Instructions For Form 5330 (Page 4 of 6) in pdf

calendar year as adjusted annually for

See section 4978(b)(2) for the limitation

2001, or (b) on or before March 14, 2001, if

cost-of-living increases is published during

on the amount of tax.

the employer securities held by the ESOP

the fourth quarter of the prior calendar year

consist of stock in a corporation that did not

The section 4978 tax must be paid by the

in the Internal Revenue Bulletin.

have an S corporation election in effect. As

employer or the eligible worker-owned

enacted, the tax also applies to the amount

cooperative that made the written statement

If you are an employee of an educational

involved when an ESOP holding employer

institution, hospital, or home health service

described in section 1042(b)(3)(B) on

securities consisting of stock in an S

dispositions that occurred during their tax

agency, you may elect alternative limitations

corporation allocates such employer

under section 415(c)(4)(A), (B), or (C).

year.

securities during a nonallocation year for the

The section 4978 tax does not apply to a

benefit of any disqualified person.

Part IV (Section 4976)

distribution of qualified securities or sale of

During the first nonallocation year the

such securities if any of the following occurs:

•

Tax on Disqualified Benefits for

amount involved is determined by taking into

The death of the employee;

•

account the total value of all the

Funded Welfare Plans

The retirement of the employee after the

deemed-owned shares of all disqualified

employee has reached age 59

;

Section 4976 imposes an excise tax on

•

persons with respect to such plan.

The disability of the employee (within the

employers who maintain a funded welfare

The tax also applies to any synthetic

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

benefit plan that provides a disqualified

•

entity owned by a disqualified person in any

The separation of the employee from

benefit during any tax year. The tax is 100%

nonallocation year and the amount involved

service for any period that results in a 1-year

of the disqualified benefit.

is the value of the shares on which the

break in service (as defined in section

Generally, a “disqualified benefit” is any

synthetic entity is based.

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

of the following:

For purposes of section 4978, an

•

Part VII (Section 4975)

Any post-retirement medical benefit or life

exchange of qualified securities in a

insurance benefit provided for a key

reorganization described in section

employee unless the benefit is provided

Tax on Prohibited Transactions

368(a)(1) for stock of another corporation

from a separate account established for the

Note. Temporary Regulations section

will not be treated as a disposition.

key employee under section 419A(d);

141.4975-13 states that, until final

•

Section 4978A imposes a tax on certain

Any post-retirement medical or life

regulations are written under section

transactions involving qualified employer

insurance benefit unless the plan meets the

4975(f), the definitions of “amount involved”

securities. Qualified employer securities for

nondiscrimination requirements of section

and “correction” found in regulations section

purposes of this tax are defined in section

505(b) for those benefits; or

53.4941(e)-1 will apply.

•

2057(d).

Any portion of the fund that reverts to the

Line 26a. Check the box that best

benefit of the employer.

Section 4978A taxes any disposition of

characterizes the prohibited transaction for

qualified employer securities acquired on or

Part V (Sections 4978, 4978A

which an excise tax is being paid. A

before December 20, 1989, if the disposition

prohibited transaction is discrete unless it is

and 4978B)

of the qualified securities takes place within

of an ongoing nature. Transactions involving

3 years after the date the ESOP or eligible

the use of money (loans, etc.) or other

worker-owned cooperative acquired the

Tax on Certain ESOP Dispositions

property (rent, etc.) are of an ongoing nature

qualified securities.

Caution. Section 4978A does not apply to

and will be treated as a new prohibited

The section 4978A tax also applies to

the estate of a person who died after

transaction on the first day of each

dispositions of qualified securities that occur

December 19, 1989. Section 4978B does

succeeding tax year or part of a tax year

after the 3-year period if the qualified

not apply to the disposition of employer

that is within the taxable period.

securities were not allocated to participants’

securities to which former section 133

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

accounts or the proceeds from the

applied which are acquired by loans after

prohibited transactions that took place in

disposition were not allocated to the

August 20, 1996, or to the refinancing of

connection with a particular plan during the

participants’ accounts.

such loans after August 20, 1996.

current tax year. Also list the date of all

The tax under section 4978A is 30% of

Line 24a. Report the section 4978 or

prohibited transactions that took place in

the amount realized on the disposition or

section 4978A tax on line 24a. Check the

prior years unless either the transaction was

30% of the amount repaid on the loan,

box on line 24a to show which tax you are

corrected in a prior tax year or the section

whichever applies.

reporting.

4975(a) tax was assessed in the prior tax

Line 24b. Section 4978B imposes a tax on

year. A disqualified person who engages in

Section 4978 imposes an excise tax on

certain dispositions of section 133 securities

a prohibited transaction must file a separate

dispositions of securities acquired in a sale

held by an employee stock ownership plan

Form 5330 to report the excise tax due

to which section 1042 applied or in a

(ESOP). This tax is 10% of the amount

under section 4975 for each tax year.

qualified gratuitous transfer to which section

realized on section 133 securities that are

664(g) applied, if the dispositions take place

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

(1) disposed of within 3 years of the date the

within 3 years after the date of the

“amount involved” in a prohibited transaction

securities were acquired or (2) disposed of

acquisition of the qualified securities (as

means the greater of the amount of money

before the securities were allocated to the

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

and the fair market value of the other

participants’ accounts and the proceeds of

664(g) transfer). The tax is 10% of the

property given, or the amount of money and

the disposition are not allocated to the

amount realized on the disposition of the

the fair market value of the other property

accounts of the participants. For exceptions,

qualified securities if an ESOP or eligible

received. However, for services described in

see section 4978B.

worker-owned cooperative (as defined in

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

section 1042(c)(2)) disposes of the qualified

This tax must be paid by the employer.

involved” only applies to excess

securities within the 3-year period described

compensation. Fair market value must be

Part VI (Section 4979A)

above, and either of the following applies:

determined as of the date on which the

•

The total number of shares held by that

prohibited transaction occurs. If the use of

Tax on Certain Prohibited

plan or cooperative after the disposition is

money or other property is involved, the

Allocations of Qualified ESOP

less than the total number of employer

amount involved is the greater of the

securities held immediately after the sale, or

amount paid for the use or the fair market

Securities

•

Except to the extent provided in

value of the use for the period for which the

Section 4979A. Report on lines 25 and 5

regulations, the value of qualified securities

money or other property is used. In addition,

the section 4979A tax on the prohibited

held by the plan or cooperative after the

transactions involving the use of money or

allocation of qualified securities by any

disposition is less than 30% of the total

other property will be treated as giving rise

ESOP or eligible worker-owned cooperative

value of all employer securities as of the

to a prohibited transaction occurring on the

or an allocation described in section

disposition (60% of the total value of all

date of the actual transaction plus a new

664(g)(5)(A). The tax is 50% of the

employer securities in the case of any

prohibited transaction on the first day of

prohibited allocation.

qualified employer securities acquired in a

each succeeding tax year or portion of a

qualified gratuitous transfer to which section

EGTRRA amended section 4979A for

succeeding tax year which is within the

664(g) applied).

any ESOP established: (a) after March 14,

“taxable period.” The taxable period is the

-4-

Instructions For Form 5330 Page 4

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