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Figure 1. Example for the calendar 2006 plan year used when filing for the 2006 tax year

Schedule C. Tax on Prohibited Transactions (section 4975) (see instructions) 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 prohibited

(e) Initial tax on prohibited

Transaction transaction (see

transaction (see instructions)

transaction (multiply each

number

instructions)

transaction in column (d) by the

appropriate rate (see

instructions))

(i)

7-1-06

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 2007 plan year used when filing for the 2007 tax year

Schedule C. Tax on Prohibited Transactions (Section 4975) (see instructions) 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 prohibited

(e) Initial tax on prohibited

Transaction transaction (see

transaction (see instructions)

transaction (multiply each

number

instructions)

transaction in column (d) by the

appropriate rate (see

instructions))

(i)

7-1-06

Loan

$6,000

$900

(ii)

1-1-07

Loan

$12,000

$1,800

(iii)

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

$2,700

Line 2, Columns (d) and (e). The

3. The date on which the tax under

transactions. For more examples, see

section 4975(a) is assessed.

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

“amount involved in a prohibited

transaction” means the greater of the

See the instructions for Schedule C,

A disqualified person borrows money

amount of money and the fair market

under Additional tax for failure to

from a plan in a prohibited transaction

value (FMV) of the other property given,

correct the prohibited transaction

under section 4975. The FMV of the

or the amount of money and the FMV

(section 4975(b)), for the definition of

use of the money and the actual

of the other property received.

“correction.”

interest on the loan is $1,000 per month

However, for services described in

(the actual interest is paid in this

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

Temporary Regulations section

example). The loan was made on July

amount involved only applies to excess

141.4975-13 states that, until

1, 2006, (date of transaction) and

compensation. For purposes of section

final regulations are written

CAUTION

repaid on December 31, 2007 (date of

4975(a), FMV must be determined as of

under section 4975(f), the definitions of

correction). The disqualified person’s

the date on which the prohibited

amount involved and correction found

tax year is the calendar year. On July

transaction occurs. If the use of money

in Regulations section 53.4941(e)-1 will

31, 2008, the disqualified person files a

or other property is involved, the

apply.

delinquent Form 5330 for the 2006 plan

amount involved is the greater of the

year (which in this case is the calendar

Failure to transmit participant

amount paid for the use or the FMV of

year) and a timely Form 5330 for the

contributions. For purposes of

the use for the period for which the

2007 plan year (which in this case is

calculating the excise tax on a

money or other property is used. In

the calendar year). No notice of

prohibited transaction where there is a

addition, transactions involving the use

deficiency with respect to the tax

failure to transmit participant

of money or other property will be

imposed by section 4975(a) has been

contributions (elective deferrals) or

treated as giving rise to a prohibited

mailed to the disqualified person and

amounts that would have otherwise

transaction occurring on the date of the

no assessment of such excise tax has

been payable to the participant in cash,

actual transaction, plus a new

been made by the IRS before the time

the amount involved is based on

prohibited transaction on the first day of

the disqualified person filed the Forms

interest on those elective deferrals. See

each succeeding tax year or portion of

5330.

Rev. Rul. 2006-38.

a succeeding tax year which is within

Each prohibited transaction has its

Column (e). The initial tax on a

the taxable period. The “taxable period”

own separate taxable period that

prohibited transaction is 15% of the

for this purpose is the period of time

begins on the date the prohibited

amount involved in each prohibited

beginning with the date of the

transaction occurred or is deemed to

transaction for each year or part of a

prohibited transaction and ending with

occur and ends on the date of the

year in the taxable period. Multiply the

the earliest of:

correction. The taxable period that

amount in column (d) by 15%.

1. The date the correction is

begins on the date the loan occurs runs

completed,

Example. The example of a

from July 1, 2006 (date of loan) through

2. The date of the mailing of a

prohibited transaction below does not

December 31, 2007 (date of

notice of deficiency, or

cover all types of prohibited

correction). When a loan is a prohibited

-8-

Instructions For Form 5330 - Return Of Excise Taxes Related To Employee Benefit Plans Page 8

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