Instructions For Form 5330 - Internal Revenue Service (Page 8 of 12) in pdf

Figure 1. 2004 Example

Part IV — Tax on Prohibited Transactions (section 4975)

(a)

(b) Date of

(d) Amount involved in

(e) Initial tax on prohibited

Transaction

transaction (see

prohibited transaction (see

transaction (multiply each

number

page 7 of the

page 7 of the instructions)

transaction in column (d) by

instructions)

the appropriate rate (see

page 7 of the instructions))

(i)

7 – 1 – 04

Loan

$6,000

$900

(ii)

(iii)

25c. Add amounts in column (e). Enter here and on line 6a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$900

Figure 2. 2005 Example

Part IV — Tax on Prohibited Transactions (section 4975)

(a)

(b) Date of

(d) Amount involved in

(e) Initial tax on prohibited

Transaction

transaction (see

prohibited transaction (see

transaction (multiply each

number

page 7 of the

page 7 of the instructions)

transaction in column (d) by

instructions)

the appropriate rate (see

page 7 of the instructions))

(i)

7 – 1 – 04

Loan

$6,000

$900

(ii)

1 – 1 – 05

Loan

$12,000

$1,800

(iii)

25c. Add amounts in column (e). Enter here and on line 6a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,700

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

transaction by the excise tax rate in

Part V

× 15%). (Any interest and penalties

effect at the beginning of that taxable

imposed for the delinquent filing of the

period. For more information see Rev.

Schedule of Other Participating

Form 5330 for 2004 will be billed

Rul. 2002-43, 2002-2 I.R.B. 85. Unlike

Disqualified Persons and

separately to the disqualified person.)

the previous example, the example in

Description of Correction

Rev. Rul. 2002-43 contains unpaid

Example. The taxable period for the

If more than one disqualified person

interest.

second prohibited transaction runs from

participated in the same prohibited

Additional tax for failure to correct

January 1, 2005, through December 31,

transaction, list on this schedule the

the prohibited transaction (Section

2005 (date of correction). Because

name, address, and social security

4975(b)). To avoid liability for

there are two prohibited transactions

number or employer identification

additional taxes and penalties, and in

with taxable periods running during

number of each disqualified person,

some cases further initial taxes, a

2005, the section 4975(a) tax is due for

other than the disqualified person who

correction must be made within the

the 2005 tax year for both prohibited

files this return.

taxable period. The term correction is

transactions. The excise tax to be

defined as undoing the prohibited

Line 27. For all transactions

reported on the Form 5330 filed for

transaction to the extent possible, but in

complete columns (a), (b), and (c). If

2005 would include both the prohibited

any case placing the plan in a financial

the transaction has been corrected,

transaction of July 1, 2004, with an

position not worse than that in which it

complete columns (a) through (e). If

amount involved of $6,000, resulting in

a tax due of $900 ($6,000 × 15%) and

would be if the disqualified person were

additional space is needed you may

acting under the highest fiduciary

the second prohibited transaction of

attach a statement fully explaining the

standards.

January 1, 2005, with an amount

correction and identifying persons

involved of $12,000 (12 months ×

involved in the prohibited transaction.

If the initial tax is not corrected within

$1,000), resulting in a tax due of $1,800

the taxable period, an additional tax

Prohibited Transactions and

($12,000 × 15%). Line 25b of the Forms

equal to 100% of the amount involved

Investment Advice

5330 would be completed as shown in

will be imposed under section 4975(b).

Figures 1 and 2.

For financial investment advice

Any disqualified person who

provided after December 31, 2006, the

participated in the prohibited

When a loan from a qualified

prohibited transaction rules of section

transaction (other than a fiduciary

TIP

plan that is a prohibited

4975(c) will not apply to any transaction

acting only as such) must pay this tax

transaction spans successive

in connection with investment advice, if

imposed by section 4975(b). Report the

tax years, and thus constitutes multiple

the investment advice provided by a

additional tax on line 6b.

prohibited transactions, and during

fiduciary adviser is provided under an

those years the first tier prohibited

Line 26. If the “No” box is checked on

eligible investment advice arrangement.

transaction excise tax rate changes, the

line 26, there has not been a correction

first tier excise tax liability for each

of all of the prohibited transactions by

For this purpose an eligible

prohibited transaction is the sum of the

the end of the tax year for which this

investment advice arrangement is an

products resulting from multiplying the

Form 5330 is being filed. Attach a

arrangement which either:

•

amount involved for each year in the

statement indicating when the

Provides that any fees (including any

taxable period for that prohibited

correction has been or will be made.

commission or other compensation)

-8-

Instructions For Form 5330 - Internal Revenue Service Page 8

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