Can I Amend That Schedule SB?
The final Section 430 regulations provided clarity on the ordering of contributions.
Treas. Reg. 1.430(j)-1(b)(3)(iii)(B) provides:
“(B) Designation of plan year if no unpaid minimum contribution. In the case of a contribution described in paragraph (b)(3)(ii) of this section, the designation is established by the completion (and filing, if required) of the actuarial report (Schedule SB, “Single-Employer Defined Benefit Plan Actuarial Information” of Form 5500, “Annual Return/Report of Employee Benefit Plan”) for the plan year for which the contribution is designated and cannot be changed after the actuarial report that reflects the contribution is completed (and filed, if required) except as provided in guidance published in the Internal Revenue Bulletin. Thus, a contribution that has been designated for a plan year on an actuarial report pursuant to this paragraph (b)(3)(iii)(B) generally cannot be redesignated as a contribution for either an earlier or later plan year.”
Ignoring the effective date of the final Section 430 regulations, assume the client files a 2015 Schedule SB showing a $200,000 deposit. The minimum required contribution was $100,000, so there was no deficiency. The maximum deductible contribution $210,000 and the CPA tells the client to put in another $10,000, which is done before 9/15/16. The CPA deducts $210,000.
In our opinion, since there is no requirement that the contributions reflected on the Schedule SB match the deduction for the year, we can just include the additional $10,000 on the 2016 Schedule SB. However, what if the CPA or client is insistent that the 2015 SB and the tax return must be consistent?
Does the above regulation allow the 2015 SB to be amended now to reflect the $10,000 additional contribution? Note that the $10,000 contribution has not been reported yet on the 2016 SB since it’s not been filed.
A literal reading of the regulation states that the irrevocable designation of a contribution occurs only when a contribution is shown on a Schedule SB and, if required, filed. The fact that a contribution was not reflected on a Schedule SB does not
lock that contribution into the subsequent plan year. The amended 2015 Schedule SB will be the first Schedule SB reflecting the additional $10,000 contribution and will lock in that contribution for the 2015 plan year. This clarification on the designation of contributions is consistent with the PBGC Policy Statement
on amended filings and premium changes based on recharacterization of contributions.
This discussion on the ACOPA listserv prompted an additional question on the position of whether the 412 year must equal the 404 year. For example, assume a sole proprietor makes a contribution after 9/15/2017, but before 10/15/2017. Can that contribution be deducted in 2016, but reflected on the 2017 Schedule SB? The focus of the discussion was on what the contribution was made “on account of.” There are some court cases that may indicate that the 412 year might be a legitimate factor in determining the 404 year. In other words, IF the 412 year was the most relevant issue in making the contribution, then the argument can be made the contribution should be deducted in the same year as it was reflected for 412.
What if the plan was fully funded and the minimum required contribution for 2016 and 2017 is $0? In this case the 412 year is irrelevant. The fact that the contribution was made after the 412 funding deadline should not determine the year the contribution is deducted. It was made “on account of” the 2016 tax year and should be deductible for that year.
What if instead the plan had minimum required contributions for both 2016 and 2017? If they contribute the full minimum required contribution by 9/15/2017, and make an additional contribution to satisfy the 2017 quarterlies by 10/15/2017, can they still deduct that additional contribution in 2016? We think the argument still holds that the contribution was made “on account of” 2016 for tax purposes. The fact that it also was made “on account of” a required quarterly contribution for 2017 should not override the deduction. Of course, there is the risk the IRS may take a different position as to the 412 year being the deciding factor, and one must be prepared to defend the opposite position of the deduction year being separate from the 412 year should it become an issue under IRS review. One place to start in building your defense is Rev. Ruling 76-28, which provides that the employer may designate a contribution as being on account of a tax year by deducting the contribution on the return for such year.