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Gene E. Utterback, EA
I am having a rather interesting "discussion" with a prospective client
regarding their company's profit sharing plan. Here are the facts as I've
received them:
Client has an S corporation, formed in 1999;
S Corporation has NEVER had any profit shown on the return;
S Corporation's financial advisor sold them a "Profit-Sharing" plan back in
2000;
S Corporation's financial advisor has had them contribute to the profit
sharing plan each year since inception - for both the owners and unrelated
employees.
Our discussion revolves around this question "how does one calculate the
employer's contributions for a profit sharing plan when the company has
never had any profits?"
I know IRS Section 401(a)(27)(A) "The determination of whether the plan
under which any contributions are made is a profit-sharing plan shall be
made without regard to current or accumulated profits of the employer and
without regard to whether the employer is a tax-exempt organization."
I believe that this only enables the establishment of a profit sharing plan
but does not specifically allow contributions in years the company has no
profit.
Any information or guidance would be appreciated.
Thanks,
Gene E. Utterback, EA
regarding their company's profit sharing plan. Here are the facts as I've
received them:
Client has an S corporation, formed in 1999;
S Corporation has NEVER had any profit shown on the return;
S Corporation's financial advisor sold them a "Profit-Sharing" plan back in
2000;
S Corporation's financial advisor has had them contribute to the profit
sharing plan each year since inception - for both the owners and unrelated
employees.
Our discussion revolves around this question "how does one calculate the
employer's contributions for a profit sharing plan when the company has
never had any profits?"
I know IRS Section 401(a)(27)(A) "The determination of whether the plan
under which any contributions are made is a profit-sharing plan shall be
made without regard to current or accumulated profits of the employer and
without regard to whether the employer is a tax-exempt organization."
I believe that this only enables the establishment of a profit sharing plan
but does not specifically allow contributions in years the company has no
profit.
Any information or guidance would be appreciated.
Thanks,
Gene E. Utterback, EA