Return of Non Deductible Contribution

I have a small Defined Benefit Plan that is terminating due to the sale of the Sponsor's dental practice.  The Plan is underfunded so the owner will be signing a waiver for the unfunded portion of his benefit.  So far no problem.  A substantial contribution was deposited in 2019 to make up some of the unfunded shortfall.  The amount deposited was well within the Plan's maximum deductible limit.  However, when the accountant completed the 2018 preliminary returns the Net Schedule Income for 2018 is about $17,000 less than the deposited amount.  The accountant is going to take a deduction for only the portion up to the Net Schedule C amount, not the full amount of the deposit.

According to the accountant there will be no Schedule C Income after 2018 so the excess $17,000 cannot be deducted in a later year.  My understanding is that the Sponsor will owe a 10% penalty for the non deductible contribution for the 2019 Plan Year (the year of the deposit).  How is the excess contribution paid out of the Plan? 

Some plans have a "deductibility clause".  Relevant here?

It's been a long time but I believe the IRS' position is that the "deductibility clause" to which you refer is not self-executing; namely, the employer can get the non-deductible amount back only if the IRS actually denies the deduction.  There was (is) a Rev. Proc. that provides a quick and dirty way of "deeming" a disallowance, but I think that applied only to quarterly contributions to DB plans.   

Thanks for the response.  It occurred to me to ask the accountant to limit the deductions he was reporting on the Schedule C so that the full contribution is deductible.

Same result of $0 income but now no excess contribution.

The accountant agreed that would be best!

2 hours ago, jpod said:

It's been a long time but I believe the IRS' position is that the "deductibility clause" to which you refer is not self-executing; namely, the employer can get the non-deductible amount back only if the IRS actually denies the deduction.  There was (is) a Rev. Proc. that provides a quick and dirty way of "deeming" a disallowance, but I think that applied only to quarterly contributions to DB plans.   

90-49

2 hours ago, ConnieStorer said:

Thanks for the response.  It occurred to me to ask the accountant to limit the deductions he was reporting on the Schedule C so that the full contribution is deductible.

Same result of $0 income but now no excess contribution.

The accountant agreed that would be best!

I believe there is a Code section that would have allowed you to escape the excise tax. 4972c7? But you don't need it anymore.