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qualified salary reduction arrangement. Sec. 408(p)(1)(B). As
is relevant here, a qualified salary reduction arrangement means
a written arrangement under which:
(i) an employee eligible to participate in the
arrangement may elect to have the employer make
payments--
(I) as elective employer contributions to a simple
retirement account on behalf of the employee, or
(II) to the employee directly in cash,
* * * * * * *
(iii) the employer is required to make a matching
contribution to the simple retirement account * * *,
and
(iv) no contributions may be made other than
contributions described in clause (i) or (iii). [Sec.
408(p)(2)(A); emphasis added.]
Thus, an eligible employee can participate in the SIMPLE IRA
plan by having a portion of his salary deferred and contributed
to the plan, or the employee can choose not to participate and
receive his salary in the form of cash. If an employee chooses
to participate in the plan, the only permissible contributions
are those made by the employer on behalf of the employee and the
employer’s matching contributions. Sec. 408(p)(2)(A)(iv). An
employee cannot deduct amounts that he deposits directly to a
SIMPLE IRA plan. Sec. 219(a) and (b)(4).
Petitioners concede that their lump-sum deposits do not
constitute valid contributions within the meaning of section
408(p). Petitioners argue, however, that “The tax implications
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Last modified: November 10, 2007