Instructions For Form 5330 - Internal Revenue Service (Page 8 of 13) in pdf

Figure 1. Example for the calendar 2005 plan year used when filing for the 2005 tax year

Schedule C — Tax on Prohibited Transactions (section 4975) Reported by the last day of the 7th month after the end of the

tax year of the employer (or other person who must file the return)

(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)

7-1-05

Loan

$6,000

$900

(ii)

(iii)

3. Add amounts in column (e). Enter here and on Part I, line 3a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$900

Figure 2. Example for the calendar 2006 plan year used when filing for the 2006 tax year

Schedule C — Tax on Prohibited Transactions (Section 4975) Reported by the last day of the 7th month after the end of the

tax year of the employer (or other person who must file the return)

(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)

7-1-05

Loan

$6,000

$900

(ii)

1-1-06

Loan

$12,000

$1,800

(iii)

3. Add amounts in column (e). Enter here and on Part I, line 3a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,700

Failure to transmit participant

year) and a timely Form 5330 for the

each tax year or part thereof in the

contributions. For purposes of

2006 plan year (which in this case is

taxable period of each prohibited

calculating the excise tax on a

the calendar year). No notice of

transaction.

prohibited transaction where there is a

deficiency with respect to the tax

The Form 5330 for the year

failure to transmit participant

imposed by section 4975(a) has been

ending December 31, 2005: The

contributions (elective deferrals) or

mailed to the disqualified person and

amount involved to be reported on

amounts that would have otherwise

no assessment of such excise tax has

Schedule C, line 2, column (d) is

been payable to the participant in cash,

been made by the IRS before the time

$6,000 (6 months x $1,000). The

the amount involved is based on

the disqualified person filed the Forms

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

interest on those elective deferrals. See

5330.

15%). (See Figure 1.) (Any interest and

Rev. Rul. 2006-38.

Each prohibited transaction has its

penalties imposed for the delinquent

Column (e). The initial tax on a

own separate taxable period which

filing of the Form 5330 and the

prohibited transaction is 15% of the

begins on the date the prohibited

delinquent payment of the excise tax

amount involved in each prohibited

transaction occurred or is deemed to

for 2005 will be billed separately to the

transaction for each year or part of a

occur and ends on the date of the

disqualified person.)

year in the taxable period. Multiply the

correction. The taxable period that

amount in column (d) by 15%.

begins on the date the loan occurs runs

The Form 5330 for the year ending

from July 1, 2005 (date of loan) through

Example. The above example of a

December 31, 2006: The excise tax to

December 31, 2006 (date of

prohibited transaction does not cover all

be reported would include both the

correction). When a loan is a prohibited

types of prohibited transactions. For

prohibited transaction of July 1, 2005,

transaction, the loan is treated as giving

more examples, see Regulations

with an amount involved of $6,000,

rise to a prohibited transaction on the

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

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

date the transaction occurs, and an

15%) and the second prohibited

A disqualified person borrows money

additional prohibited transaction on the

transaction of January 1, 2006, with an

from a plan in a prohibited transaction

first day of each succeeding tax year

amount involved of $12,000 (12 months

under section 4975. The FMV of the

(or portion of a tax year) within the

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

use of the money and the actual

taxable period that begins on the date

$1,800 ($12,000 x 15%). (See Figure

interest on the loan is $1,000 per month

the loan occurs. Therefore, in this

2.) The taxable period for the second

(the actual interest is paid in this

example, there are two prohibited

prohibited transaction runs from

example). The loan was made on July

transactions, the first occurring on July

January 1, 2006, through December 31,

1, 2005, (date of transaction) and

1, 2005 and ending on December 31,

2006 (date of correction). Because

repaid on December 31, 2006 (date of

2006, and the second occurring on

there are two prohibited transactions

correction). The disqualified person’s

January 1, 2006 and ending on

with taxable periods running during

tax year is the calendar year. On July

December 31, 2006.

2006, the section 4975(a) tax is due for

31, 2007, the disqualified person files a

the 2006 tax year for both prohibited

delinquent Form 5330 for the 2005 plan

Section 4975(a) imposes a 15%

transactions.

year (which in this case is the calendar

excise tax on the amount involved for

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Instructions For Form 5330 - Internal Revenue Service Page 8

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