Instructions For Form 5330 - Return Of Excise Taxes Related To Employee Benefit Plans Page 5
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9Section 4978A taxes any disposition
The tax also applies to any synthetic
4. An employee organization, any of
of qualified employer securities
entity owned by a disqualified person in
whose members are covered by the
acquired on or before December 20,
any nonallocation year and the amount
plan.
1989, if the disposition of the qualified
involved is the value of the shares on
5. Any direct or indirect owner of
securities takes place within 3 years
which the synthetic entity is based.
50% or more of: (a) the combined
after the date the ESOP or eligible
voting power of all classes of stock
Part VII (Section 4975)
worker-owned cooperative acquired the
entitled to vote, or the total value of
qualified securities.
shares of all classes of stock of a
Tax on Prohibited Transactions
corporation, (b) the capital interest or
The section 4978A tax also applies
the profits interest of a partnership, or
to dispositions of qualified securities
Section 4975 imposes an excise tax on
(c) the beneficial interest of a trust or
that occur after the 3-year period if the
a disqualified person that engages in
unincorporated enterprise, which is an
qualified securities were not allocated
a prohibited transaction with the
employer or an employee organization
to participants’ accounts or the
plan.
described in 3 or 4. A limited liability
proceeds from the disposition were not
The first tier of the excise tax is 15%
company should be treated as a
allocated to the participants’ accounts.
(10% for transactions occurring
corporation, or a partnership,
The tax under section 4978A is 30%
between August 21, 1996 and August
depending on how the organization is
of the amount realized on the
5, 1997) of the amount involved in
treated for federal tax purposes.
disposition or 30% of the amount repaid
each prohibited transaction for each
6. A member of the family of any
on the loan, whichever applies.
year or part of a year in the taxable
individual described in 1, 2, 3, or 5 .
Line 24b. Section 4978B imposes a
period.
Member of a family is the spouse,
tax on certain dispositions of section
ancestor, lineal descendant, and any
If the first-tier tax is imposed and the
133 securities held by an employee
spouse of a lineal descendant.
transaction is not corrected within the
stock ownership plan (ESOP). This tax
7. A corporation, partnership, or
taxable period, an additional tax equal
is 10% of the amount realized on
trust or estate of which (or in which)
to 100% of the amount involved will be
section 133 securities that are (1)
any direct or indirect owner holds 50%
assessed under section 4975(b). Any
disposed of within 3 years of the date
or more of the interest described in
disqualified person who participated in
the securities were acquired or (2)
5(a), (b), or (c). For purposes of (c), the
the prohibited transaction (other than a
disposed of before the securities were
beneficial interest of the trust or estate
fiduciary acting only as such) must pay
allocated to the participants’ accounts
is owned directly or indirectly, or held
the tax imposed by section 4975(b).
and the proceeds of the disposition are
by persons described in 1 through 5.
not allocated to the accounts of the
Note. Temporary Regulations section
8. An officer, director (or an
participants. For exceptions, see
141.4975-13 states that, until final
individual having powers or
section 4978B.
regulations are written under section
responsibilities similar to those of
4975(f), the definitions of “amount
This tax must be paid by the
officers or directors), a 10% or more
involved” and “correction” found in
employer.
shareholder or highly compensated
Regulations section 53.4941(e)-1 will
employee (earning 10% or more of the
Part VI (Section 4979A)
apply.
yearly wages of an employer) of a
Plan. For purposes of prohibited
person described in 3, 4, 5, or 7.
Tax on Certain Prohibited
transactions (section 4975), the term
9. A 10% or more (in capital or
Allocations of Qualified ESOP
“plan” means any of the following:
profits) partner or joint venturer of a
•
Securities
A trust described in section 401(a)
person described in 3, 4, 5, or 7.
that forms part of a plan.
10. Any disqualified person, as
Section 4979A. Report on lines 25 and
•
A plan described in section 403(a),
described in 1 through 9 above, who is
5 the section 4979A tax on the
and that trust or plan is exempt from tax
a disqualified person with respect to
prohibited allocation of qualified
under section 501(a).
any plan to which a section 501(c)(22)
securities by any ESOP or eligible
•
An individual retirement account
trust applies, is permitted to make
worker-owned cooperative or an
described in section 408(a).
payments under section 4223 of
allocation described in section
•
An individual retirement annuity
ERISA.
664(g)(5)(A). The tax is 50% of the
described in section 408(b).
prohibited allocation.
•
An Archer MSA described in section
Prohibited transaction. A
EGTRRA amended section 4979A
220(d).
“prohibited transaction” is any direct or
•
for any ESOP established: (a) after
A Coverdell education savings
indirect:
March 14, 2001, or (b) on or before
account described in section 530.
•
1. Sale or exchange, or leasing of
March 14, 2001, if the employer
A trust described in section
any property between a plan and a
securities held by the ESOP consist of
501(c)(22).
disqualified person; or a transfer of real
stock in a corporation that did not have
Note. If the IRS determined at any time
or personal property by a disqualified
an S corporation election in effect. As
that your plan was a “plan” as defined
person to a plan where the property is
enacted, the tax also applies to the
above, it will always remain subject to
subject to a mortgage or similar lien
amount involved when an ESOP
the excise tax on prohibited
placed on the property by the
holding employer securities consisting
transactions (section 4975). This also
disqualified person within 10 years prior
of stock in an S corporation allocates
applies to the tax on minimum funding
to the transfer, or the property
such employer securities during a
deficiencies (section 4971).
transferred is subject to a mortgage or
nonallocation year for the benefit of any
similar lien which the plan assumes.
disqualified person.
Disqualified person. A “disqualified
person” is any person who is:
2. Lending of money or other
During the first nonallocation year
extension of credit between a plan and
the amount involved is determined by
1. A fiduciary.
a disqualified person.
taking into account the total value of all
2. A person providing services to
the deemed-owned shares of all
the plan.
3. Furnishing of goods, services, or
disqualified persons with respect to
3. An employer, any of whose
facilities between a plan and a
such plan.
employees are covered by the plan.
disqualified person.
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