If a plan fails the ADP test in 2021 and corrective distributions are made in 2022, in which year's income must the taxable portion be included?

The correct choice is that the taxable portion must be included in the income for 2022. When a plan fails the Actual Deferral Percentage (ADP) test, corrective distributions are required to be made in the following year to rectify the issue.

Specifically, these distributions must be reported as income in the year they are received, which in this case is 2022. According to IRS guidelines, even though the test failure pertains to the prior year (2021), the taxation occurs in the year the corrective action takes place and individuals receive the distributions. This aligns with tax reporting requirements which stipulate that income is recognized in the year it is actually distributed and received by the participant. As such, including the taxable portion in the income for 2022 reflects the timing of the distributions rather than the year the test failure was identified.