regime, an eligible inadvertent failure can be self-corrected within a reasonable period after it is identified. So go ahead and refund it now, with earnings. But the sponsor should have reasonable practices and procedures in place to prevent such failures from occurring again - for example, maybe not depositing contributions until after their compensation for the year is known.

Thank you!

To be fair, I'm not sure "make sure you're not going to lose money this year as a sole proprietor" should count as reasonable if the 27,000 is going in ratably over the year.   *Maybe* if they're frontloading in January and coming off years of losses.

2 hours ago, Bri said:

To be fair, I'm not sure "make sure you're not going to lose money this year as a sole proprietor" should count as reasonable if the 27,000 is going in ratably over the year.   *Maybe* if they're frontloading in January and coming off years of losses.

Good point, but they only have to make their election by December 31. They can fund later, and of course the election is automatically reduced to the extent would exceed 415(c). I get it that they would be missing the tax-deferred earnings. Just pointing out that there is an alternative.