Instructions for IRS Form 5330 "Return of Excise Taxes Related to Employee Benefit Plans"

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Instructions for Form 5330
Department of the Treasury
Internal Revenue Service
(Rev. December 2013)
Return of Excise Taxes Related to Employee Benefit Plans
1. A plan entity manager of a
year in the taxable period applicable to
Section references are to the Internal Revenue
Code unless otherwise noted.
tax-exempt entity who approves, or
such prohibited transaction.
otherwise causes the entity to be party
Future developments. For the latest
10. An employer liable for the tax
to, a prohibited tax shelter transaction
information about developments related
under section 4976 for maintaining a
during the tax year and knows or has
to Form 5330 and its instructions, such
funded welfare benefit plan that
reason to know the transaction is a
as legislation enacted after they were
provides a disqualified benefit during
prohibited tax shelter transaction under
published, go to www.irs.gov/form5330.
any tax year.
section 4965(a)(2).
11. An employer who pays excess
General Instructions
2. An employer liable for the tax
fringe benefits and has elected to be
under section 4971 for failure to meet
taxed under section 4977 on such
the minimum funding standards under
payments.
Purpose of Form
section 412.
12. An employer or worker-owned
File Form 5330 to report the tax on:
3. An employer liable for the tax
cooperative, as defined in section
A prohibited tax shelter transaction
under section 4971(f) for a failure to
1042(c)(2), that maintains an employee
(section 4965(a)(2));
meet the liquidity requirement of section
stock ownership plan (ESOP) that
A minimum funding deficiency
430(j) (or section 412(m)(5) as it existed
disposes of the qualified securities, as
(section 4971(a) and (b));
prior to amendment by the Pension
defined in section 1042(c)(1), within the
A failure to pay liquidity shortfall
Protection Act of 2006 (PPA '06)), for
specified 3-year period (see section
(section 4971(f));
plans with delayed effective dates under
4978).
A failure to comply with a funding
PPA '06.
13. An employer liable for the tax
improvement or rehabilitation plan
4. An employer with respect to a
under section 4979 on excess
(section 4971(g)(2));
multiemployer plan liable for the tax
contributions to plans with a cash or
A failure to meet requirements for
under section 4971(g)(2) for failure to
deferred arrangement, etc.
plans in endangered or critical status
comply with a funding improvement or
14. An employer or worker-owned
(section 4971(g)(3));
rehabilitation plan under section 432.
cooperative that made the written
A failure to adopt rehabilitation plan
5. An employer with respect to a
statement described in section
(section 4971(g)(4));
multiemployer plan liable for the tax
664(g)(1)(E) or 1042(b)(3)(B) and made
Nondeductible contributions to
under section 4971(g)(3) for failure to
an allocation prohibited under section
qualified plans (section 4972);
meet the requirements for plans in
409(n) of qualified securities of an
Excess contributions to a section
endangered or critical status under
ESOP taxable under section 4979A; or
403(b)(7)(A) custodial account (section
section 432.
an employer or worker-owned
4973(a)(3));
6. A multiemployer plan sponsor
cooperative who made an allocation of
A prohibited transaction (section
liable for the tax under section
S corporation stock of an ESOP
4975);
4971(g)(4) for failure to adopt a
prohibited under section 409(p) taxable
A disqualified benefit provided by
rehabilitation plan within the time
under section 4979A.
funded welfare plans (section 4976);
required under section 432.
15. An employer who receives an
Excess fringe benefits (section 4977);
7. An employer liable for the tax
employer reversion from a deferred
Certain employee stock ownership
under section 4972 for nondeductible
compensation plan taxable under
plan (ESOP) dispositions (section
contributions to qualified plans.
section 4980.
4978);
8. An individual liable for the tax
16. An employer or multiemployer
Excess contributions to plans with
under section 4973(a)(3) because an
plan liable for the tax under section
cash or deferred arrangements (section
excess contribution to a section
4980F for failure to give notice of a
4979);
403(b)(7)(A) custodial account was
significant reduction in the rate of future
Certain prohibited allocations of
made for them and that excess has not
benefit accrual.
qualified securities by an ESOP (section
been eliminated, as specified in
4979A);
A Form 5330 and tax payment is
sections 4973(c)(2)(A) and (B).
Reversions of qualified plan assets to
required for any of the following.
employers (section 4980);
9. A disqualified person liable for the
Each year any of the following under
A failure of an applicable plan
tax under section 4975 for participating
Who Must File, earlier, apply: (1), (2),
reducing future benefit accruals to
in a prohibited transaction (other than a
(3), (5), (6), (7), (8), (9), (10), (11), (12),
satisfy notice requirements (section
fiduciary acting only as such), or an
(13), (14), or (16).
4980F).
individual or his or her beneficiary who
Each failure of an employer to make
engages in a prohibited transaction with
Who Must File
the required contribution to a
respect to his or her individual
multiemployer plan, as required by a
A Form 5330 must be filed by any of the
retirement account, unless section
funding improvement or rehabilitation
following.
408(e)(2)(A) or section 408(e)(4)
plan under section 432.
applies, for each tax year or part of a tax
Jan 02, 2014
Cat. No. 11871X
Instructions for Form 5330
Department of the Treasury
Internal Revenue Service
(Rev. December 2013)
Return of Excise Taxes Related to Employee Benefit Plans
1. A plan entity manager of a
year in the taxable period applicable to
Section references are to the Internal Revenue
Code unless otherwise noted.
tax-exempt entity who approves, or
such prohibited transaction.
otherwise causes the entity to be party
Future developments. For the latest
10. An employer liable for the tax
to, a prohibited tax shelter transaction
information about developments related
under section 4976 for maintaining a
during the tax year and knows or has
to Form 5330 and its instructions, such
funded welfare benefit plan that
reason to know the transaction is a
as legislation enacted after they were
provides a disqualified benefit during
prohibited tax shelter transaction under
published, go to www.irs.gov/form5330.
any tax year.
section 4965(a)(2).
11. An employer who pays excess
General Instructions
2. An employer liable for the tax
fringe benefits and has elected to be
under section 4971 for failure to meet
taxed under section 4977 on such
the minimum funding standards under
payments.
Purpose of Form
section 412.
12. An employer or worker-owned
File Form 5330 to report the tax on:
3. An employer liable for the tax
cooperative, as defined in section
A prohibited tax shelter transaction
under section 4971(f) for a failure to
1042(c)(2), that maintains an employee
(section 4965(a)(2));
meet the liquidity requirement of section
stock ownership plan (ESOP) that
A minimum funding deficiency
430(j) (or section 412(m)(5) as it existed
disposes of the qualified securities, as
(section 4971(a) and (b));
prior to amendment by the Pension
defined in section 1042(c)(1), within the
A failure to pay liquidity shortfall
Protection Act of 2006 (PPA '06)), for
specified 3-year period (see section
(section 4971(f));
plans with delayed effective dates under
4978).
A failure to comply with a funding
PPA '06.
13. An employer liable for the tax
improvement or rehabilitation plan
4. An employer with respect to a
under section 4979 on excess
(section 4971(g)(2));
multiemployer plan liable for the tax
contributions to plans with a cash or
A failure to meet requirements for
under section 4971(g)(2) for failure to
deferred arrangement, etc.
plans in endangered or critical status
comply with a funding improvement or
14. An employer or worker-owned
(section 4971(g)(3));
rehabilitation plan under section 432.
cooperative that made the written
A failure to adopt rehabilitation plan
5. An employer with respect to a
statement described in section
(section 4971(g)(4));
multiemployer plan liable for the tax
664(g)(1)(E) or 1042(b)(3)(B) and made
Nondeductible contributions to
under section 4971(g)(3) for failure to
an allocation prohibited under section
qualified plans (section 4972);
meet the requirements for plans in
409(n) of qualified securities of an
Excess contributions to a section
endangered or critical status under
ESOP taxable under section 4979A; or
403(b)(7)(A) custodial account (section
section 432.
an employer or worker-owned
4973(a)(3));
6. A multiemployer plan sponsor
cooperative who made an allocation of
A prohibited transaction (section
liable for the tax under section
S corporation stock of an ESOP
4975);
4971(g)(4) for failure to adopt a
prohibited under section 409(p) taxable
A disqualified benefit provided by
rehabilitation plan within the time
under section 4979A.
funded welfare plans (section 4976);
required under section 432.
15. An employer who receives an
Excess fringe benefits (section 4977);
7. An employer liable for the tax
employer reversion from a deferred
Certain employee stock ownership
under section 4972 for nondeductible
compensation plan taxable under
plan (ESOP) dispositions (section
contributions to qualified plans.
section 4980.
4978);
8. An individual liable for the tax
16. An employer or multiemployer
Excess contributions to plans with
under section 4973(a)(3) because an
plan liable for the tax under section
cash or deferred arrangements (section
excess contribution to a section
4980F for failure to give notice of a
4979);
403(b)(7)(A) custodial account was
significant reduction in the rate of future
Certain prohibited allocations of
made for them and that excess has not
benefit accrual.
qualified securities by an ESOP (section
been eliminated, as specified in
4979A);
A Form 5330 and tax payment is
sections 4973(c)(2)(A) and (B).
Reversions of qualified plan assets to
required for any of the following.
employers (section 4980);
9. A disqualified person liable for the
Each year any of the following under
A failure of an applicable plan
tax under section 4975 for participating
Who Must File, earlier, apply: (1), (2),
reducing future benefit accruals to
in a prohibited transaction (other than a
(3), (5), (6), (7), (8), (9), (10), (11), (12),
satisfy notice requirements (section
fiduciary acting only as such), or an
(13), (14), or (16).
4980F).
individual or his or her beneficiary who
Each failure of an employer to make
engages in a prohibited transaction with
Who Must File
the required contribution to a
respect to his or her individual
multiemployer plan, as required by a
A Form 5330 must be filed by any of the
retirement account, unless section
funding improvement or rehabilitation
following.
408(e)(2)(A) or section 408(e)(4)
plan under section 432.
applies, for each tax year or part of a tax
Jan 02, 2014
Cat. No. 11871X
A reversion of plan assets from a
Table 1.
Excise Tax Due Dates
qualified plan taxable under section
4980.
IF the taxes are due
Each year or part of a year in the
under section . . .
THEN file Form 5330 by the . . .
taxable period in which a prohibited
transaction occurs under section 4975.
15th day of the 5th month following the close of the entity
See the instructions for Schedule C,
manager's tax year during which the tax-exempt entity becomes a
line 2, columns (d) and (e), for a
4965
party to the transaction.
definition of “taxable period.”
4971
last day of the 7th month after the end of the employer's tax year
1
When To File
or 8
months after the last day of the plan year that ends with or
2
within the filer's tax year.
File one Form 5330 to report all excise
taxes with the same filing due date.
4971(f)
last day of the 7th month after the end of the employer's tax year
However, if the taxes are from separate
1
or 8
months after the last day of the plan year that ends with or
2
plans, file separate forms for each plan.
within the filer's tax year.
4971(g)(2)
last day of the 7th month after the end of the employer's tax year
Generally, filing Form 5330 starts the
1
or 8
months after the last day of the plan year that ends with or
statute of limitations running only with
2
within the filer's tax year.
respect to the particular excise tax(es)
reported on that Form 5330. However,
4971(g)(3)
last day of the 7th month after the end of the employer's tax year
statutes of limitations with respect to the
1
or 8
months after the last day of the plan year that ends with or
2
prohibited transaction excise tax(es) are
within the filer's tax year.
based on the filing of the applicable
4971(g)(4)
last day of the 7th month after the end of the employer's tax year
Form 5500, Annual Return/Report of
1
or 8
months after the last day of the plan year that ends with or
Employee Benefit Plan.
2
within the filer's tax year.
Use Table 1 to determine the due
4972
last day of the 7th month after the end of the tax year of the
date of Form 5330.
employer or other person who must file this return.
Extension. File Form 5558, Application
4973(a)(3)
last day of the 7th month after the end of the tax year of the
for Extension of Time to File Certain
individual who must file this return.
Employee Plan Returns, to request an
4975
last day of the 7th month after the end of the tax year of the
extension of time to file. If approved, you
employer or other person who must file this return.
may be granted an extension of up to 6
months after the normal due date of
4976
last day of the 7th month after the end of the tax year of the
Form 5330.
employer or other person who must file this return.
Form 5558 does not extend the
4977
last day of the 7th month after the end of the calendar year in
time to pay your taxes. See the
which the excess fringe benefits were paid to your employees.
!
instructions for Form 5558.
4978
last day of the 7th month after the end of the tax year of the
CAUTION
employer or other person who must file this return.
Where To File
4979
last day of the 15th month after the close of the plan year to which
File Form 5330 at the following
the excess contributions or excess aggregate contributions relate.
address:
4979A
last day of the 7th month after the end of the tax year of the
employer or other person who must file this return.
Department of the Treasury
4980
last day of the month following the month in which the reversion
Internal Revenue Service Center
occurred.
Ogden, UT 84201
4980F
last day of the month following the month in which the failure
occurred.
Private delivery services. You can
If the filing due date falls on a Saturday, Sunday, or legal holiday, the return may be filed on the next
use certain private delivery services
business day.
designated by the IRS to meet the
“timely mailing as timely filing/paying”
A.M., UPS Worldwide Express Plus,
Interest and Penalties
rule for tax returns and payments.
and UPS Worldwide Express.
Interest. Interest is charged on taxes
These private delivery services include
The private delivery service can tell
not paid by the due date even if an
only the following:
you how to get written proof of the
extension of time to file is granted.
DHL Express (DHL): DHL Same Day
mailing date.
Interest is also charged on penalties
Service.
imposed from the due date, including
Private delivery services
Federal Express (FedEx): FedEx
extensions, to the date of payment for
cannot deliver items to P.O.
!
Priority Overnight, FedEx Standard
failure to file, negligence, fraud, gross
boxes. You must use the U.S.
Overnight, FedEx 2Day, FedEx
CAUTION
valuation overstatements, and
Postal Service to mail any item to an
International Priority, and FedEx
substantial understatements of tax. The
IRS P.O. box address.
International First.
interest rate is determined under section
United Parcel Service (UPS): UPS
6621.
Next Day Air, UPS Next Day Air Saver,
UPS 2nd Day Air, UPS 2nd Day Air
-2-
employer, individual, or other entity who
employee organizations, or by two or
Penalty for late filing of return. If you
is liable for the tax.
more employers.
do not file a return by the due date,
including extensions, you may have to
Include the suite, room, or other unit
Include the suite, room, or other unit
pay a penalty of 5% of the unpaid tax for
numbers after the street number. If the
numbers after the street number. If the
each month or part of a month the return
post office does not deliver mail to the
post office does not deliver mail to the
is late, up to a maximum of 25% of the
street address and you have a P.O. box,
street address and you have a P.O. box,
unpaid tax. The minimum penalty for a
show the box number instead of the
show the box number instead of the
return that is more than 60 days late is
street address.
street address.
the smaller of the tax due or $100. The
If the plan has a foreign address,
If the plan has a foreign address,
penalty will not be imposed if you can
enter the information in the following
enter the information in the following
show that the failure to file on time was
order: city or town, state or province,
order: city or town, state or province,
due to reasonable cause. If you file late,
country, and ZIP or foreign postal code.
and country. Follow the country's
you must attach a statement to Form
Follow the country's practice for
practice for entering the postal code. Do
5330 explaining the reasonable cause.
entering the postal code. Do not
not abbreviate the country name.
abbreviate the country name.
Penalty for late payment of tax. If
Item E. Plan sponsor's EIN. Enter the
you do not pay the tax when due, you
Item B. Filer's identifying number.
nine-digit EIN assigned to the plan
may have to pay a penalty of
of 1% of
1
Enter the filer's identifying number in the
2
sponsor. This should be the same
the unpaid tax for each month or part of
appropriate section. The filer's
number used to file the Form 5500
a month the tax is not paid, up to a
identifying number is either the filer's
series return/report.
maximum of 25% of the unpaid tax. The
employer identification number (EIN) or
penalty will not be imposed if you can
Item F. Plan year ending. “Plan year”
the filer's social security number (SSN),
show that the failure to pay on time was
means the calendar or fiscal year on
but not both. The identifying number of
due to reasonable cause.
which the records of the plan are kept.
an individual, other than a sole
Enter eight digits in month/date/year
Interest and penalties for late filing
proprietor with an EIN, is his or her
order. This number assists the IRS in
and late payment will be billed
social security number. The identifying
properly identifying the plan and time
separately after the return is filed.
number for all other filers is their EIN.
period for which the Form 5330 is being
The EIN is the nine-digit number
Claim for Refund or Credit/
filed. For example, a plan year ending
assigned to the plan sponsor/employer,
Amended Return
March 31, 2007, should be shown as
entity, or individual on whom the tax is
03/31/2007.
imposed.
File an amended Form 5330 for any of
the following.
Item G. Plan number. Enter the
Item C. Name of plan. Enter the
To claim a refund of overpaid taxes
three-digit number that the employer or
formal name of the plan, name of the
reportable on Form 5330.
plan administrator assigned to the plan.
plan sponsor, or name of the insurance
To receive a credit for overpaid taxes.
This three-digit number is used with the
company or financial institution of the
To report additional taxes due within
EIN entered on line B and is used by the
direct filing entity (DFE). In the case of a
the same tax year of the filer if those
IRS, the Department of Labor, and the
group insurance arrangement (GIA),
taxes have the same due date as those
Pension Benefit Guaranty Corporation
enter the name of the trust or other
previously reported. Check the box in
as a unique 12-digit number to identify
entity that holds the insurance contract.
item H of the Entity Section and report
the plan.
In the case of a master trust investment
the correct amount of taxes on
account (MTIA), enter the name of the
If the plan number is not
Schedule A through K, as appropriate,
sponsoring employers.
provided, this will cause a
!
and on Part I, lines 1 through 16. See
If the plan covers only the employees
delay in processing your return.
the instructions for Part II, lines 17
CAUTION
of one employer, enter the employer's
through 19.
Item H. Amended return. If you are
name or enough information to identify
filing an amended Form 5330, check the
the plan. This should be the same name
If you file an amended return to claim
box on this line, and see the instructions
indicated on the Form 5500 series
a refund or credit, the claim must state
for Part II, lines 17 through 19. Also see
return/report if that form is required to be
in detail the reasons for claiming the
Claim for Refund or Credit/Amended
filed for the plan.
refund. In order for the IRS to promptly
Return, earlier.
consider your claim, you must provide
Item D. Name and address of plan
the appropriate supporting evidence.
Filer's signature. To reduce the
sponsor. The term “plan sponsor”
See Regulations section 301.6402-2 for
possibility of correspondence and
means:
more details.
penalties, please sign and date the
1. The employer, for an employee
form. Also enter a daytime phone
benefit plan established or maintained
number where you can be reached.
Specific Instructions
by a single employer;
Preparer's signature. Anyone who
2. The employee organization, in
Filer tax year. Enter the tax year of the
prepares your return and does not
the case of a plan of an employee
employer, entity, or individual on whom
charge you should not sign your return.
organization;
the tax is imposed by using the plan
For example, a regular full-time
3. The association, committee, joint
year beginning and ending dates
employee or your business partner who
board of trustees, or other similar group
entered in Part I of Form 5500 or by
prepares the return should not sign.
of representatives of the parties who
using the tax year of the business return
Generally, anyone who is paid to
establish or maintain the plan, if the plan
filed.
prepare the return must sign the return
is established or maintained jointly by
Item A. Name and address of filer.
in the space provided and fill in the Paid
one or more employers and one or more
Enter the name and address of the
-3-
Preparer's Use Only area. See section
employer securities as of the disposition
shareholder of the employer maintaining
7701(a)(36)(B) for exceptions.
(60% of the total value of all employer
the plan.
securities in the case of any qualified
In addition to signing and completing
3. The accrual or allocation of S
employer securities acquired in a
the required information, the paid
corporation shares in an ESOP during a
qualified gratuitous transfer to which
preparer must give a copy of the
nonallocation year constituting a
section 664(g) applied).
completed return to the taxpayer.
prohibited allocation under section
See section 4978(b)(2) for the
409(p).
Note. A paid preparer may sign original
limitation on the amount of tax.
4. A synthetic equity owned by a
or amended returns by rubber stamp,
The section 4978 tax must be paid by
disqualified person in any nonallocation
mechanical device, or computer
the employer or the eligible
year.
software program.
worker-owned cooperative that made
Prohibited allocations for ESOP
the written statement described in
Part I. Taxes
or worker-owned cooperative. For
section 1042(b)(3)(B) on dispositions
purposes of items (1) and (2) above, a
that occurred during their tax year.
Line 4. Enter the total amount of the
“prohibited allocation of qualified
disqualified benefit under section 4976.
The section 4978 tax does not apply
securities by any ESOP or eligible
Section 4976 imposes an excise tax on
to a distribution of qualified securities or
worker-owned cooperative” is any
employers who maintain a funded
sale of such securities if any of the
allocation of qualified securities
welfare benefit plan that provides a
following occurs.
acquired in a nonrecognition-of-gain
disqualified benefit during any tax year.
The death of the employee.
sale under section 1042, which violates
The tax is 100% of the disqualified
The retirement of the employee after
section 409(n), and any benefit that
benefit.
the employee has reached age 59
.
1
accrues to any person in violation of
2
Generally, a disqualified benefit is
The disability of the employee (within
section 409(n).
any of the following.
the meaning of section 72(m)(7)).
Under section 409(n), an ESOP or
Any post-retirement medical benefit
The separation of the employee from
worker-owned cooperative cannot allow
or life insurance benefit provided for a
service for any period that results in a
any portion of assets attributable to
key employee unless the benefit is
1-year break in service, as defined in
employer securities acquired in a
provided from a separate account
section 411(a)(6)(A).
section 1042 sale to accrue or be
established for the key employee under
For purposes of section 4978, an
allocated, directly or indirectly, to the
section 419A(d).
exchange of qualified securities in a
taxpayer, or any person related to the
Any post-retirement medical benefit
reorganization described in section
taxpayer, involved in the transaction
or life insurance benefit unless the plan
368(a)(1) for stock of another
during the nonallocation period. For
meets the nondiscrimination
corporation will not be treated as a
purposes of section 409(n),
requirements of section 505(b) for those
disposition.
“relationship to the taxpayer” is defined
benefits.
under section 267(b).
For section 4978 excise taxes,
Any portion of the fund that reverts to
The nonallocation period is the
the amount entered in Part I,
the benefit of the employer.
period beginning on the date the
line 5a is the amount realized
Lines 5a and 5b. Section 4978
qualified securities are sold and ending
on the disposition of qualified securities,
imposes an excise tax on the sale or
on the later of:
multiplied by 10%. Also check the
transfer of securities acquired in a sale
10 years after the date of sale, or
appropriate box on line 5b.
or qualified gratuitous transfer to which
The date on which the final payment
section 1042 or section 664(g) applied,
Line 6. Section 4979A imposes a 50%
is made if acquisition indebtedness was
respectively, if the sale or transfer takes
excise tax on allocated amounts
incurred at the time of sale.
place within 3 years after the date of the
involved in any of the following.
The employer sponsoring the plan or
acquisition of qualified securities, as
1. A prohibited allocation of qualified
the eligible worker-owned cooperative is
defined in section 1042(c)(1) or a
securities by any ESOP or eligible
responsible for paying the tax.
section 664(g) transfer.
worker-owned cooperative.
Generally, the prohibited
The tax is 10% of the amount
2. A prohibited allocation described
allocation rules for securities in
!
realized on the disposition of the
in section 664(g)(5)(A). Section
an S corporation are effective
qualified securities if an ESOP or
CAUTION
664(g)(5)(A) prohibits any portion of the
for plan years beginning after December
eligible worker-owned cooperative, as
assets of the ESOP attributable to
31, 2004; however, these rules are
defined in section 1042(c)(2), disposes
securities acquired by the plan in a
effective for plan years ending after
of the qualified securities within the
qualified gratuitous transfer to be
March 14, 2001, if:
3-year period described above, and
allocated to the account of:
The ESOP was established after
either of the following applies:
a. Any person related to the
March 14, 2001; or
The total number of shares held by
decedent within the meaning of section
The ESOP was established on or
that plan or cooperative after the
267(b) or a member of the decedent's
before March 14, 2001, and the
disposition is less than the total number
family within the meaning of section
employer maintaining the plan was not
of employer securities held immediately
2032A(e)(2), or
an S corporation.
after the sale, or
b. Any person who, at the time of
Except to the extent provided in
Prohibited allocations of
the allocation or at any time during the
regulations, the value of qualified
securities in an S corporation. For
1-year period ending on the date of the
securities held by the plan or
purposes of items (3) and (4), under
acquisition of qualified employer
cooperative after the disposition is less
Line 6, earlier, the excise tax on these
securities by the plan, is a 5%
than 30% of the total value of all
transactions under section 4979A is
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50% of the amount involved. The
maintenance is not treated as the
2. No accumulated funding
amount involved includes the following.
individual's spouse.
deficiency for any plan year during the
funding improvement period, taking into
1. The value of any synthetic equity
An individual is a disqualified person
account any extension of amortization
owned by a disqualified person in any
if:
period under section 431(d).
nonallocation year. “Synthetic equity”
The total number of shares owned by
means any stock option, warrant,
the person and the members of the
A “rehabilitation plan” is a plan which
restricted stock, deferred issuance
person's family, as defined in section
consists of actions, including options or
stock right, or similar interest or right
409(p)(4)(D), is at least 20% of the
a range of options to be proposed to the
that gives the holder the right to acquire
deemed-owned shares, as defined in
bargaining parties, formulated to enable
or receive stock of the S corporation in
section 409(p)(4)(C), in the S
the plan to cease to be in critical status
the future. Synthetic equity may also
corporation; or
by the end of the rehabilitation period.
include a stock appreciation right,
The person owns at least 10% of the
All or part of this excise tax may be
phantom stock unit, or similar right to a
deemed-owned shares, as defined in
waived under section 4971(g)(5).
future cash payment based on the value
section 409(p)(4)(C), in the S
of the stock or appreciation; and
Line 16. If a tax-exempt entity manager
corporation.
nonqualified deferred compensation as
approves or otherwise causes the entity
Under section 409(p)(7), the
described in Regulations section
to be a party to a prohibited tax shelter
Secretary of the Treasury may,
!
1.409(p)-1(f)(2)(iv). The value of a
transaction during the year and knows
through regulations or other
synthetic equity is the value of the
or has reason to know that the
CAUTION
guidance of general applicability,
shares on which the synthetic equity is
transaction is a prohibited tax shelter
provide that a nonallocation year occurs
based or the present value of the
transaction, the entity manager must
in any case in which the principal
nonqualified deferred compensation.
pay an excise tax under section
purpose of the ownership structure of an
4965(b)(2).
2. The value of any S corporation
S corporation constitutes an avoidance
shares in an ESOP accruing during a
For purposes of section 4965, plan
or evasion of section 409(p). See
nonallocation year or allocated directly
entities are:
Regulations section 1.408(p)-1.
or indirectly under the ESOP or any
Qualified pension, profit-sharing, and
other plan of the employer qualified
For section 4979A excise taxes, the
stock bonus plans described in section
under section 401(a) for the benefit of a
amount entered in Part I, line 6, is 50%
401(a);
disqualified person. For additional
of the amount involved in the prohibited
Annuity plans described in section
information, see Regulations section
allocations described in items (1)
403(a);
1.409(p)-1(b)(2).
through (4), earlier, under Line 6.
Annuity contracts described in
section 403(b);
3. The total value of all
Line 10a. Under section 4971(g)(2),
deemed-owned shares of all
Qualified tuition programs described
each employer who contributes to a
in section 529;
disqualified persons.
multiemployer plan and fails to comply
Retirement plans maintained by a
with a funding improvement or
For this purpose, a “nonallocation
governmental employer described in
rehabilitation plan will be liable for an
year” means a plan year where the
section 457(b);
excise tax for each failure to make a
ESOP, at any time during the year,
Individual retirement accounts within
required contribution within the time
holds employer securities in an S
the meaning of section 408(a);
frame under such plan. Enter the
corporation, and disqualified persons
Individual retirement annuities within
amount of each contribution the
own at least:
the meaning of section 408(b);
employer failed to make in a timely
50% of the number of outstanding
Archer medical savings accounts
manner.
shares of the S corporation (including
(MSAs) within the meaning of section
A “funding improvement plan” is a
deemed-owned ESOP shares), or
220(d);
plan which consists of the actions,
50% of the aggregate number of
Coverdell education savings
including options or a range of options
outstanding shares of stock (including
accounts described in section 530; and
to be proposed to the bargaining
deemed-owned ESOP shares) and
Health savings accounts within the
parties, formulated to provide, based on
synthetic equity in the S corporation.
meaning of section 223(d).
reasonably anticipated experience and
For purposes of determining a
reasonable actuarial assumptions, for
An entity manager is the person who
nonallocation year, the attribution rules
the attainment of the following
approves or otherwise causes the entity
of section 318(a) will apply; however,
requirements by the plan during the
to be a party to a prohibited tax shelter
the option rule of section 318(a)(4) will
funding improvement period.
transaction.
not apply. Additionally, the attribution
1. The plan's funded percentage as
The excise tax under section
rules defining family member are
of the close of the funding improvement
4965(a)(2) is $20,000 for each approval
modified to include the individual's:
period equals or exceeds a percentage
or other act causing the organization to
Spouse,
equal to the sum of:
be a party to a prohibited tax shelter
Ancestor or lineal descendant of the
transaction.
individual or the individual's spouse,
a. The percentage as of the
and
beginning of the funding improvement
A “prohibited tax shelter transaction”
period, plus
A brother or sister of the individual or
is any listed transaction and any
of the individual's spouse and any lineal
prohibited reportable transaction, as
b. 33% of the difference between
descendant of the brother or sister.
defined below.
100% and the percentage as of the
beginning of the funding improvement
A spouse of an individual legally
1. A “listed transaction” is a
period (or 20% of the difference if the
separated from an individual under a
reportable transaction that is the same
plan is in seriously endangered status).
decree of divorce or separate
as, or substantially similar to, a
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Download Instructions for IRS Form 5330 "Return of Excise Taxes Related to Employee Benefit Plans"

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