Instructions For Form 5330 - Internal Revenue Service (Page 4 of 12) in pdf

Line 4a and 4b. Section 4978 and

multiplied by 10%. Also check the

4. Any synthetic equity owned by a

4978A – Tax on Certain ESOP

appropriate box on line 4b.

disqualified person in any nonallocation

Dispositions.

year.

Section 4978A does not apply to

Section 4978. Section 4978

Prohibited allocations for ESOP or

the estate of a person who died

imposes an excise tax on dispositions

worker-owned cooperative. For

after December 19, 1989.

CAUTION

of securities acquired in a sale to which

purposes of items 1 and 2 above, a

section 1042 applied, or in a qualified

Section 4978A. This section

prohibited allocation of qualified

gratuitous transfer to which section

imposes a tax on certain transactions

securities by any ESOP or eligible

664(g) applied, if the dispositions take

involving qualified employer securities.

worker-owned cooperative is any

place within 3 years after the date of

Qualified employer securities for

allocation of qualified securities

the acquisition of qualified securities (as

purposes of this tax are defined in

acquired in a non-recognition-of-gain

defined in section 1042(c)(1) or a

section 2057(d) as in effect prior to

sale under section 1042 which violates

section 664(g) transfer).

December 19, 1989.

section 409(n); and any benefit that

accrues to any person in violation of

The tax is 10% of the amount

Section 4978A taxes any disposition

section 409(n).

realized on the disposition of the

of qualified employer securities

qualified securities if an ESOP or

Under section 409(n), an ESOP or

acquired on or before December 20,

eligible worker-owned cooperative (as

worker-owned cooperative cannot allow

1989, if the disposition of the qualified

defined in section 1042(c)(2)) disposes

any portion of assets, attributable to

securities takes place within 3 years

of the qualified securities within the

employer securities acquired in a

after the date the ESOP or eligible

3-year period described above, and

section 1042 sale, to accrue or be

worker-owned cooperative acquired the

either of the following applies:

allocated (directly or indirectly) to the

qualified securities.

•

The total number of shares held by

taxpayer involved in the transaction (or

that plan or cooperative after the

The section 4978A tax also applies

any person related to the taxpayer)

disposition is less than the total number

to dispositions of qualified securities

during the nonallocation period. For

of employer securities held immediately

that occur after the 3-year period if the

purposes of section 409(n), relationship

after the sale, or

qualified securities were not allocated

to the taxpayer is defined under section

•

Except to the extent provided in

to participants’ accounts or the

267(b).

regulations, the value of qualified

proceeds from the disposition were not

The nonallocation period is the

securities held by the plan or

allocated to the participants’ accounts.

period beginning on the date the

cooperative after the disposition is less

qualified securities are sold and ends

than 30% of the total value of all

For section 4978A excise taxes,

on the later of:

employer securities as of the

the amount entered on Part I,

•

10 years after the date of sale; or

disposition (60% of the total value of all

line 4a is 30% of the amount

•

The date on which the final payment

employer securities in the case of any

realized on the disposition or 30% of

is made if acquisition indebtedness was

qualified employer securities acquired

the amount repaid on the loan,

incurred at the time of sale.

in a qualified gratuitous transfer to

whichever applies. Also check the

which section 664(g) applied).

The employer sponsoring the plan,

appropriate box on line 4b.

or the eligible worker-owned

See section 4978(b)(2) for the

Line 5a. Section 4979A – Tax on

cooperative, is responsible for paying

limitation on the amount of tax.

Certain Prohibited Allocations of

the tax.

Qualified ESOP Securities. Section

The section 4978 tax must be paid

Prohibited allocations of

4979A imposes a 50% excise tax on

by the employer or the eligible

securities in an S corporation.

allocated amounts involved in:

worker-owned cooperative that made

the written statement described in

1. A prohibited allocation of qualified

Generally, the prohibited

section 1042(b)(3)(B) on dispositions

allocation rules for securities in

securities by any ESOP or eligible

that occurred during their tax year.

worker-owned cooperative.

an S corporation are effective

CAUTION

for plan years beginning after

2. An allocation described in

The section 4978 tax does not apply

December 31, 2004; however, these

section 664(g)(5)(A). Section

to a distribution of qualified securities or

rules are effective for plan years ending

664(g)(5)(A) prohibits any portion of the

sale of such securities if any of the

after March 14, 2001, if:

assets of the ESOP attributable to

following occurs:

•

The ESOP was established after

•

securities acquired by the plan in a

The death of the employee;

March 14, 2001, or

•

qualified gratuitous transfer to be

The retirement of the employee after

•

The ESOP was established on or

allocated to the account of:

the employee has reached age 59

;

•

before March 14, 2001, and the

a. Any person related to the

The disability of the employee (within

employer maintaining the plan was not

decedent (within the meaning of section

the meaning of section 72(m)(7)); or

an S corporation.

•

267(b)) or a member of the decedent’s

The separation of the employee from

The rules below apply to the

family (within the meaning of section

service for any period that results in a

2032A(e)(2)), or

prohibited allocation, identified in items

1-year break in service (as defined in

3 and 4, under line 5a. The excise tax

section 411(a)(6)(A)).

b. Any person who, at the time of

on these transactions under section

the allocation, or at any time during the

For purposes of section 4978, an

4979A is 50% of the amount involved.

1-year period ending on the date of the

exchange of qualified securities in a

The amount involved includes:

acquisition of qualified employer

reorganization described in section

securities by the plan, is a 5%

1. The value of any synthetic equity

368(a)(1) for stock of another

shareholder of the employer

owned by a disqualified person in any

corporation will not be treated as a

maintaining the plan.

nonallocation year. Synthetic equity

disposition.

3. The accrual or allocation of S

means any stock option, warrant,

For section 4978 excise taxes,

corporation shares in an ESOP during

restricted stock, deferred issuance

the amount entered on Part I,

a nonallocation year constituting a

stock right, or similar interest or right

line 4a is the amount realized on

prohibited allocation under section

that gives the holder the right to acquire

the disposition of qualified securities

409(p).

or receive stock of the S corporation in

-4-

Instructions For Form 5330 - Internal Revenue Service Page 4

Related Articles

Related forms

Related Categories