Category: Compensation & Employee Benefits
Subject: SEP Contributions
Title: Timing of Contribution Deduction
IRC Sections: 404(h)(1)(B), 1366(a) and 1363(b)
Filename: 1305.html
Date Produced: 03/94 Copyright 1998, The Tax Resource Group. All rights reserved.
Telephone 800-578-3498. Internet: www.taxresourcegroup.com Issues
1. What is the appropriate treatment of 1993 SEP contributions
made in 1994 by a cash basis S corporation? 2. What is the appropriate reporting for SEP contributions
made on behalf of the employee-shareholder of an S corporation?
In essence, are the contributions deducted on Form 1120S or on
the shareholder's Form 1040? Answers
1. §404(h)(1)(B) provides that SEP contributions on account
of a given tax year can be made up through the due date of the
tax return for that year (including extensions if applicable).
Accordingly, 1993 SEP contributions can be made through March
15, 1994 (September 15, 1994 if Form 1120S is extended). Neither
§404(h)(1)(B), nor its related regulations, nor IRS Publication
560 which deals with SEP's, provides any requirements or guidance
with respect to specifying or in any way disclosing that 1994
payments have been made on account of the 1993 tax year. Presumably,
that means simply deducting 1994 payments made by the appropriate
cutoff date on the 1993 return is disclosure enough. Revenue Ruling
76-28, 1976-1 C.B. 106, as modified by Revenue Ruling 76-77, 1976-1
C.B. 107, supports this conclusion and adds the additional requirement
that the plan administrator treat the contributions consistently.
In other words, the 1994 contributions must be handled by the
SEP as being on account of 1993. The taxpayer should be advised
to make sure this happens. Just to be safe and for ease of tracking
the deduction, I also suggest the following. Attach a white-paper
schedule to Form 1120S which splits out the deduction between
payments actually made in 1993 applicable to 1993 and those made
in 1994 applicable to 1993. This way, there will it will be absolutely
clear and much less likely that contributions will be double counted
or excluded. 2. SEP contributions on behalf of the shareholder employee
are deducted on Form 1120S, not the shareholder's Form 1040. §§1366(a)
and 1363(b) deal with S corporation items required to be separately
stated to the shareholder, such as portfolio income, capital gains,
etc. I can see no requirement anywhere to separately state SEP
contributions (or any other qualified plan contributions for that
matter). As you know, SEP payments are separately disclosed for
partners of a partnership. However, there seems to be no similar
rule for S corporations. |
