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securities acquired by the plan in a

1. Any synthetic equity owned by a

The total number of shares owned by

qualified gratuitous transfer to be

disqualified person in any nonallocation

the person and the members of the

allocated to the account of:

year. “Synthetic equity ” means any

person’s family is at least 20% of the

stock option, warrant, restricted stock,

deemed-owned of shares (as defined in

a. Any person related to the

deferred issuance stock right, or similar

section 409(p)(4)(C)) in the S

decedent (within the meaning of section

interest or right that gives the holder the

corporation, or

267(b)) or a member of the decedent’s

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right to acquire or receive stock of the S

The person owns at least 10% of the

family (within the meaning of section

corporation in the future. Synthetic

deemed-owned shares (as defined in

2032A(e)(2), or

equity may also include a stock

section 409(p)(4)(C)) in the S

b. Any person who, at the time of

appreciation right, phantom stock unit,

corporation.

the allocation, or at any time during the

or similar right to a future cash payment

1-year period ending on the date of the

Under section 409(p)(7), the

based on the value of the stock or

acquisition of qualified employer

Secretary of the Treasury may,

appreciation. Synthetic equity also

securities by the plan, is a 5-percent

through regulations or other

includes nonqualified deferred

CAUTION

shareholder of the employer

guidance of general applicability,

compensation as described in section

maintaining the plan.

provide that a nonallocation year occurs

1.409(p)-1T(f)(2)(iv) of the Regulations,

2. A prohibited allocation of qualified

in any case in which the principal

disregarding nonqualified deferred

securities by an ESOP or eligible

purpose of the ownership structure of

compensation that is distributed on or

worker-owned cooperative. A

an S corporation constitutes an

before July 21, 2004. The amount

“prohibited allocation” is any allocation

avoidance or evasion of section 409(p).

involved is the value of the shares on

of qualified securities acquired in a

For a description of situations where

which the synthetic equity is based or

non-recognition-of-gain sale under

the definition of nonallocation year was

the present value of the nonqualified

section 1042 which violates section

considered, see Revenue Ruling

deferred compensation. For additional

409(n).

2004-4, 2004-6 I.R.B. 414.

information on the treatment of

synthetic equity, see section 409(p)(5).

Under section 409(n), an ESOP or

For section 4979A excise taxes,

2. Any allocation of employer

worker-owned cooperative cannot allow

the amount entered on Part I,

securities in a nonallocation year

any portion of assets, attributable to

line 5 is 50% of the amount

violating section 409(p). The amount

employer securities acquired in a

involved as described in items 1

involved is the amount allocated to the

section 1042 sale, to accrue or be

through 3, under Prohibited allocations

account of any person in violation of

allocated (directly or indirectly) to the

of securities in an S corporation, above.

section 409(p)(1).

taxpayer involved in the transaction (or

3. In the first nonallocation year the

Lines 13a through 13c. If you are

any person related to the taxpayer)

amount involved includes the total

filing an amended Form 5330 and you

during the nonallocation period. For

value of all the deemed-owned shares

paid tax with your original return and

purposes of section 409(n), relationship

of all disqualified persons.

those taxes have the same due date as

to the taxpayer is defined under section

those previously reported, check the

267(b).

A “nonallocation year” means a plan

box in item H and enter the tax reported

The nonallocation period is the

year where the ESOP, at any time

on your original return in the entry

period beginning on the date the

during the year, holds employer

space for line 13b. If you file Form 5330

qualified securities are sold and ends

securities in an S corporation, and

for a claim for refund or credit, show the

on the later of:

disqualified persons own at least:

amount of overreported tax in

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10 years after the date of sale; or

50 percent of the number of

parentheses on line 13c. Otherwise,

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The date on which the final payment

outstanding shares of the S corporation

show the amount of additional tax due

is made if acquisition indebtedness was

(including deemed-owned ESOP

on line 13c and include the payment

incurred at the time of sale.

shares), or

with the amended Form 5330.

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50 percent of the aggregate number

The employer sponsoring the plan,

Make your check or money order

of outstanding shares of stock

or the eligible worker-owned

payable to the “United States Treasury”

(including deemed-owned ESOP

cooperative is responsible for paying

for the full amount due. Attach the

shares) and synthetic equity in the S

the tax.

payment to your return. Write your

corporation.

name, identifying number, and “Form

Prohibited allocations of

For purposes of determining a

5330, Section ____” on your payment.

securities in an S corporation.

nonallocation year, the attribution rules

of section 318(a) will apply; however,

Generally, the prohibited

Part II (Section 4972)

the option rule of section 318(a)(4) will

allocation rules for securities in

not apply. Additionally, the attribution

an S corporation are effective

Tax on Nondeductible

CAUTION

rules defining family member is

for plan years beginning after

Employer Contributions to

modified to include the individual’s:

December 31, 2004; however, these

Qualified Plans

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Spouse.

rules are effective for plan years ending

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Ancestor or lineal descendant of the

after March 14, 2001, if:

Section 4972 imposes an excise tax

individual or the individual’s spouse.

on employers who make nondeductible

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The ESOP was established after

A brother or sister of the individual or

contributions to their qualified plans. A

March 14, 2001, or

of the individual’s spouse and any lineal

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“qualified plan” for purposes of this tax

The ESOP was established on or

descendant of the brother or sister.

means any plan qualified under section

before March 14, 2001, and the

401(a), any annuity plan qualified under

A spouse of an individual who is

employer maintaining the plan was not

section 403(a), and any simplified

legally separated from an individual

an S corporation.

employee pension plan qualified under

under a decree of divorce or separate

For securities in an S corporation,

section 408(k) or 408(p). The term

maintenance is not treated as the

section 4979A imposes a tax on the

“qualified plan” does not include certain

individual’s spouse.

allocation or the ownership equal to

governmental plans and certain plans

50% of the amount involved in the

An individual is a disqualified person

maintained by tax-exempt

following transactions.

if:

organizations.

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Instructions For Form 5330 - Return Of Exange Taxes Related To Employee Benefit Plans Page 4

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