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Sec. 45E. Small Employer Pension Plan Startup Costs

I.R.C. § 45E(a) General Rule
For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.
I.R.C. § 45E(b) Dollar Limitation
The amount of the credit determined under this section for any taxable year shall not exceed—
I.R.C. § 45E(b)(1)
for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of—
I.R.C. § 45E(b)(1)(A)
$500, or
I.R.C. § 45E(b)(1)(B)
the lesser of—
I.R.C. § 45E(b)(1)(B)(i)
$250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 414(q)) and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or
I.R.C. § 45E(b)(1)(B)(ii)
$5,000, and
I.R.C. § 45E(b)(2)
zero for any other taxable year.
I.R.C. § 45E(c) Eligible Employer
For purposes of this section—
I.R.C. § 45E(c)(1) In General
The term “eligible employer” has the meaning given such term by section 408(p)(2)(C)(i).
I.R.C. § 45E(c)(2) Requirement For New Qualified Employer Plans
Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.
I.R.C. § 45E(d) Other Definitions
For purposes of this section—
I.R.C. § 45E(d)(1) Qualified Startup Costs
I.R.C. § 45E(d)(1)(A) In General
The term “qualified startup costs” means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with—
I.R.C. § 45E(d)(1)(A)(i)
the establishment or administration of an eligible employer plan, or
I.R.C. § 45E(d)(1)(A)(ii)
the retirement-related education of employees with respect to such plan.
I.R.C. § 45E(d)(1)(B) Plan Must Have At Least 1 Participant
Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.
I.R.C. § 45E(d)(2) Eligible Employer Plan
The term “eligible employer plan” means a qualified employer plan within the meaning of section 4972(d).
I.R.C. § 45E(d)(3) First Credit Year
The term “first credit year” means–-
I.R.C. § 45E(d)(3)(A)
the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or
I.R.C. § 45E(d)(3)(B)
at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).
I.R.C. § 45E(e) Special Rules
For purposes of this section—
I.R.C. § 45E(e)(1) Aggregation Rules
All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan.
I.R.C. § 45E(e)(2) Disallowance Of Deduction
No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a).
I.R.C. § 45E(e)(3) Election Not To Claim Credit
This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.
(Added by Pub. L. 107-16, title VI, Sec. 619(a), June 7, 2001, 115 Stat. 38; amended by Pub. L. 107-147, title IV, Sec. 411(n)(1), Mar. 9, 2002, 116 Stat. 21; Pub. L. 116-94, Div. O, title I, Sec. 104(a), Dec. 20, 2019.)
BACKGROUND NOTES
AMENDMENTS
2019 - Subsec. (b)(1). Pub. L. 116-94, Div. O, Sec. 104(a), amended par. (1). Before amendment, it read as follows:
“(1) $500 for the first credit year and each of the 2 taxable years immediately following the first credit year, and”.
2002 - Subsec. (e)(1). Pub. L. 107-147, Sec. 411(n)(1), amended par. (1) by substituting “(m)” for “(n)”.
EFFECTIVE DATE OF 2019 AMENDMENT
Amendment by Sec. 104(a) of Pub. L. 116-94, Div. O, effective for taxable years beginning after December 31, 2019.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Sec. 411(n)(1) of Pub. L. 107-147, effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16, Sec. 619] to which they relate.
EFFECTIVE DATE
Applicable to costs paid or incurred in taxable years beginning after December 31, 2001, with respect to qualified employer plans first effective after such date. [Editor's Note: Pub. L. 107-147, Sec. 411(n)(2), amended Pub. L. 107-16, Sec. 619(d), by substituting “first effective” for “established”.]
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”
PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 MADE PERMANENT
Section 811 of Pub. L. 109-280 provided that:
“Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16] shall not apply to the provisions of, and amendments made by, subtitles A through F [Sections 601-666] of title VI of such Act (relating to pension and individual retirement arrangement provisions).”