Current deduction disallowed for post-year-end pension contributions.

• Author: Tievsky, Seth

In a decision of first impression, the Tax Court held, in Lucky Stores, Inc., 107 TC No. 1 (1996), that an employer could not currently deduct under Sec. 404 certain post-year-end contributions to a multiemployer pension plan.

Lucky Stores, a fiscal-year taxpayer, contributed to several multi-employer pension plans on a monthly basis under collective bargaining agreements. Each contribution was calculated by multiplying the number of hours or weeks worked by covered employees during the month by a monetary rate set in the collective bargaining agreement.

During each tax year prior to the year in issue, Lucky Stores added the 12 monthly contributions attributable to covered hours or weeks worked during the year, and claimed a deduction for the total amount. However, for its tax year ending Feb. 2, 1996, Lucky Stores claimed a deduction for the 12 contributions made during the tax year, plus contributions made before Oct. 15, 1986, the extended deadline for filing its return (a total of 19 or 20 months, depending on the plan). The IRS disallowed the deduction for contributions made during the post-year-end "grace period."

Deductibility Under Sec. 404

The limits on deductible plan contributions for a tax year are contained in Sec. 404(a)(1)(A). Sec. 404(a)(6) provides that, for purposes of Sec. (404(a)(1)(A), a taxpayer is deemed to have made a contribution on the last day of the preceding tax year if die payment is on account of such tax year and is made not later than the extended due date of the employer's tax return.

With respect to collectively bargained plans, Sec.413(b)(7) provides that the Sec. 404(a) limit on deductions is to be determined as if all plan participants pants were employed by a single employer. The amount contributed by each employer win not be treated as exceeding the Sec. 404(a) limit if anticipated employer contributions for the plan year are no greater than the limitation. Sec. 413(b)(7) provides that anticipated employer contributions for a plan year must be determined in a manner consistent with the manner in which actual employer contributions are determined.

Lucky Stores cited Rev. Rul. 76-28, which provided that, regardless of whether a taxpayer is on the cash or accrual method of accounting, a payment made after the close of m employer's tax year shall be considered to be "on account of" the preceding tax year if two conditions are satisfied. First, the payment must be treated by the plan in the same manner...