In memorandum 201935011 the IRS provides general legal advice on the determination of whether a contribution by an employer to the employer’s qualified retirement plan (note that a solo 401k plan falls under the qualified plan umbrella and allows for employer contributions) has actually been paid to the plan’s trust such that the contribution is deductible under § 404(a) of the Internal Revenue Code (“Code”) for the employer’s taxable year in which the contribution is made (assuming all other applicable requirements are satisfied). This determination is made under the standards set forth in Don E. Williams Co. v. Commissioner, 429 U.S. 569 (1977), which applies an objective outlay-of-assets test.
This memorandum describes the elements of this test, provides that the application of the test is made taking into account the relevant facts and circumstances of the contribution, and includes illustrative examples.
For purposes of § 404(a), how is a determination made that an employer’s contribution has been paid within the meaning of § 404(a) to the trust of a qualified retirement plan in a taxable year of the employer maintaining the plan for which the employer claims a deduction?
For a contribution by an employer to the trust of a qualified retirement plan maintained by the employer to be deductible under § 404(a) for the employer’s taxable year in which the contribution is made, the contribution must be a payment of cash (or its equivalent) or property to the trust.
Section 404(a) governs the deductibility of a contribution to the trust of a deferred compensation plan maintained by an employer for its employees that satisfies the qualification requirements of § 401(a). Pursuant to § 404(a)(6), if an employer makes a payment no later than the due date (including extensions) for filing the employer’s return for a taxable year, and if the payment is on account of that taxable year, then the employer is deemed to have made a payment on the last day of the preceding taxable year.