A company has changed from an S-Corporation to a Partnership during 2003. In the first part of the plan year (1/1 to 12/31) the shareholders received W-2 compensation. In the second half of the plan year the shareholders will be reporting K-1 income. The K-1 earned income is going to be reported at a loss exceeding the W-2 compensation reported in the beginning of the year. IN order to determine the compensation for plan purposes, is the loss combined with the W-2 compensation and the sharholders have zero compensation for 2003 or do the shareholders have compensation in the amount reported on their W-2s?

Any help would be appreciated.

Jane F

Per Sal's Erisa Outling page 1.124, code section 401(d) and regulations 1.401-10(b)(2) support not netting the loss with the income. He references Rev Rul 79-286,s which addresses IRAs, as no applicable.