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4. Transfer to, or use by or for the

transaction on the first day of each

amount of tax due is $900 ($6,000

×15%). (Any interest and penalties

benefit of, a disqualified person of

succeeding tax year or portion of a

income or assets of a plan.

succeeding tax year which is within the

imposed for the delinquent filing of the

5. Act by a disqualified person who

“taxable period.” The taxable period is

Form 5330 for 2002 will be billed

is a fiduciary whereby he or she deals

the period of time beginning with the

separately to the disqualified person.)

with the income or assets of a plan in

date of the prohibited transaction and

The taxable period for the second

his or her own interest or account.

ending with the earliest of: (a) the date

prohibited transaction runs from

6. Receipt of any consideration for

correction is completed, (b) the date of

January 1, 2003, through December 31,

his or her own personal account by any

the mailing of a notice of deficiency, or

2003 (date of correction). Because

disqualified person who is a fiduciary

there are two prohibited transactions

from any party dealing with the plan

section 4975(a) is assessed. See the

with taxable periods running during

connected with a transaction involving

instruction for line 27 for the definition

2003, the section 4975(a) tax is due for

the income or assets of the plan.

of “correction.”

the 2003 taxable year for both

The following example of a

prohibited transactions. The excise tax

Exemptions. See sections 4975(d),

prohibited transaction does not cover all

to be reported on the Form 5330 filed

4975(f)(6)(B)(ii), and 4975(f)(6)(B)(iii)

types of prohibited transactions. For

for 2003 would include both the

for specific exemptions to prohibited

more examples, see Regulations

prohibited transaction of July 1, 2002,

transactions. Also see section

section 53.4941(e)-1(b)(4).

with an amount involved of $6,000,

4975(c)(2) for certain other transactions

resulting in a tax due of $900 ($6,000 ×

Example. A disqualified person

or classes of transactions that may be

15%) and the second prohibited

borrows money from a plan in a

exempt.

transaction of January 1, 2003, with an

prohibited transaction under section

Line 26a. Check the box that best

amount involved of $12,000 (12 months

4975. The fair market value of the use

characterizes the prohibited transaction

× $1,000), resulting in a tax due of

of the money and the actual interest on

for which an excise tax is being paid. A

$1,800 ($12,000 × 15%). Complete line

the loan is $1,000 per month (the actual

prohibited transaction is discrete unless

26 of the Forms 5330 as shown in

interest is paid in this example). The

it is of an ongoing nature. Transactions

Figures 1 and 2.

loan was made on July 1, 2002, (date

involving the use of money (loans, etc.)

of transaction) and repaid on December

Note. When a loan from a qualified

or other property (rent, etc.) are of an

31, 2003 (date of correction). The

plan that is a prohibited transaction

ongoing nature and will be treated as a

disqualified person’s taxable year is the

spans successive taxable years, and

new prohibited transaction on the first

calendar year. On July 31, 2004, the

thus constitutes multiple prohibited

day of each succeeding tax year or part

disqualified person files a delinquent

transactions, and during those years

of a tax year that is within the taxable

Form 5330 for the 2002 plan year and a

the first tier prohibited transaction

period.

timely Form 5330 for the 2003 plan

excise tax rate changes, the first tier

Line 26b, Column (a). List the date of

year. No Notice of Deficiency with

excise tax liability for each prohibited

all prohibited transactions that took

respect to the tax imposed by section

transaction is the sum of the products

place in connection with a particular

4975(a) has been mailed to the

resulting from multiplying the amount

plan during the current tax year. Also

disqualified person and no assessment

involved for each year in the taxable

list the date of all prohibited

of such tax has been made before the

period for that prohibited transaction by

transactions that took place in prior

time the disqualified person filed the

the excise tax rate in effect at the

years unless either the transaction was

Forms 5330.

beginning of that taxable period. For

corrected in a prior tax year or the

more information see Revenue Ruling

When a loan is a prohibited

section 4975(a) tax was assessed in

2002-43, 2002-28 I.R.B. 85. Unlike the

transaction, the loan is treated as giving

the prior tax year. A disqualified person

previous example, the example in Rev.

rise to a prohibited transaction on the

who engages in a prohibited transaction

Rul. 2002-43 contains unpaid interest.

date the transaction occurs, and an

must file a separate Form 5330 to

additional prohibited transaction on the

Line 27. To avoid liability for additional

report the excise tax due under section

first day of each succeeding taxable

taxes and penalties under section

4975 for each tax year.

year (or portion of a taxable year) within

4975, and in some cases further initial

Line 26b, Columns (c) and (d). The

the taxable period that begins on the

taxes, a correction of the prohibited

“amount involved” in a prohibited

date the loan occurs. Each prohibited

transaction must be made within the

transaction means the greater of the

transaction has its own separate

taxable period. The term correction is

amount of money and the fair market

taxable period which begins on the date

defined as undoing the prohibited

value of the other property given, or the

the prohibited transaction occurred or is

transaction to the extent possible, but in

amount of money and the fair market

deemed to occur and ends on the date

any case placing the plan in a financial

value of the other property received.

of the correction. The taxable period

position not worse than that in which it

However, for services described in

that begins on the date the loan occurs

would be if the disqualified person were

sections 4975(d)(2) and (10), the

runs from July 1, 2002 (date of loan)

acting under the highest fiduciary

“amount involved” only applies to

through December 31, 2003 (date of

standards.

excess compensation. Fair market

correction). Therefore, in this example,

value must be determined as of the

If the “No” box is checked on line 27,

there are two prohibited transactions,

date on which the prohibited transaction

there has not been a correction of ALL

the first occurring on July 1, 2002, and

occurs. If the use of money or other

of the prohibited transactions by the

the second occurring on January 1,

property is involved, the amount

end of the tax year for which this Form

2003.

involved is the greater of the amount

5330 is being filed. Attach a statement

Section 4975(a) imposes a 15%

paid for the use or the fair market value

indicating when correction has been or

excise tax on the amount involved for

of the use for the period for which the

will be made. Also, complete line 29,

each taxable year or part thereof in the

money or other property is used. In

Part IX, for each prohibited transaction

taxable period of each prohibited

addition, transactions involving the use

that has been corrected, if any, giving

transaction.

of money or other property will be

the following information: (a) the

treated as giving rise to a prohibited

The amount involved to be reported

number of the transaction from Part VII;

transaction occurring on the date of the

on the Form 5330 filed for 2002 is

(b) the nature of the correction; and (c)

$6,000 (6 months × $1,000). The

actual transaction plus a new prohibited

the date of the correction.

-6-

Instructions For Form 5330 - Return Of Excise Taxes Related To Employee Benefit Plans Page 6

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