Instructions For Form 5330 November 2002 (Page 5 of 8) in pdf

Example for 2001

PART VII—Tax on Prohibited Transactions (section 4975)

(d) Initial tax on prohibited

(a) Date of

transaction (multiply each

Transaction

transaction (see

(b) Description of prohibited transaction

prohibited transaction

transaction in column (c)

number

instructions)

(see instructions)

by 15% (see instructions))

(i)

7-1-01

Loan

$6,000

$900

(ii)

(iii)

26c Add amounts in column (d). Enter here and on line 6

$900

Example for 2002

PART VII—Tax on Prohibited Transactions (section 4975)

(d) Initial tax on prohibited

(a) Date of

transaction (multiply each

Transaction

transaction (see

(b) Description of prohibited transaction

prohibited transaction

transaction in column (c)

number

instructions)

(see instructions)

by 15% (see instructions))

(i)

7-1-01

Loan

$6,000

$900

(ii)

1-1-02

Loan

12,000

1,800

(iii)

26c Add amounts in column (d). Enter here and on line 6

$2,700

See section 4978(b)(2) for the

to participants’ accounts or the

an S corporation election in effect. As

limitation on the amount of tax.

proceeds from the disposition were not

enacted, the tax also applies to the

allocated to the participants’ accounts.

amount involved when an ESOP

The section 4978 tax must be paid

holding employer securities consisting

by the employer or the eligible

The tax under section 4978A is 30%

of stock in an S corporation allocates

worker-owned cooperative that made

of the amount realized on the

such employer securities during a

the written statement described in

disposition or 30% of the amount repaid

nonallocation year for the benefit of any

section 1042(b)(3)(B) on dispositions

on the loan, whichever applies.

disqualified person.

that occurred during their tax year.

Line 24b. Section 4978B imposes a

During the first nonallocation year

The section 4978 tax does not apply

tax on certain dispositions of section

the amount involved is determined by

to a distribution of qualified securities or

133 securities held by an employee

taking into account the total value of all

sale of such securities if any of the

stock ownership plan (ESOP). This tax

the deemed-owned shares of all

following occurs:

is 10% of the amount realized on

•

disqualified persons with respect to

The death of the employee;

section 133 securities that are (1)

•

such plan.

The retirement of the employee after

disposed of within 3 years of the date

the employee has reached age 59

;

The tax also applies to any synthetic

the securities were acquired or (2)

•

The disability of the employee (within

entity owned by a disqualified person in

disposed of before the securities were

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

any nonallocation year and the amount

allocated to the participants’ accounts

•

The separation of the employee from

involved is the value of the shares on

and the proceeds of the disposition are

service for any period that results in a

which the synthetic entity is based.

not allocated to the accounts of the

1-year break in service (as defined in

participants. For exceptions, see

Part VII (Section 4975)

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

section 4978B.

For purposes of section 4978, an

This tax must be paid by the

Tax on Prohibited Transactions

exchange of qualified securities in a

employer.

reorganization described in section

Note. Temporary Regulations section

368(a)(1) for stock of another

141.4975-13 states that, until final

Part VI (Section 4979A)

corporation will not be treated as a

regulations are written under section

disposition.

4975(f), the definitions of “amount

Tax on Certain Prohibited

involved” and “correction” found in

Section 4978A imposes a tax on

Allocations of Qualified ESOP

Regulations section 53.4941(e)-1 will

certain transactions involving qualified

Securities

apply.

employer securities. Qualified employer

securities for purposes of this tax are

Section 4979A. Report on lines 25 and

Line 26a. Check the box that best

defined in section 2057(d).

5 the section 4979A tax on the

characterizes the prohibited transaction

prohibited allocation of qualified

Section 4978A taxes any disposition

for which an excise tax is being paid. A

securities by any ESOP or eligible

of qualified employer securities

prohibited transaction is discrete unless

worker-owned cooperative or an

acquired on or before December 20,

it is of an ongoing nature. Transactions

allocation described in section

1989, if the disposition of the qualified

involving the use of money (loans, etc.)

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

securities takes place within 3 years

or other property (rent, etc.) are of an

prohibited allocation.

after the date the ESOP or eligible

ongoing nature and will be treated as a

new prohibited transaction on the first

worker-owned cooperative acquired the

EGTRRA amended section 4979A

day of each succeeding tax year or part

qualified securities.

for any ESOP established: (a) after

of a tax year that is within the taxable

The section 4978A tax also applies

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

period.

to dispositions of qualified securities

March 14, 2001, if the employer

that occur after the 3-year period if the

securities held by the ESOP consist of

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

qualified securities were not allocated

stock in a corporation that did not have

all prohibited transactions that took

-5-

Instructions For Form 5330 November 2002 Page 5

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