We have a client that has contributed $200,000 to their DB Plan during 2005. The minimum required is $100,000 and the maximum is $250,000. The client wants to only deduct $100,000 for 2005 and deduct the remaining $100,000 in 2006. The contribution range for 2006 should be the same.

Is this possible?

Sure it's possible. However, assuming you don't have some "mistake of fact" mechanism to remove the money from the plan, for 2005 you have a non-deductible contribution to the plan and a nice 10% excise tax. You also need to be sure that there will be at least a $100,000 difference between the minimum required contribution and the maximum deductible contribution for 2006, so that you don't have another nondeductible contribution.

Blinky - I have a question about this. Why is the 100,000 considered "nondeductible" for 2005? Or to put it another way, it seems like the language in 4972©(1)(A)(ii) refers to the amount "allowable" as a deduction under 404. Now the 100,000 is clearly allowable as a deduction - the employer just chooses not to.

Is there additional guidance where the IRS clarifies this? It just seems to me that there shouldn't be an excise tax for a contribution that is otherwise allowable as a deduction (it didn't exceed the 404 allowable deductible amount). I saw nothing in Notice 87-27 that helps, as the examples were all concerned with having an actual previous "nondeductible" amount already in the plan.

Thanks.

Hmm, can I just delete my answer? Yes, upon further reflection, I agree with you Belgarath.

I still do think you have some very minimal concern with 2006 in making sure there is the room between the min and max. It's very minimal though because $100k will be a nondeductible carryforward that will reduce 404 assets and because you will have a large credit balance.

Don't you also have the option of contributing up to the full funding limit without penalty even if it is not deductible? Another EGTRRA thing I think I thaw.

I think that this issue is really whether you can have an expense in one year and take the deduction for it in a later year. I'm no CPA, so I don't have a clue, although I would think not because the whole purpose would be tax evasion.

Correct.

This is really a CPA question.

But, I think the "Carryover" of deduction works only if there is a non-deductible amount involved. Here, the dedcutible amount is up to $250k. Since they deposited $200k which is less than the maximum deductible, I don't think there is any amount to be carried over Unless a deduction over $100k would create a loss for the business entity, in which case the loss can be carried forward and deducted in subsequnt year(s).

But and more but, like "saeissler" I am no CPA, the carryover situation arises only when the required minimum contribution exceeds the sponsor's net profits (eg. when for a Sole Prop's required min contribution exceeds Sch C less 1/2 FICA).

So if your client's net profits (before the DB's $100k minimum contribution) are $100k or more, I don't think there is carryover of any amount to 2006. This is in line with saeissler's response - one cannot use prior yea(s)'s "unnecessary" expense to reduce (avoid) taxes in subsequent years.

Although, your client doesn't have a problem for 2005, he will (or should I say, may?) have a problem when it comes to taking an additional deduction in 2006 of the $100k deduction not taken for 2005.