Client was hit with random IRS audit for 2003 plan year. Plan year ends 6/30. Turns out that 3 employees were missed on the contribution allocation. My recommended correction (vested portion of contribution plus income) was accepted by IRS and money will be contributed to plan. My only question is...is it a deductible expense for 2007 py or do they miss out on the deduction altogether.

If it's deductible...for what year?

I think its deductible for the tax year in which made, 2007.

I'd say the missed contribution is deductible as an employer contribution in the year contributed. However, I think the income is treated differently. This would not be considered an employer contribution, but could be treated as a regular business expense.

See Rev. Rul. 76-28. Deuction for contribuion is only available in yr contributed or if made by due date for fing the return. The income is also a contribution to the plan.