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Figure 1. 2003 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 6 of the

page 6 of the instructions)

transaction in column (d) by

instructions)

the appropriate rate (see

page 6 of the instructions))

(i)

7 – 1 – 03

Loan

$6,000

$900

(ii)

(iii)

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

$900

Figure 2. 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 6 of the

page 6 of the instructions)

transaction in column (d) by

instructions)

the appropriate rate (see

page 6 of the instructions))

(i)

7 – 1 – 03

Loan

$6,000

$900

(ii)

1 – 1 – 04

Loan

$12,000

$1,800

(iii)

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

$2,700

2004, the section 4975(a) tax is due for

some cases further initial taxes, a

number of each disqualified person,

the 2004 taxable year for both

correction must be made within the

other than the disqualified person who

prohibited transactions. The excise tax

taxable period. The term “correction” is

files this return.

to be reported on the Form 5330 filed

defined as undoing the prohibited

Line 27. For all transactions

for 2004 would include both the

transaction to the extent possible, but in

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

prohibited transaction of July 1, 2003,

any case placing the plan in a financial

the transaction has been corrected,

with an amount involved of $6,000,

position not worse than that in which it

complete columns (a) through (e). If

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

would be if the disqualified person were

additional space is needed you may

15%) and the second prohibited

acting under the highest fiduciary

attach a statement fully explaining the

transaction of January 1, 2004, with an

standards.

correction and identifying persons

amount involved of $12,000 (12 months

If the initial tax is not corrected within

involved in the prohibited transaction.

× $1,000), resulting in a tax due of

the taxable period, an additional tax

$1,800 ($12,000 × 15%). Line 25b of

Part VI (Section 4971(a) and

equal to 100% of the amount involved

the Forms 5330 would be completed

will be imposed under section 4975(b).

(b))

as shown in Figures 1 and 2.

Any disqualified person who

participated in the prohibited

Tax on Failure To Meet

When a loan from a qualified

transaction (other than a fiduciary

TIP

plan that is a prohibited

Minimum Funding Standards

acting only as such) must pay this tax

transaction spans successive

Section 4971(a) imposes a 10% tax

imposed by section 4975(b). Report the

taxable years, and thus constitutes

(5% for multiemployer plans) on the

additional tax on line 6b.

multiple prohibited transactions, and

amount of the accumulated funding

during those years the first tier

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

deficiency determined as of the end of

prohibited transaction excise tax rate

line 26, there has not been a correction

the plan year.

changes, the first tier excise tax liability

of all of the prohibited transactions by

If a plan fails to meet the funding

for each prohibited transaction is the

the end of the tax year for which this

requirements of section 412, the

sum of the products resulting from

Form 5330 is being filed. Attach a

employer and all controlled group

multiplying the amount involved for

statement indicating when correction

members will be subject to the excise

each year in the taxable period for that

has been or will be made.

taxes under sections 4971(a) and (b).

prohibited transaction by the excise tax

Part V

rate in effect at the beginning of that

Except in the case of a

taxable period. For more information

multiemployer plan, all members of a

Schedule of Other Participating

see Revenue Ruling 2002-43, 2002-2

controlled group are jointly and

Disqualified Persons and

I.R.B. 85. Unlike the previous example,

severally liable for this tax. A “controlled

the example in Rev. Rul. 2002-43

Description of Correction

group” in this case means a controlled

contains unpaid interest.

If more than one disqualified person

group of corporations (section 414(b)),

Additional tax for failure to correct

participated in the same prohibited

a group of trades or businesses under

the prohibited transaction (Section

transaction, list on this schedule the

common control (section 414(c)), an

4975(b)). To avoid liability for

name, address, and the social security

affiliated service group (section

additional taxes and penalties, and in

number or employer identification

414(m)), and any other group treated

-7-

Instructions For Form 5330 - Return Of Exange Taxes Related To Employee Benefit Plans Page 7

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