Deduction acceleration opportunity for defined benefit plans.

• Author: Tievsky, Seth

Letter Ruling (TAM) 9935062 provides insight into the requirements for defined benefit plan contributions made after the end of the employer's tax year, but before the extended due date of its income tax return, to be deductible for the prior tax year. Although Sec. 404(a)(6) and Rev. Rul. 76-28 clearly allow employers to make contributions to qualified retirement plans during this extended period, little substantive guidance addresses how defined benefit plans actually satisfy these requirements.

Sec. 404 governs the deductibility of Contributions to qualified retirement plans. It provides that contributions are deductible in the tax year paid. Sec. 404(a)(6) provides, that a contribution is deemed to be made on the last day of the preceding tax year if it is made before the extended due date of the employer's income tax return and is on account of the preceding tax year. Under Rev. Rul. 76-28, a contribution is on account of the preceding tax year if (1) it is treated as if it were actually made to the plan on the last day of the preceding tax year and (2) the employer either deducts the contribution on its income tax return for the preceding tax year or designates in writing to the plan trustee that the contribution relates to the preceding tax year.

In TAM 9935062, the employer, whose fiscal year ended June 30, maintained a single-employer defined benefit pension plan. The employer claimed a $1.17,291,000 deduction for plan contributions on its income tax return for its fiscal year ending June 30,1984. Of the total amount, $75,443,000 was contributed during its fiscal year ending June 30, 1984; $41,848,000 was contributed from July to December 1984. On an amended Form 5500, Annual Return/Report of Employee Benefit Plans (with 100 or more participants), and amended Schedule B, the employer reported the $41,848,000 as contributions for the plan year ended June 30,1984, and deducted the entire $117,291,000 on its 1984 return.

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