Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-34

1968-1 C.B. 181

Sec. 404

IRS Headnote

The deductibility of an employer's contribution to a qualified employees' pension plan is governed by section 404 of the Internal Revenue Code of 1954, irrespective of its treatment by the employer for book and financial statement purposes.

Full Text

Rev. Rul. 68-34

Advice has been requested whether the treatment of pension costs by a corporation, for book and financial statement purposes, governs the deductibility of the corporation's pension plan contribution for Federal income tax purposes under section 404(a)(1) of the Internal Revenue Code of 1954.

A corporation, which is an accrual method taxpayer on a calendar-year basis, established an employees' pension plan and trust. The plan meets the requirements of section 401(a) of the Code, and the trust is exempt under section 501(a). The corporation, for book and financial statement purposes, charges off its past service pension costs ratably over a thirty-year period.

Section 404(a) of the Code provides that contributions, paid by an employer to a pension trust exempt from tax under section 501(a), which satisfy the conditions of either section 162 or section 212, are deductible in the taxable year when paid in an amount, subject to limitations, determined as follows:

(A) 5 percent of compensation of covered employees, plus

(B) any excess over (A) necessary to provide the remaining unfunded cost of past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each employee, or

(C) in lieu of (A) and (B), an amount equal to the normal cost of the plan plus 10 percent of the cost of past service or supplementary benefits.

Section 404(a)(6) of the Code provides that a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual 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).

Thus, contributions of an employer pursuant to a qualified pension plan are deductible in the manner and to the extent so provided if the amounts are paid by the employer within the time prescribed. There are no additional requirements under section 404 of the Code that relate deductible contribution limits to the manner in which an employer charges off his pension costs for book and financial statement purposes.

Accordingly, the treatment accorded pension costs by the employer for book and financial statement purposes does not govern the deductibility of pension plan contributions under section 404(a)(1) of the Code for Federal income tax purposes.