26 U.S.C. § 404 : US Code - Section 404: Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan

Search 26 U.S.C. § 404 : US Code - Section 404: Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan

(a) General rule
If contributions are paid by an employer to or under a stock
bonus, pension, profit-sharing, or annuity plan, or if compensation
is paid or accrued on account of any employee under a plan
deferring the receipt of such compensation, such contributions or
compensation shall not be deductible under this chapter; but, if
they would otherwise be deductible, they shall be deductible under
this section, subject, however, to the following limitations as to
the amounts deductible in any year:
(1) Pension trusts
(A) In general
In the taxable year when paid, if the contributions are paid
into a pension trust (other than a trust to which paragraph (3)
applies), and if such taxable year ends within or with a
taxable year of the trust for which the trust is exempt under
section 501(a), in an amount determined as follows:
(i) the amount necessary to satisfy the minimum funding
standard provided by section 412(a) for plan years ending
within or with such taxable year (or for any prior plan
year), if such amount is greater than the amount determined
under clause (ii) or (iii) (whichever is applicable with
respect to the plan),
(ii) the amount necessary to provide with respect to all of
the employees under the trust the remaining unfunded cost of
their past and current service credits distributed as a level
amount, or a level percentage of compensation, over the
remaining future service of each such employee, as determined
under regulations prescribed by the Secretary, but if such
remaining unfunded cost with respect to any 3 individuals is
more than 50 percent of such remaining unfunded cost, the
amount of such unfunded cost attributable to such individuals
shall be distributed over a period of at least 5 taxable
years,
(iii) an amount equal to the normal cost of the plan, as
determined under regulations prescribed by the Secretary,
plus, if past service or other supplementary pension or
annuity credits are provided by the plan, an amount necessary
to amortize the unfunded costs attributable to such credits
in equal annual payments (until fully amortized) over 10
years, as determined under regulations prescribed by the
Secretary.
In determining the amount deductible in such year under the
foregoing limitations the funding method and the actuarial
assumptions used shall be those used for such year under
section 412, and the maximum amount deductible for such year
shall be an amount equal to the full funding limitation for
such year determined under section 412.
(B) Special rule in case of certain amendments
In the case of a plan which the Secretary of Labor finds to
be collectively bargained which makes an election under this
subparagraph (in such manner and at such time as may be
provided under regulations prescribed by the Secretary), if the
full funding limitation determined under section 412(c)(7) for
such year is zero, if as a result of any plan amendment
applying to such plan year, the amount determined under section
412(c)(7)(B) exceeds the amount determined under section
412(c)(7)(A), and if the funding method and the actuarial
assumptions used are those used for such year under section
412, the maximum amount deductible in such year under the
limitations of this paragraph shall be an amount equal to the
lesser of -
(i) the full funding limitation for such year determined by
applying section 412(c)(7) but increasing the amount referred
to in subparagraph (A) thereof by the decrease in the present
value of all unamortized liabilities resulting from such
amendment, or
(ii) the normal cost under the plan reduced by the amount
necessary to amortize in equal annual installments over 10
years (until fully amortized) the decrease described in
clause (i).
In the case of any election under this subparagraph, the amount
deductible under the limitations of this paragraph with respect
to any of the plan years following the plan year for which such
election was made shall be determined as provided under such
regulations as may be prescribed by the Secretary to carry out
the purposes of this subparagraph.
(C) Certain collectively-bargained plans
In the case of a plan which the Secretary of Labor finds to
be collectively bargained, established or maintained by an
employer doing business in not less than 40 States and engaged
in the trade or business of furnishing or selling services
described in section 168(i)(10)(C), with respect to which the
rates have been established or approved by a State or political
subdivision thereof, by any agency or instrumentality of the
United States, or by a public service or public utility
commission or other similar body of any State or political
subdivision thereof, and in the case of any employer which is a
member of a controlled group with such employer, subparagraph
(B) shall be applied by substituting for the words "plan
amendment" the words "plan amendment or increase in benefits
payable under title II of the Social Security Act". For the
purposes of this subparagraph, the term "controlled group" has
the meaning provided by section 1563(a), determined without
regard to section 1563(a)(4) and (e)(3)(C).
(D) Special rule in case of certain plans
(i) In general
In the case of any defined benefit plan, except as provided
in regulations, the maximum amount deductible under the
limitations of this paragraph shall not be less than the
unfunded current liability determined under section 412(l).
(ii) Plans with 100 or less participants
For purposes of this subparagraph, in the case of a plan
which has 100 or less participants for the plan year,
unfunded current liability shall not include the liability
attributable to benefit increases for highly compensated
employees (as defined in section 414(q)) resulting from a
plan amendment which is made or becomes effective, whichever
is later, within the last 2 years.
(iii) Rule for determining number of participants
For purposes of determining the number of plan
participants, all defined benefit plans maintained by the
same employer (or any member of such employer's controlled
group (within the meaning of section 412(l)(8)(C))) shall be
treated as one plan, but only employees of such member or
employer shall be taken into account.
(iv) Special rule for terminating plans
In the case of a plan which, subject to section 4041 of the
Employee Retirement Income Security Act of 1974, terminates
during the plan year, clause (i) shall be applied by
substituting for unfunded current liability the amount
required to make the plan sufficient for benefit liabilities
(within the meaning of section 4041(d) of such Act).
(E) Carryover
Any amount paid in a taxable year in excess of the amount
deductible in such year under the foregoing limitations shall
be deductible in the succeeding taxable years in order of time
to the extent of the difference between the amount paid and
deductible in each such succeeding year and the maximum amount
deductible for such year under the foregoing limitations.
(F) Election to disregard modified interest rate
An employer may elect to disregard subsections
(b)(5)(B)(ii)(II) and (l)(7)(C)(i)(IV) of section 412 solely
for purposes of determining the interest rate used in
calculating the maximum amount of the deduction allowable under
this paragraph.
(2) Employees' annuities
In the taxable year when paid, in an amount determined in
accordance with paragraph (1), if the contributions are paid
toward the purchase of retirement annuities, or retirement
annuities and medical benefits as described in section 401(h),
and such purchase is part of a plan which meets the requirements
of section 401(a)(3), (4), (5), (6), (7), (8), (9), (11), (12),
(13), (14), (15), (16), (17),(!1) (19), (20), (22), (26), (27),
and (31) and, if applicable, the requirements of section
401(a)(10) and of section 401(d), and if refunds of premiums, if
any, are applied within the current taxable year or next
succeeding taxable year toward the purchase of such retirement
annuities, or such retirement annuities and medical benefits.
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In general
In the taxable year when paid, if the contributions are
paid into a stock bonus or profit-sharing trust, and if such
taxable year ends within or with a taxable year of the trust
with respect to which the trust is exempt under section
501(a), in an amount not in excess of the greater of -
(I) 25 percent of the compensation otherwise paid or
accrued during the taxable year to the beneficiaries under
the stock bonus or profit-sharing plan, or
(II) the amount such employer is required to contribute
to such trust under section 401(k)(11) for such year.
(ii) Carryover of excess contributions
Any amount paid into the trust in any taxable year in
excess of the limitation of clause (i) (or the corresponding
provision of prior law) shall be deductible in the succeeding
taxable years in order of time, but the amount so deductible
under this clause in any 1 such succeeding taxable year
together with the amount allowable under clause (i) shall not
exceed the amount described in subclause (I) or (II) of
clause (i), whichever is greater, with respect to such
taxable year.
(iii) Certain retirement plans excluded
For purposes of this subparagraph, the term "stock bonus or
profit-sharing trust" shall not include any trust designed to
provide benefits upon retirement and covering a period of
years, if under the plan the amounts to be contributed by the
employer can be determined actuarially as provided in
paragraph (1).
(iv) 2 or more trusts treated as 1 trust
If the contributions are made to 2 or more stock bonus or
profit-sharing trusts, such trusts shall be considered a
single trust for purposes of applying the limitations in this
subparagraph.
(v) Defined contribution plans subject to the funding
standards
Except as provided by the Secretary, a defined contribution
plan which is subject to the funding standards of section 412
shall be treated in the same manner as a stock bonus or
profit-sharing plan for purposes of this subparagraph.
(B) Profit-sharing plan of affiliated group
In the case of a profit-sharing plan, or a stock bonus plan
in which contributions are determined with reference to
profits, of a group of corporations which is an affiliated
group within the meaning of section 1504, if any member of such
affiliated group is prevented from making a contribution which
it would otherwise have made under the plan, by reason of
having no current or accumulated earnings or profits or because
such earnings or profits are less than the contributions which
it would otherwise have made, then so much of the contribution
which such member was so prevented from making may be made, for
the benefit of the employees of such member, by the other
members of the group, to the extent of current or accumulated
earnings or profits, except that such contribution by each such
other member shall be limited, where the group does not file a
consolidated return, to that proportion of its total current
and accumulated earnings or profits remaining after adjustment
for its contribution deductible without regard to this
subparagraph which the total prevented contribution bears to
the total current and accumulated earnings or profits of all
the members of the group remaining after adjustment for all
contributions deductible without regard to this subparagraph.
Contributions made under the preceding sentence shall be
deductible under subparagraph (A) of this paragraph by the
employer making such contribution, and, for the purpose of
determining amounts which may be carried forward and deducted
under the second sentence of subparagraph (A) of this paragraph
in succeeding taxable years, shall be deemed to have been made
by the employer on behalf of whose employees such contributions
were made.
(4) Trusts created or organized outside the United States
If a stock bonus, pension, or profit-sharing trust would
qualify for exemption under section 501(a) except for the fact
that it is a trust created or organized outside the United
States, contributions to such a trust by an employer which is a
resident, or corporation, or other entity of the United States,
shall be deductible under the preceding paragraphs.
(5) Other plans
If the plan is not one included in paragraph (1), (2), or (3),
in the taxable year in which an amount attributable to the
contribution is includible in the gross income of employees
participating in the plan, but, in the case of a plan in which
more than one employee participates only if separate accounts are
maintained for each employee. For purposes of this section, any
vacation pay which is treated as deferred compensation shall be
deductible for the taxable year of the employer in which paid to
the employee.
(6) Time when contributions deemed made
For purposes of paragraphs (1), (2), and (3), a taxpayer shall
be deemed to have made a payment on the last day of the preceding
taxable year if the payment is on account of such taxable year
and is made not later than the time prescribed by law for filing
the return for such taxable year (including extensions thereof).
(7) Limitation on deductions where combination of defined
contribution plan and defined benefit plan
(A) In general
If amounts are deductible under the foregoing paragraphs of
this subsection (other than paragraph (5)) in connection with 1
or more defined contribution plans and 1 or more defined
benefit plans or in connection with trusts or plans described
in 2 or more of such paragraphs, the total amount deductible in
a taxable year under such plans shall not exceed the greater of
-
(i) 25 percent of the compensation otherwise paid or
accrued during the taxable year to the beneficiaries under
such plans, or
(ii) the amount of contributions made to or under the
defined benefit plans to the extent such contributions do not
exceed the amount of employer contributions necessary to
satisfy the minimum funding standard provided by section 412
with respect to any such defined benefit plans for the plan
year which ends with or within such taxable year (or for any
prior plan year).
A defined contribution plan which is a pension plan shall not
be treated as failing to provide definitely determinable
benefits merely by limiting employer contributions to amounts
deductible under this section. For purposes of clause (ii), if
paragraph (1)(D) applies to a defined benefit plan for any plan
year, the amount necessary to satisfy the minimum funding
standard provided by section 412 with respect to such plan for
such plan year shall not be less than the unfunded current
liability of such plan under section 412(l).
(B) Carryover of contributions in excess of the deductible
limit
Any amount paid under the plans in any taxable year in excess
of the limitation of subparagraph (A) shall be deductible in
the succeeding taxable years in order of time, but the amount
so deductible under this subparagraph in any 1 such succeeding
taxable year together with the amount allowable under
subparagraph (A) shall not exceed 25 percent of the
compensation otherwise paid or accrued during such taxable year
to the beneficiaries under the plans.
(C) Paragraph not to apply in certain cases
(i) Beneficiary test
This paragraph shall not have the effect of reducing the
amount otherwise deductible under paragraphs (1), (2), and
(3), if no employee is a beneficiary under more than 1 trust
or under a trust and an annuity plan.
(ii) Elective deferrals
If, in connection with 1 or more defined contribution plans
and 1 or more defined benefit plans, no amounts (other than
elective deferrals (as defined in section 402(g)(3))) are
contributed to any of the defined contribution plans for the
taxable year, then subparagraph (A) shall not apply with
respect to any of such defined contribution plans and defined
benefit plans.
(D) Section 412(i) plans
For purposes of this paragraph, any plan described in section
412(i) shall be treated as a defined benefit plan.
(8) Self-employed individuals
In the case of a plan included in paragraph (1), (2), or (3)
which provides contributions or benefits for employees some or
all of whom are employees within the meaning of section
401(c)(1), for purposes of this section -
(A) the term "employee" includes an individual who is an
employee within the meaning of section 401(c)(1), and the
employer of such individual is the person treated as his
employer under section 401(c)(4);
(B) the term "earned income" has the meaning assigned to it
by section 401(c)(2);
(C) the contributions to such plan on behalf of an individual
who is an employee within the meaning of section 401(c)(1)
shall be considered to satisfy the conditions of section 162 or
212 to the extent that such contributions do not exceed the
earned income of such individual (determined without regard to
the deductions allowed by this section) derived from the trade
or business with respect to which such plan is established, and
to the extent that such contributions are not allocable
(determined in accordance with regulations prescribed by the
Secretary) to the purchase of life, accident, health, or other
insurance; and
(D) any reference to compensation shall, in the case of an
individual who is an employee within the meaning of section
401(c)(1), be considered to be a reference to the earned income
of such individual derived from the trade or business with
respect to which the plan is established.
(9) Certain contributions to employee stock ownership plans
(A) Principal payments
Notwithstanding the provisions of paragraphs (3) and (7), if
contributions are paid into a trust which forms a part of an
employee stock ownership plan (as described in section
4975(e)(7)), and such contributions are, on or before the time
prescribed in paragraph (6), applied by the plan to the
repayment of the principal of a loan incurred for the purpose
of acquiring qualifying employer securities (as described in
section 4975(e)(8)), such contributions shall be deductible
under this paragraph for the taxable year determined under
paragraph (6). The amount deductible under this paragraph shall
not, however, exceed 25 percent of the compensation otherwise
paid or accrued during the taxable year to the employees under
such employee stock ownership plan. Any amount paid into such
trust in any taxable year in excess of the amount deductible
under this paragraph shall be deductible in the succeeding
taxable years in order of time to the extent of the difference
between the amount paid and deductible in each such succeeding
year and the maximum amount deductible for such year under the
preceding sentence.
(B) Interest payment
Notwithstanding the provisions of paragraphs (3) and (7), if
contributions are made to an employee stock ownership plan
(described in subparagraph (A)) and such contributions are
applied by the plan to the repayment of interest on a loan
incurred for the purpose of acquiring qualifying employer
securities (as described in subparagraph (A)), such
contributions shall be deductible for the taxable year with
respect to which such contributions are made as determined
under paragraph (6).
(C) S corporations
This paragraph shall not apply to an S corporation.
(D) Qualified gratuitous transfers
A qualified gratuitous transfer (as defined in section
664(g)(1)) shall have no effect on the amount or amounts
otherwise deductible under paragraph (3) or (7) or under this
paragraph.
(10) Contributions by certain ministers to retirement income
accounts
In the case of contributions made by a minister described in
section 414(e)(5) to a retirement income account described in
section 403(b)(9) and not by a person other than such minister,
such contributions -
(A) shall be treated as made to a trust which is exempt from
tax under section 501(a) and which is part of a plan which is
described in section 401(a), and
(B) shall be deductible under this subsection to the extent
such contributions do not exceed the limit on elective
deferrals under section 402(g) or the limit on annual additions
under section 415.
For purposes of this paragraph, all plans in which the minister
is a participant shall be treated as one plan.
(11) Determinations relating to deferred compensation
For purposes of determining under this section -
(A) whether compensation of an employee is deferred
compensation; and
(B) when deferred compensation is paid,
no amount shall be treated as received by the employee, or paid,
until it is actually received by the employee.
(12) Definition of compensation
For purposes of paragraphs (3), (7), (8), and (9) and
subsection (h)(1)(C), the term "compensation" shall include
amounts treated as "participant's compensation" under
subparagraph (C) or (D) of section 415(c)(3).
(b) Method of contributions, etc., having the effect of a plan;
certain deferred benefits
(1) Method of contributions, etc., having the effect of a plan
If -
(A) there is no plan, but
(B) there is a method or arrangement of employer
contributions or compensation which has the effect of a stock
bonus, pension, profit-sharing, or annuity plan, or other plan
deferring the receipt of compensation (including a plan
described in paragraph (2)),
subsection (a) shall apply as if there were such a plan.
(2) Plans providing certain deferred benefits
(A) In general
For purposes of this section, any plan providing for deferred
benefits (other than compensation) for employees, their
spouses, or their dependents shall be treated as a plan
deferring the receipt of compensation. In the case of such a
plan, for purposes of this section, the determination of when
an amount is includible in gross income shall be made without
regard to any provisions of this chapter excluding such
benefits from gross income.
(B) Exception
Subparagraph (A) shall not apply to any benefit provided
through a welfare benefit fund (as defined in section 419(e)).
(c) Certain negotiated plans
If contributions are paid by an employer -
(1) under a plan under which such contributions are held in
trust for the purpose of paying (either from principal or income
or both) for the benefit of employees and their families and
dependents at least medical or hospital care, or pensions on
retirement or death of employees; and
(2) such plan was established prior to January 1, 1954, as a
result of an agreement between employee representatives and the
Government of the United States during a period of Government
operation, under seizure powers, of a major part of the
productive facilities of the industry in which such employer is
engaged,
such contributions shall not be deductible under this section nor
be made nondeductible by this section, but the deductibility
thereof shall be governed solely by section 162 (relating to trade
or business expenses). For purposes of this chapter and subtitle B,
in the case of any individual who before July 1, 1974, was a
participant in a plan described in the preceding sentence -
(A) such individual, if he is or was an employee within the
meaning of section 401(c)(1), shall be treated (with respect to
service covered by the plan) as being an employee other than an
employee within the meaning of section 401(c)(1) and as being an
employee of a participating employer under the plan,
(B) earnings derived from service covered by the plan shall be
treated as not being earned income within the meaning of section
401(c)(2), and
(C) such individual shall be treated as an employee of a
participating employer under the plan with respect to service
before July 1, 1975, covered by the plan.
Section 277 (relating to deductions incurred by certain membership
organizations in transactions with members) does not apply to any
trust described in this subsection. The first and third sentences
of this subsection shall have no application with respect to
amounts contributed to a trust on or after any date on which such
trust is qualified for exemption from tax under section 501(a).
(d) Deductibility of payments of deferred compensation, etc., to
independent contractors
If a plan would be described in so much of subsection (a) as
precedes paragraph (1) thereof (as modified by subsection (b)) but
for the fact that there is no employer-employee relationship, the
contributions or compensation -
(1) shall not be deductible by the payor thereof under this
chapter, but
(2) shall (if they would be deductible under this chapter but
for paragraph (1)) be deductible under this subsection for the
taxable year in which an amount attributable to the contribution
or compensation is includible in the gross income of the persons
participating in the plan.
(e) Contributions allocable to life insurance protection for self-
employed individuals
In the case of a self-employed individual described in section
401(c)(1), contributions which are allocable (determined under
regulations prescribed by the Secretary) to the purchase of life,
accident, health, or other insurance shall not be taken into
account under paragraph (1), (2), or (3) of subsection (a).
[(f) Repealed. Pub. L. 98-369, div. A, title VII, Sec. 713(b)(3),
July 18, 1984, 98 Stat. 957]
(g) Certain employer liability payments considered as contributions
(1) In general
For purposes of this section, any amount paid by an employer
under section 4041(b), 4062, 4063, or 4064, or part 1 of subtitle
E of title IV of the Employee Retirement Income Security Act of
1974 shall be treated as a contribution to which this section
applies by such employer to or under a stock bonus, pension,
profit-sharing, or annuity plan.
(2) Controlled group deductions
In the case of a payment described in paragraph (1) made by an
entity which is liable because it is a member of a commonly
controlled group of corporations, trades, or businesses, within
the meaning of subsection (b) or (c) of section 414, the fact
that the entity did not directly employ participants of the plan
with respect to which the liability payment was made shall not
affect the deductibility of a payment which otherwise satisfies
the conditions of section 162 (relating to trade or business
expenses) or section 212 (relating to expenses for the production
of income).
(3) Timing of deduction of contributions
(A) In general
Except as otherwise provided in this paragraph, any payment
described in paragraph (1) shall (subject to the last sentence
of subsection (a)(1)(A)) be deductible under this section when
paid.
(B) Contributions under standard terminations
Subparagraph (A) shall not apply (and subsection (a)(1)(A)
shall apply) to any payments described in paragraph (1) which
are paid to terminate a plan under section 4041(b) of the
Employee Retirement Income Security Act of 1974 to the extent
such payments result in the assets of the plan being in excess
of the total amount of benefits under such plan which are
guaranteed by the Pension Benefit Guaranty Corporation under
section 4022 of such Act.
(C) Contributions to certain trusts
Subparagraph (A) shall not apply to any payment described in
paragraph (1) which is made under section 4062(c) of such Act
and such payment shall be deductible at such time as may be
prescribed in regulations which are based on principles similar
to the principles of subsection (a)(1)(A).
(4) References to Employee Retirement Income Security Act of 1974
For purposes of this subsection, any reference to a section of
the Employee Retirement Income Security Act of 1974 shall be
treated as a reference to such section as in effect on the date
of the enactment of the Retirement Protection Act of 1994.
(h) Special rules for simplified employee pensions
(1) In general
Employer contributions to a simplified employee pension shall
be treated as if they are made to a plan subject to the
requirements of this section. Employer contributions to a
simplified employee pension are subject to the following
limitations:
(A) Contributions made for a year are deductible -
(i) in the case of a simplified employee pension maintained
on a calendar year basis, for the taxable year with or within
which the calendar year ends, or
(ii) in the case of a simplified employee pension which is
maintained on the basis of the taxable year of the employer,
for such taxable year.
(B) Contributions shall be treated for purposes of this
subsection as if they were made for a taxable year if such
contributions are made on account of such taxable year and are
made not later than the time prescribed by law for filing the
return for such taxable year (including extensions thereof).
(C) The amount deductible in a taxable year for a simplified
employee pension shall not exceed 25 percent of the
compensation paid to the employees during the calendar year
ending with or within the taxable year (or during the taxable
year in the case of a taxable year described in subparagraph
(A)(ii)). The excess of the amount contributed over the amount
deductible for a taxable year shall be deductible in the
succeeding taxable years in order of time, subject to the 25
percent limit of the preceding sentence.
(2) Effect on certain trusts
For any taxable year for which the employer has a deduction
under paragraph (1), the otherwise applicable limitations in
subsection (a)(3)(A) shall be reduced by the amount of the
allowable deductions under paragraph (1) with respect to
participants in the trust subject to subsection (a)(3)(A).
(3) Coordination with subsection (a)(7)
For purposes of subsection (a)(7), a simplified employee
pension shall be treated as if it were a separate stock bonus or
profit-sharing trust.
[(i) Repealed. Pub. L. 99-514, title XI, Sec. 1171(b)(6), Oct. 22,
1986, 100 Stat. 2513]
(j) Special rules relating to application with section 415
(1) No deduction in excess of section 415 limitation
In computing the amount of any deduction allowable under
paragraph (1), (2), (3), (4), (7), or (9) of subsection (a) for
any year -
(A) in the case of a defined benefit plan, there shall not be
taken into account any benefits for any year in excess of any
limitation on such benefits under section 415 for such year, or
(B) in the case of a defined contribution plan, the amount of
any contributions otherwise taken into account shall be reduced
by any annual additions in excess of the limitation under
section 415 for such year.
(2) No advance funding of cost-of-living adjustments
For purposes of clause (i), (ii) or (iii) of subsection
(a)(1)(A), and in computing the full funding limitation, there
shall not be taken into account any adjustments under section
415(d)(1) for any year before the year for which such adjustment
first takes effect.
(k) Deduction for dividends paid on certain employer securities
(1) General rule
In the case of a C corporation, there shall be allowed as a
deduction for a taxable year the amount of any applicable
dividend paid in cash by such corporation with respect to
applicable employer securities. Such deduction shall be in
addition to the deductions allowed under subsection (a).
(2) Applicable dividend
For purposes of this subsection -
(A) In general
The term "applicable dividend" means any dividend which, in
accordance with the plan provisions -
(i) is paid in cash to the participants in the plan or
their beneficiaries,
(ii) is paid to the plan and is distributed in cash to
participants in the plan or their beneficiaries not later
than 90 days after the close of the plan year in which paid,
(iii) is, at the election of such participants or their
beneficiaries -
(I) payable as provided in clause (i) or (ii), or
(II) paid to the plan and reinvested in qualifying
employer securities, or
(iv) is used to make payments on a loan described in
subsection (a)(9) the proceeds of which were used to acquire
the employer securities (whether or not allocated to
participants) with respect to which the dividend is paid.
(B) Limitation on certain dividends
A dividend described in subparagraph (A)(iv) which is paid
with respect to any employer security which is allocated to a
participant shall not be treated as an applicable dividend
unless the plan provides that employer securities with a fair
market value of not less than the amount of such dividend are
allocated to such participant for the year which (but for
subparagraph (A)) such dividend would have been allocated to
such participant.
(3) Applicable employer securities
For purposes of this subsection, the term "applicable employer
securities" means, with respect to any dividend, employer
securities which are held on the record date for such dividend by
an employee stock ownership plan which is maintained by -
(A) the corporation paying such dividend, or
(B) any other corporation which is a member of a controlled
group of corporations (within the meaning of section 409(l)(4))
which includes such corporation.
(4) Time for deduction
(A) In general
The deduction under paragraph (1) shall be allowable in the
taxable year of the corporation in which the dividend is paid
or distributed to a participant or his beneficiary.
(B) Reinvestment dividends
For purposes of subparagraph (A), an applicable dividend
reinvested pursuant to clause (iii)(II) of paragraph (2)(A)
shall be treated as paid in the taxable year of the corporation
in which such dividend is reinvested in qualifying employer
securities or in which the election under clause (iii) of
paragraph (2)(A) is made, whichever is later.
(C) Repayment of loans
In the case of an applicable dividend described in clause
(iv) of paragraph (2)(A), the deduction under paragraph (1)
shall be allowable in the taxable year of the corporation in
which such dividend is used to repay the loan described in such
clause.
(5) Other rules
For purposes of this subsection -
(A) Disallowance of deduction
The Secretary may disallow the deduction under paragraph (1)
for any dividend if the Secretary determines that such dividend
constitutes, in substance, an avoidance or evasion of taxation.
(B) Plan qualification
A plan shall not be treated as violating the requirements of
section 401, 409, or 4975(e)(7), or as engaging in a prohibited
transaction for purposes of section 4975(d)(3), merely by
reason of any payment or distribution described in paragraph
(2)(A).
(6) Definitions
For purposes of this subsection -
(A) Employer securities
The term "employer securities" has the meaning given such
term by section 409(l).
(B) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning
given such term by section 4975(e)(7). Such term includes a tax
credit employee stock ownership plan (as defined in section
409).
(7) Full vesting
In accordance with section 411, an applicable dividend
described in clause (iii)(II) of paragraph (2)(A) shall be
subject to the requirements of section 411(a)(1).
(l) Limitation on amount of annual compensation taken into account
For purposes of applying the limitations of this section, the
amount of annual compensation of each employee taken into account
under the plan for any year shall not exceed $200,000. The
Secretary shall adjust the $200,000 amount at the same time, and by
the same amount, as any adjustment under section 401(a)(17)(B). For
purposes of clause (i), (ii), or (iii) of subsection (a)(1)(A), and
in computing the full funding limitation, any adjustment under the
preceding sentence shall not be taken into account for any year
before the year for which such adjustment first takes effect.
(m) Special rules for simple retirement accounts
(1) In general
Employer contributions to a simple retirement account shall be
treated as if they are made to a plan subject to the requirements
of this section.
(2) Timing
(A) Deduction
Contributions described in paragraph (1) shall be deductible
in the taxable year of the employer with or within which the
calendar year for which the contributions were made ends.
(B) Contributions after end of year
For purposes of this subsection, contributions shall be
treated as made for a taxable year if they are made on account
of the taxable year and are made not later than the time
prescribed by law for filing the return for the taxable year
(including extensions thereof).
(n) Elective deferrals not taken into account for purposes of
deduction limits
Elective deferrals (as defined in section 402(g)(3)) shall not be
subject to any limitation contained in paragraph (3), (7), or (9)
of subsection (a) or paragraph (1)(C) of subsection (h) and such
elective deferrals shall not be taken into account in applying any
such limitation to any other contributions.