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Deemed CODA Concern -- Profit Sharing Contribution Taken Into Account for Partnership Distribution
BenefitsLink Message BoardsLink to more items from this source
Apr. 27, 2021

"I've been lurking for awhile, getting great information, but decided to finally hop-on and pose a question. Apologies, if I missed any formalities or unwritten rules, let me know and I will make sure to address in the future!

I know the cross-tested profit sharing allocation being treated as a deemed CODA in a partnership setting has been addressed in a number of different posts, however, I had a question that I did not see addressed directly, and I wondered if anyone would like to opine on the below.

Assume a plan has a profit-sharing feature that is allocated to individual allocation groups and tested on a cross-tested basis. The sponsor is a professional group treated as a partnership for federal tax purposes, with more than ten partners. The question stated as summarily as possible is whether a deemed CODA is created (or could be arguable be determined to be created by the IRS) if the partners year end partnership distribution (or bonus) is reduced by amounts they received as a profit sharing contribution. Stated differently, the plan sponsor/employer takes into account the profit sharing contribution in determining the partner/participants year end partnership distribution/bonus. Assume that the plan sponsor fully complies with plan formalities in regards to declaring the profit sharing contribution amounts and directions to the Trustee as to the allocation of the contribution to each individual allocation group/account, and there is no paper trail showing individual elections/requests of the partners relating to the amount the would desire to have contributed to their account.

I have looked for agency determinations and formal/informal guidance on the matter and have not been able to find anything other than the 'we will know abuse when we see it' response. Was wondering if anyone had either (A) firsthand experience with a similar matter or (B) could point to any guidance informative on the matter."

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