Table of Contents
Section references are to the Internal Revenue Code unless otherwise noted.
For the latest information about developments related to Form 5330 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form5330.
Mandatory Electronic Filing. Under final regulations T.D.9972issued in February 2023, any employer or individual required to file an excise tax return on Form 5330 must file the excise tax return electronically for tax years ending on or after December 31, 2023, if the filer is required to file at least 10 returns of any type during the calendar year that the Form 5330 is due. See Regulations section 54.6011-3 for more information.
Extension. Effective in 2024, Form 8868, Application for Extension of Time To File an Exempt Organization Return or Excise Taxes Related to Employee Benefit Plans, is used to request an extension of time to file Form 5330. If approved, you may be granted an extension of up to 6 months after the normal due date of Form 5330. Form 5558, Application for Extension of Time To File Certain Employee Plan Returns, is no longer used for an extension of time to file Form 5330.
Electronic filing. Electronic filing (e-filing) is available for Form 5330. The IRS Modernized e-File (MeF) System is used to file through an IRS Authorized e-File Provider.
File Form 5330 to report the tax on:
A Form 5330 must be filed by any of the following.
A Form 5330 and tax payment is required for any of the following.
File one Form 5330 to report all excise taxes with the same filing due date. However, if the taxes are from separate plans, file separate forms for each plan.
Generally, filing Form 5330 starts the statute of limitations running only with respect to the particular excise tax(es) reported on that Form 5330. However, statutes of limitations with respect to the prohibited transaction excise tax(es) are based on the filing of the applicable Form 5500, Annual Return/Report of Employee Benefit Plan.
Use Table 1 to determine the due date of Form 5330.
Extension. Effective in 2024, a filer must use Form 8868, Application for Extension of Time To File an Exempt Organization Return or Excise Taxes Related to Employee Benefit Plans, to request for an extension of time to file Form 5330. You may be granted an extension of up to 6 months after the normal due date of Form 5330 if Form 8868 is filed on or before the normal due date (not including any extensions) of the return. Form 5558, Application for Extension of Time To File Certain Employee Plan Returns, is no longer used for an extension of time to file Form 5330.
You must file a separate Form 8868 for each excise tax that has a different filing due date for the Form 5330. However, you can file one Form 8868 if each excise tax on the Form 5330 has the same filing due date.
Caution! Form 8868 does not extend the time to pay your taxes. Any tax due must be paid with this application for an extension of time to file Form 5330. Additionally, interest is charged on taxes not paid by the due date even if an extension of time to file is granted. See the instructions for Form 8868.
Electronic filing. An employer or an individual required to file an excise tax return related to employee benefit plans can file Form 5330 electronically using the IRS Modernized e-file(MeF) System through an IRS Authorized e-filing Provider. All filers are encouraged to file Form 5330 electronically because it is safe, easy to complete, and you have an immediate record that the return was filed.
Mandatory electronic filing. Under Regulations section 54.6011-3, any employer or individual required to file an excise tax return on Form 5330 must file the excise tax return electronically for tax years ending on or after December 31, 2023, if the filer is required to file at least 10 returns of any type during the calendar year that the Form 5330 is due. See T.D.9972 for more information. The failure to file a return electronically when required is deemed a failure to file the return even if the filer submits a paper return.
“Returns” for purposes of these instructions include information returns (for example, Forms W-2 and Forms 1099), income tax returns, employment tax returns (including quarterly Forms 941, Employer's Quarterly Federal Tax Return), and excise tax returns.
On a year-by-year and form-by-form basis, the IRS may waive the requirement to file Form 5330 electronically in cases of undue hardship. In certain circumstances, a filer may be administratively exempt from the requirement to file electronically. If the IRS's systems do not support electronic filing, the filer will not be required to file electronically. The filer should maintain documentation supporting their undue hardship or other applicable reason for not filing electronically in the filer's records. For more information about mandatory electronic filing based on the 10-return threshold, waivers, and exemptions, see Regulations section 54.6011-3.
Paper forms for filing. Form 5330 can be filed on paper. You can obtain the official IRS printed Form 5330 found on the IRS website and download it to your computer to print and sign before mailing to the address specified in these instructions. SeeForm 5330 can be filed on paper if a filer is not subject to the electronic filing requirement under Regulations section 54.6011-3. The official IRS printed Form 5330 can be found on the IRS website and downloaded to your computer to print and sign before mailing to the address specified in these instructions. See Where To File below. You can complete paper Form 5330 by hand with pen or typewriter using only blue or black ink. Entries should not exceed the lines provided on the form. You can find Form 5330 and its instructions by visiting the IRS Internet website at IRS.gov/FormsPubs
Table 1. Excise Tax Due Dates top
| IF the taxes are due under section... | THEN file Form 5330 by the... |
|---|---|
| 4965 | 15th day of the 5th month following the close of the entity manager's tax year during which the tax-exempt entity becomes a party to the transaction. |
| 4971 | 15th day of the 10th month after the last day of the plan year. |
| 4971(f) | 15th day of the 10th month after the last day of the plan year. |
| 4971(g)(2) | 15th day of the 10th month after the last day of the plan year. |
| 4971(g)(3) | 15th day of the 10th month after the last day of the plan year. |
| 4971(g)(4) | 15th day of the 10th month after the last day of the plan year. |
| 4971(h) | 15th day of the 10th month after the last day of the plan year. |
| 4972 | last day of the 7th month after the end of the tax year of the employer or other person who must file this return. |
| 4973(a)(3) | last day of the 7th month after the end of the tax year of the individual who must file this return. |
| 4975 | last day of the 7th month after the end of the tax year of the employer or other person who must file this return. |
| 4976 | last day of the 7th month after the end of the tax year of the employer or other person who must file this return. |
| 4977 | last day of the 7th month after the end of the calendar year in which the excess fringe benefits were paid to your employees. |
| 4978 | last day of the 7th month after the end of the tax year of the employer or other person who must file this return. |
| 4979 | last day of the 15th month after the close of the plan year to which the excess contributions or excess aggregate contributions relate. |
| 4979A | last day of the 7th month after the end of the tax year of the employer or other person who must file this return. |
| 4980 | last day of the month following the month in which the reversion occurred. |
| 4980F | last day of the month following the month in which the failure occurred. |
| If the filing due date falls on a Saturday, Sunday, or legal holiday, the return may be filed on the next business day. | |
File the paper Form 5330 at the following address:
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201
Note. If an employer or individual required to file the Form 5330 fails to file the return electronically when required to do so, the filer is considered not to have filed the return even if the filer submits a paper return. See Regulations section 301.6651-1 for more information relating to the failure to file a tax return.
Private delivery services (PDS). You can use certain private delivery services (PDSs) designated by the IRS to meet the "timely mailing as timely filing/paying" rule for tax returns and payments. Go to IRS.gov/PDS for the current list of designated services.
The PDS can tell you how to get written proof of the mailing date.
For the IRS mailing address to use if you're using a PDS, go to IRS.gov/PDSstreetAddresses.
Caution! Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.
Interest. We are required by law to charge interest when you do not pay your liability on time. Generally, we calculate interest on any unpaid balance from the due date of your return (regardless of extensions of time to file) until you pay the amount you owe in full, including accrued interest and any penalty charges. Interest on some penalties accrues on any unpaid balance from the date we notify you of the penalty until it is paid in full. Interest on other penalties, such as failure to file a tax return, starts from the due date or extended due date of the return. Interest rates are variable and may change quarterly. (See section 6601.)
Penalty for late filing of return.If you do not file a return by the due date, including extensions, you may have to pay a penalty of 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if you can show that the failure to file on time was due to reasonable cause. If you file late, you may attach a statement to Form 5330 explaining the reasonable cause.
Penalty for late payment of tax. If you do not pay the tax when due, you may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if you can show that the failure to pay on time was due to reasonable cause.
Interest and penalties for late filing and late payment will be billed separately after the return is filed.
File an amended Form 5330 for any of the following.
If you file an amended return to claim a refund or credit, the claim must state in detail the reasons for claiming the refund. In order for the IRS to promptly consider your claim, you must provide the appropriate supporting evidence. See Regulations section 301.6402-2 for more details.
Filer tax year. top Enter the tax year of the employer, entity, or individual on whom the tax is imposed by using the plan year beginning and ending dates entered in Part I of Form 5500 or by using the tax year of the business return filed.
Item A. Name and address of filer. top Enter the name and address of the employer, individual, or other entity who is liable for the tax.
Include the suite, room, or other unit number after the street number. If the post office does not deliver mail to the street address and you have a P.O. box, show the box number instead of the street address.
If the plan has a foreign address, enter the information in the following order: city or town, state or province, country, and ZIP or foreign postal code. Follow the country's practice for entering the postal code. Do not abbreviate the country name.
Item B. Filer's identifying number. top Enter the filer's identifying number in the appropriate section. The filer's identifying number is either the filer's employer identification number (EIN) or the filer's social security number (SSN), but not both. The identifying number of an individual, other than a sole proprietor with an EIN, is the individual SSN. The identifying number for all other filers is their EIN. The EIN is the nine-digit number assigned to the plan sponsor/employer, entity, or individual on whom the tax is imposed.
Item C. Name of plan. top Enter the formal name of the plan or enough information to identify the plan. This should be the same name indicated on the Form 5500 series return/report if that form is required to be filed for the plan.
Item D. Name and address of plan sponsor. top The term "plan sponsor" means:
Include the suite, room, or other unit number after the street number. If the post office does not deliver mail to the street address and you have a P.O. box, show the box number instead of the street address.
If the plan has a foreign address, enter the information in the following order: city or town, state or province, and country. Follow the country's practice for entering the postal code. Do not abbreviate the country name.
Item E. Plan sponsor's EIN. top Enter the nine-digit EIN assigned to the plan sponsor. This should be the same number used to file the Form 5500 series return/report.
Item F. Plan year ending. top "Plan year" means the calendar or fiscal year on which the records of the plan are kept. Enter eight digits in month/date/year order. This number assists the IRS in properly identifying the plan and time period for which Form 5330 is being filed. For example, a plan year ending March 31, 2022, should be shown as 03/31/2022.
Item G. Plan number. top Enter the three-digit number that the employer or plan administrator assigned to the plan. This three-digit number is used with the EIN entered on item B and is used by the IRS, the Department of Labor, and the Pension Benefit Guaranty Corporation as a unique 12-digit number to identify the plan.
Caution! If the plan number is not provided, this will cause a delay in processing your return.
Item H. Amended return. top If you are filing an amended Form 5330, check the box on this line, and see the instructions for Part II, lines 17 through 19. Also, see Claim for Refund or Credit/Amended Return, earlier.
Filer's signature. top To reduce the possibility of correspondence and penalties, please sign and date the form. Also, enter a daytime phone number where you can be reached.
Preparer's signature. top Anyone who prepares your return and does not charge you should not sign your return. For example, a regular full-time employee or your business partner who prepares the return should not sign.
Generally, anyone who is paid to prepare the return must sign the return in the space provided and fill in the Paid Preparer's Use Only area. See section 7701(a)(36)(B) for exceptions.
In addition to signing and completing the required information, the paid preparer must give a copy of the completed return to the taxpayer.
Note. If Form 5330 is filed on paper, a paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.
Note: The ftwilliam.com software will allow you to set up default Paid Preparers to select for use on the Form 5330. If you do not see a rep that you would like to have added to this list, click on 'Edit IRS Reps' on the left-hand side of the screen. Next, click on "Add Rep" where you will enter the Rep's First and Last Name. Then, select the new rep from the list and click on "Select Rep". Those Reps who have a PTIN listed will display in the drop-down list on the Form 5330. You may also enter the Paid Preparer manually if you do not wish to create defaults.
Line 4. top Enter the total amount of the disqualified benefit under section 4976. Section 4976 imposes an excise tax on employers who maintain a funded welfare benefit plan that provides a disqualified benefit during any tax year. The tax is 100% of the disqualified benefit.
Generally, a disqualified benefit is any of the following.
Lines 5a and 5b. top Section 4978 imposes an excise tax on the sale or transfer of securities acquired in a sale or qualified gratuitous transfer to which section 1042 or section 664(g) applied, respectively, if the sale or transfer takes place within 3 years after the date of the acquisition of qualified securities, as defined in section 1042(c)(1) or a section 664(g) transfer.
The tax is 10% of the amount realized on the disposition of the qualified securities if an ESOP or eligible worker-owned cooperative, as defined in section 1042(c)(2), disposes of the qualified securities within the 3-year period described above, and either of the following applies.
See section 4978(b)(2) for the limitation on the amount of tax.
The section 4978 tax must be paid by the employer or the eligible worker-owned cooperative that made the written statement described in section 1042(b)(3)(B) on dispositions that occurred during their tax year.
The section 4978 tax does not apply to a distribution of qualified securities or sale of such securities if any of the following occurs.
For purposes of section 4978, an exchange of qualified securities in a reorganization described in section 368(a)(1) for stock of another corporation will not be treated as a disposition.
Notice. For section 4978 excise taxes, the amount entered on Part I, line 5a, is the amount realized on the disposition of qualified securities, multiplied by 10%. Also, check the appropriate box on line 5b.
Line 6. top Section 4979A imposes a 50% excise tax on allocated amounts involved in any of the following.
Prohibited allocations for ESOP or worker-owned cooperative. For purposes of items 1 and 2 above, a "prohibited allocation of qualified securities by any ESOP or eligible worker-owned cooperative" is any allocation of qualified securities acquired in a nonrecognition-of-gain sale under section 1042, which violates section 409(n), and any benefit that accrues to any person in violation of section 409(n).
Under section 409(n), an ESOP or worker-owned cooperative cannot allow any portion of assets attributable to employer securities acquired in a section 1042 sale to accrue or be allocated, directly or indirectly, to the taxpayer, or any person related to the taxpayer, involved in the transaction during the nonallocation period. For purposes of section 409(n), "relationship to the taxpayer" is defined under section 267(b).
The nonallocation period is the period beginning on the date the qualified securities are sold and ending on the later of:
The employer sponsoring the plan or the eligible worker-owned cooperative is responsible for paying the tax.
For purposes of items 3 and 4, under Line 6, earlier, the excise tax on these transactions under section 4979A is 50% of the amount involved. The amount involved includes the following.
For purposes of determining a nonallocation year, the attribution rules of section 318(a) will apply; however, the option rule of section 318(a)(4) will not apply. Additionally, the attribution rules defining family member are modified to include the individual's:
A spouse of an individual legally separated from an individual under a decree of divorce or separate maintenance is not treated as the individual's spouse.
An individual is a disqualified person if:
Caution! Under section 409(p)(7), the Secretary of the Treasury may, through regulations or other guidance of general applicability, provide that a nonallocation year occurs in any case in which the principal purpose of the ownership structure of an S corporation constitutes an avoidance or evasion of section 409(p). See Regulations section 1.408(p)-1.
For section 4979A excise taxes, the amount entered on Part I, line 6, is 50% of the amount involved in the prohibited allocations described in items 1 through 4, earlier, under Line 6.
Line 10a. top Under section 4971(g)(2), each employer who contributes to a multiemployer plan and fails to comply with a funding improvement or rehabilitation plan will be liable for an excise tax for each failure to make a required contribution within the time frame under such plan. Enter the amount of each contribution the employer failed to make in a timely manner.
A "funding improvement plan" is a plan which consists of the actions, including options or a range of options to be proposed to the bargaining parties, formulated to provide, based on reasonably anticipated experience and reasonable actuarial assumptions, for the attainment of the following requirements by the plan during the funding improvement period.
A "rehabilitation plan" is a plan which consists of actions, including options or a range of options to be proposed to the bargaining parties, formulated to enable the plan to cease to be in critical status by the end of the rehabilitation period.
All or part of this excise tax may be waived under section 4971(g)(5).
Line 16. top If a tax-exempt entity manager approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction during the year and knows or has reason to know that the transaction is a prohibited tax shelter transaction, the entity manager must pay an excise tax under section 4965(b)(2).
For purposes of section 4965, plan entities are:
An entity manager is the person who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction.
The excise tax under section 4965(a)(2) is $20,000 for each approval or other act causing the organization to be a party to a prohibited tax shelter transaction.
A "prohibited tax shelter transaction" is any listed transaction and any prohibited reportable transaction, as defined, later.
Notice. If you are filing an amended Form 5330 and you paid taxes with your original return and those taxes have the same due date as those previously reported, check the box in item H and enter the tax reported on your original return in the entry space for line 18. If you file Form 5330 for a claim for refund or credit, show the amount of overreported tax in parentheses on line 19. Otherwise, show the amount of additional tax due on line 19 and include the payment with the amended Form 5330.
Lines 17 through 19. top If you file Form 5330 on paper, make your check or money order payable to the "United States Treasury" for the full amount due. Attach the payment to your return. Write your name, identifying number, plan number, and "Form 5330, Section ____" on your payment.
File at the address shown under Where To File, earlier.
Section 4972. Section 4972 imposes an excise tax on employers who make nondeductible contributions to their qualified plans. The excise tax is equal to 10% of the nondeductible contributions in the plan as of the end of the employer's tax year.
A "qualified employer plan" for purposes of this section means any plan qualified under section 401(a), any annuity plan qualified under section 403(a), and any simplified employee pension plan qualified under section 408(k) or any simple retirement account under section 408(p). The term qualified plan does not include certain governmental plans and certain plans maintained by tax-exempt organizations.
For purposes of section 4972, "nondeductible contributions" for the employer's current tax year are the sum of:
Although pre-1987 nondeductible contributions are not subject to this excise tax, they are taken into account to determine the extent to which post-1986 contributions are deductible. See section 4972 and Pub. 560, Retirement Plans for Small Business, for details.
Defined benefit plans exception. For purposes of determining the amount of nondeductible contributions subject to the 10% excise tax, the employer may elect not to include any contributions to a defined benefit plan except, in the case of a multiemployer plan, to the extent those contributions exceed the full-funding limitation (as defined in section 431(c)(6)). This election applies to terminated and ongoing plans. An employer making this election cannot also benefit from the exceptions for terminating plans and for certain contributions to defined contribution plans under section 4972(c)(6). When determining the amount of nondeductible contributions, the deductible limits under section 404(a)(7) must be applied first to contributions to defined contribution plans and then to contributions to defined benefit plans.
Defined contribution plans exception. In determining the amount of nondeductible contributions subject to the 10% excise tax, do not include any of the following.
For purposes of this exception, the combined plan deduction limits are first applied to contributions to the defined benefit plan and then to the defined contribution plan.
Restorative payments to a defined contribution plan are not considered nondeductible contributions if the payments are made to restore some or all of the plan's losses due to an action (or a failure to act) that creates a reasonable risk of liability for breach of fiduciary duty. Amounts paid in excess of the loss are not considered restorative payments.
For these purposes, multiemployer plans are not taken into consideration in applying the overall limit on deductions where there is a combination of defined benefit and defined contribution plans.
Section 4973(a) imposes a 6% excise tax on excess contributions to section 403(b)(7)(A) custodial accounts at the close of the tax year. The tax is paid by the individual account holder.
Line 1. top Enter total current year contributions, less any rollover contributions described in section 403(b)(8) or 408(d)(3)(A).
Line 2. top Enter the amount excludable under section 415(c) (limit on annual additions).
Tip. To determine the amount excludable for a specific year, see Pub. 571, Tax-Sheltered Annuity Plans (403(b) Plans), for that year.
The limit on annual additions under section 415(c)(1)(A) is subject to cost-of-living adjustments as described in section 415(d). The dollar limit for a calendar year, as adjusted annually, is published during the fourth quarter of the prior calendar year in the Internal Revenue Bulletin.
Section 4975. Section 4975 imposes an excise tax on a disqualified person who engages in a prohibited transaction with the plan.
Plan. For purposes of this section, the term "plan" means any of the following.
Note. For purposes of section 4975, the term "plan" does not include a section 403(b) tax-sheltered annuity plan. See section 4975(e).
Caution! If the IRS determined at any time that your plan was a plan as defined above, it will always remain subject to the excise tax on prohibited transactions under section 4975. This also applies to the tax on minimum funding deficiencies under section 4971.
Disqualified person. A "disqualified person" is a person who is any of the following.
Prohibited transaction. A "prohibited transaction" is any direct or indirect:
Exemptions. See sections 4975(d), 4975(f)(6)(B)(ii), and 4975(f)(6)(B)(iii) for specific exemptions to prohibited transactions. Also, see section 4975(c)(2) for certain other transactions or classes of transactions that may become exempt.
Line 1. top Check the box that best characterizes the prohibited transaction for which an excise tax is being paid. A prohibited transaction is discrete unless it is of an ongoing nature. Transactions involving the use of money (loans, etc.) or other property (rent, etc.) are of an ongoing nature and will be treated as a new prohibited transaction on the first day of each succeeding tax year or part of a tax year that is within the taxable period.
Line 2, column (b). top List the date of all prohibited transactions that took place in connection with a particular plan during the current tax year. Also, list the date of all prohibited transactions that took place in prior years unless either the transaction was corrected in a prior tax year or the section 4975(a) tax was assessed in the prior tax year. A disqualified person who engages in a prohibited transaction must file a separate Form 5330 to report the excise tax due under section 4975 for each tax year.
Figure 1. Example for the Calendar 2022 Plan Year Used When Filing for the 2022 Tax Year top
| 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) Transaction number |
(b) Date of transaction (see instructions) |
(c) Description of prohibited transaction | (d) Amount involved in prohibited transaction (see instructions) |
(e) Initial tax on prohibited transaction (multiply each transaction in column (d) by the appropriate rate (see instructions)) |
| (i) | 7-1-22 | Loan | $6,000 | $900 |
| (ii) | ||||
| (iii) | ||||
| 3 Add amounts in column (e). Enter here and on Part I, line 3a.............................. | $900 | |||
Line 2, Columns (d) and (e). top The "amount involved in a prohibited transaction" means the greater of the amount of money and the fair market value (FMV) of the other property given, or the amount of money and the FMV of the other property received. However, for services described in sections 4975(d)(2) and (10), the amount involved only applies to excess compensation. For purposes of section 4975(a), FMV must be determined as of the date on which the prohibited transaction occurs. If the use of money or other property is involved, the amount involved is the greater of the amount paid for the use or the FMV of the use for the period for which the money or other property is used. In addition, transactions involving the use of money or other property will be treated as giving rise to a prohibited transaction occurring on the date of the actual transaction, plus a new prohibited transaction on the first day of each succeeding tax year or portion of a succeeding tax year which is within the taxable period. The "taxable period" for this purpose is the period of time beginning with the date of the prohibited transaction and ending with the earliest of:
See the instructions for Schedule C, under Additional tax for failure to correct the prohibited transaction (section 4975(b)), for the definition of "correction."
Caution! Temporary Regulations section 141.4975-13 states that, until final regulations are written under section 4975(f), the definitions of amount involved and correction found in Regulations section 53.4941(e)-1 will apply.
Failure to transmit participant contributions. For purposes of calculating the excise tax on a prohibited transaction where there is a failure to transmit participant contributions (elective deferrals) or amounts that would have otherwise been payable to the participant in cash, the amount involved is based on interest on those elective deferrals. See Rev. Rul. 2006-38.
Column (e). The initial tax on a prohibited transaction is 15% of the amount involved in each prohibited transaction for each year or part of a year in the taxable period. Multiply the amount in column (d) by 15%.
Example. The example of a prohibited transaction below does not cover all types of prohibited transactions. For more examples, see Regulations section 53.4941(e)-1(b)(4).
Figure 2. Example for the Calendar 2023 Plan Year Used When Filing for the 2023 Tax Year top
| 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) Transaction number |
(b) Date of transaction (see instructions) |
(c) Description of prohibited transaction | (d) Amount involved in prohibited transaction (see instructions) |
(e) Initial tax on prohibited transaction (multiply each transaction in column (d) by the appropriate rate (see instructions)) |
| (i) | 7-1-22 | Loan | $6,000 | $900 |
| (ii) | 1-1-23 | Loan | $12,000 | $1,800 |
| (iii) | ||||
| 3 Add amounts in column (e). Enter here and on Part I, line 3a.............................. | $2,700 | |||
A disqualified person borrows money from a plan in a prohibited transaction under section 4975. The FMV of the use of the money and the actual interest on the loan is $1,000 per month (the actual interest is paid in this example). The loan was made on July 1, 2022, (date of transaction), and repaid on December 31, 2023 (date of correction). The disqualified person's tax year is the calendar year. On July 31, 2024, the disqualified person files a delinquent Form 5330 for the 2022 plan year (which in this case is the calendar year) and a timely Form 5330 for the 2023 plan year (which in this case is the calendar year). No notice of deficiency with respect to the tax imposed by section 4975(a) has been mailed to the disqualified person and no assessment of such excise tax has been made by the IRS before the time the disqualified person filed the Forms 5330.
Each prohibited transaction has its own separate taxable period that begins on the date the prohibited transaction occurred or is deemed to occur and ends on the date of the correction. The taxable period that begins on the date the loan occurs runs from July 1, 2022 (date of loan), through December 31, 2023 (date of correction). When a loan is a prohibited transaction, the loan is treated as giving rise to a prohibited transaction on the date the transaction occurs, and an additional prohibited transaction on the first day of each succeeding tax year (or portion of a tax year) within the taxable period that begins on the date the loan occurs. Therefore, in this example, there are two prohibited transactions, the first occurring on July 1, 2022, and ending on December 31, 2022, and the second occurring on January 1, 2023, and ending on December 31, 2023.
Section 4975(a) imposes a 15% excise tax on the amount involved for each tax year or part thereof in the taxable period of each prohibited transaction.
The Form 5330 for the year ending December 31, 2022. The amount involved to be reported in the Form 5330, Schedule C, line 2, column (d), for the 2022 plan year, is $6,000 (6 months x $1,000). The tax due is $900 ($6,000 x 15%). (See Figure 1 later.) (Any interest and penalties imposed for the delinquent filing of Form 5330 and the delinquent payment of the excise tax for 2022 will be billed separately to the disqualified person.)
The Form 5330 for the year ending December 31, 2023. The excise tax to be reported on the 2023 Form 5330 would include both the prohibited transaction of July 1, 2022, with an amount involved of $6,000, resulting in a tax due of $900 ($6,000 x 15%), and the second prohibited transaction of January 1, 2023, with an amount involved of $12,000 (12 months x $1,000), resulting in a tax due of $1,800 ($12,000 x 15%). (See Figure 2, above.) The taxable period for the second prohibited transaction runs from January 1, 2023, through December 31, 2023 (date of correction). Because there are two prohibited transactions with taxable periods running during 2023, the section 4975(a) tax is due for the 2023 tax year for both prohibited transactions.
Tip. When a loan from a qualified plan that is a prohibited transaction spans successive tax years, constituting multiple prohibited transactions, and during those years the first tier prohibited transaction excise tax rate changes, the first tier excise tax liability for each prohibited transaction is the sum of the products resulting from multiplying the amount involved for each year in the taxable period for that prohibited transaction by the excise tax rate in effect at the beginning of that taxable period. For more information, see Rev. Rul. 2002-43, 2002-32 I.R.B. 85 at www.irs.gov/pub/irs-irbs/irb02-28.pdf. Unlike the previous example, the example in Rev. Rul. 2002-43 contains unpaid interest.
Additional tax for failure to correct the prohibited transaction (section 4975(b)). To avoid liability for additional taxes and penalties, and in some cases further initial taxes, a correction must be made within the taxable period. The term "correction" is defined as undoing the prohibited transaction to the extent possible, but in any case placing the plan in a financial position not worse than that in which it would be if the disqualified person were acting under the highest fiduciary standards.
If the prohibited transaction is not corrected within the taxable period, an additional tax equal to 100% of the amount involved will be imposed under section 4975(b). Any disqualified person who participated in the prohibited transaction (other than a fiduciary acting only as such) must pay this tax imposed by section 4975(b). Report the additional tax on Part I, Section A, line 3b.
Line 4. top Check "No" if there has not been a correction of all of the prohibited transactions by the end of the tax year for which this Form 5330 is being filed. Attach a statement including item number from line 2a and description indicating when the correction will be made.
Line 5. top If more than one disqualified person participated in the same prohibited transaction, list on this schedule the name, address, and SSN or EIN of each disqualified person, other than the disqualified person who files this return.
For all transactions, complete columns (a), (b), and (c). If the transaction has been corrected, complete columns (a) through (e). If additional space is needed, you may attach a statement fully explaining the correction and identifying persons involved in the prohibited transaction.
Prohibited transactions and investment advice. The prohibited transaction rules of section 4975(c) will not apply to any transaction in connection with investment advice if the investment advice provided by a fiduciary adviser is provided under an eligible investment advice arrangement.
For this purpose, an "eligible investment advice arrangement" is an arrangement that either:
Additionally, the eligible investment advice arrangement must meet the provisions of section 4975(f)(8)(D), (E), (F), (G), (H), and (I).
For purposes of the statutory exemption on investment advice, a "fiduciary adviser" is defined in section 4975(f)(8)(J).
Correcting certain prohibited transactions. Generally, if a disqualified person enters into a direct or indirect prohibited transaction, listed in (1) through (4) below, in connection with the acquisition, holding, or disposition of certain securities or commodities, and the transaction is corrected within the correction period, it will not be treated as a prohibited transaction and no tax will be assessed.
However, if at the time the transaction was entered into, the disqualified person knew or had reason to know that the transaction was prohibited, the transaction would be subject to the tax on prohibited transactions.
For purposes of section 4975(d)(23), the term "correct" means to:
In the case of a single-employer plan, section 4971(a) imposes a 10% tax on the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year. In the case of a multiemployer plan, section 4971(a) imposes a 5% tax on the amount of the accumulated funding deficiency determined as of the end of the plan year.
If a plan fails to meet the funding requirements under section 412, the employer and all controlled group members will be subject to excise taxes under sections 4971(a) and (b).
Except in the case of a multiemployer plan, all members of a controlled group are jointly and severally liable for this tax. A "controlled group" in this case means a controlled group of corporations under section 414(b), a group of trades or businesses under common control under section 414(c), an affiliated service group under section 414(m), and any other group treated as a single employer under section 414(o).
Caution! If the IRS determined at any time that your plan was a plan as defined on Schedule C, it will always remain subject to the excise tax on failure to meet minimum funding standards.
Line 1. top Enter the amount (if any) of the aggregate unpaid minimum required contributions (or in the case of a multiemployer plan, an accumulated funding deficiency as defined in section 431(a) (or section 418B if a multiemployer plan in reorganization)).
Line 2. top Multiply line 1 by the applicable tax rate shown below and enter the result.
Additional tax for failure to correct. top For single-employer plans, when an initial tax is imposed under section 4971(a) on any unpaid minimum required contribution and the unpaid minimum required contribution remains unpaid as of the close of the taxable period, an additional tax of 100% of the amount that remains unpaid is imposed under section 4971(b).
For multiemployer plans, when an initial tax is imposed under section 4971(a)(2) on an accumulated funding deficiency and the accumulated funding deficiency is not corrected within the taxable period, an additional tax equal to 100% of the accumulated funding deficiency, to the extent not corrected, is imposed under section 4971(b).
For this purpose, the "taxable period" is the period beginning with the end of the plan year where there is an unpaid minimum required contribution or an accumulated funding deficiency and ending on the earlier of:
Report the tax for failure to correct the unpaid minimum required contribution or the accumulated funding deficiency on Part I, Section B, line 8b.
If your plan has a liquidity shortfall for which an excise tax under section 4971(f)(1) is imposed for any quarter of the plan year, complete lines 1 through 4.
Line 1. top Enter the amount of the liquidity shortfall(s) for each quarter of the plan year.
Line 2. top Enter the amount of any contributions made to the plan by the due date of the required quarterly installment(s) that partially corrected the liquidity shortfall(s) reported on line 1.
Line 3. top Enter the net amount of the liquidity shortfall. (Subtract line 2 from line 1).
Additional tax for failure to correct liquidity shortfall. top If the plan has a liquidity shortfall as of the close of any quarter and as of the close of the following 4 quarters, an additional tax will be imposed under section 4971(f)(2) equal to the amount on which tax was imposed by section 4971(f)(1) for such quarter. Report the additional tax on Part I, Section B, line 9b.
For years beginning after 2007, section 4971(g) imposes an excise tax on employers who contribute to multiemployer plans for failure to comply with a funding improvement or rehabilitation plan, failure to meet requirements for plans in endangered or critical status, or failure to adopt a rehabilitation plan. See the instructions for line 10a, earlier.
Line 1. top Under section 4971(g)(3), a multiemployer plan that is in seriously endangered status when it fails to meet its applicable benchmarks by the end of the funding improvement period will be treated as having an accumulated funding deficiency for the last plan year in such period and each succeeding year until the funding benchmarks are met.
Similarly, a plan that is in critical status and either fails to meet the requirements of section 432 by the end of the rehabilitation period, or has received certification under section 432(b)(3)(A)(ii) for 3 consecutive plan years that the plan is not making the scheduled progress in meeting its requirements under the rehabilitation plan, will be treated as having an accumulated funding deficiency for the last plan year in such period and each succeeding plan year until the funding requirements are met.
In both cases, the accumulated funding deficiency is an amount equal to the greater of the amount of the contributions necessary to meet the benchmarks or requirements, or the amount of the accumulated funding deficiency without regard to this rule. The existence of an accumulated funding deficiency triggers the initial 5% excise tax under section 4971(a).
A plan is in "endangered status" if either of the following occurs.
A plan is in "critical status" if it is determined by the multiemployer plan's actuary that one of the four formulas in section 432(b)(2) is met for the applicable plan year.
All or part of this excise tax may be waived due to reasonable cause.
Line 2. top Under section 4971(g)(4), the plan sponsor of a multiemployer plan in critical status, as defined above, will be liable for an excise tax for failure to adopt a rehabilitation plan within the time prescribed under section 432. The tax is equal to the greater of:
Liability for this tax is imposed on each plan sponsor. This excise tax may not be waived.
Caution! Follow the instructions as defined above for counting days and completing line 2b.
Complete line 2b as instructed below. Enter the number of days during the tax year which are included in the period beginning on the first day following the close of the 240-day period and ending on the day the rehabilitation plan is adopted.
If you made an election to be taxed under section 4977 to continue your nontaxable fringe benefit policy that was in existence on or after January 1, 1984, check "Yes" on line 1 and complete lines 2 through 4.
Line 3. top Excess fringe benefits are calculated by subtracting 1% of the aggregate compensation paid by you to your employees during the calendar year that was includible in their gross income from the aggregate value of the nontaxable fringe benefits under sections 132(a)(1) and (2).
Any employer who maintains a plan described in section 401(a), 403(a), 403(b), 408(k), or 501(c)(18) may be subject to an excise tax on excess aggregate contributions made on behalf of highly compensated employees. The employer may also be subject to an excise tax on excess contributions to a cash or deferred arrangement connected with the plan.
The tax is on the excess contributions and the excess aggregate contributions made to or on behalf of the highly compensated employees as defined in section 414(q).
Generally, a "highly compensated employee" is an employee who:
An employee is in the "top-paid group" for any year if the employee is in the group consisting of the top 20% of employees when ranked on the basis of compensation paid. An employee (who is not a 5% owner) who has compensation in excess of $135,000 is not a highly compensated employee if the employer elects the top-paid group limitation and the employee is not a member of the top-paid group.
The excess contributions subject to the section 4979 excise tax are equal to the amount by which employer contributions actually paid over to the trust exceed the employer contributions that could have been made without violating the special nondiscrimination requirements of section 401(k)(3) or section 408(k)(6) in the instance of certain SEPs.
The excess aggregate contributions subject to the section 4979 excise tax are equal to the amount by which the aggregate matching contributions of the employer and the employee contributions (and any qualified nonelective contribution or elective contribution taken into account in computing the contribution percentage under section 401(m)) actually made on behalf of the highly compensated employees for each plan year exceed the maximum amount of contributions permitted in the contribution percentage computation under section 401(m)(2)(A).
However, there is no excise tax liability if the excess contributions or the excess aggregate contributions and any income earned on the contributions are distributed (or, if forfeitable, forfeited) to the participants for whom the excess contributions were made within 21/2 months after the end of the plan year.
Section 4980 imposes an excise tax on an employer reversion of qualified plan assets to an employer. Generally, the tax is 20% of the amount of the employer reversion. The excise tax rate increases to 50% if the employer does not establish or maintain a qualified replacement plan following the plan termination or provide certain pro-rata benefit increases in connection with the plan termination. See section 4980(d)(1)(A) or (B) for more information.
An "employer reversion" is the amount of cash and the FMV of property received, directly or indirectly, by an employer from a qualified plan. For exceptions to this definition, see section 4980(c)(2)(B) and section 4980(c)(3).
A "qualified plan" is:
Terminated defined benefit plan. top If a defined benefit plan is terminated, and an amount in excess of 25% of the maximum amount otherwise available for reversion is transferred from the terminating defined benefit plan to a defined contribution plan, the amount transferred is not treated as an employer reversion for purposes of section 4980. However, the amount the employer receives is subject to the 20% excise tax. For additional information, see Rev. Rul. 2003-85, 2003-32 I.R.B. 291 at www.irs.gov/irb/2003-32_IRB/ar11.html.
Lines 1 through 4. top Enter the date of reversion on line 1. Enter the reversion amount on line 2a and the applicable excise tax rate on line 2b. If you use a tax percentage other than 50% on line 2b, explain on line 4 why you qualify to use a rate other than 50%.
Section 204(h) notice. top Section 4980F imposes an excise tax on an employer (or, in the case of a multiemployer plan, the plan) for failure to give section 204(h) notice of plan amendments that provide for a significant reduction in the rate of future benefit accrual or the elimination or significant reduction of an early retirement benefit or retirement-type subsidy. The tax is $100 per day per each applicable individual and each employee organization representing participants who are applicable individuals for each day of the noncompliance period. This notice is called a "section 204(h) notice" because section 204(h) of ERISA has parallel notice requirements.
An "applicable individual" is a participant in the plan, or an alternate payee of a participant under a qualified domestic relations order, whose rate of future benefit accrual (or early retirement benefit or retirement-type subsidy) under the plan may reasonably be expected to be significantly reduced by a plan amendment. (For plan years beginning after December 31, 2007, the requirement to give 204(h) notice was extended to an employer who has an obligation to contribute to a multiemployer plan.)
Whether a participant, alternate payee, or an employer (as described in the above paragraph) is an applicable individual is determined on a typical business day that is reasonably approximate to the time the section 204(h) notice is provided (or on the latest date for providing section 204(h) notice, if earlier), based on all relevant facts and circumstances. For more information in determining whether an individual is a participant or alternate payee, see Regulations section 54.4980F-1, Q&A 10.
The "noncompliance period" is the period beginning on the date the failure first occurs and ending on the date the notice of failure is provided or the failure is corrected.
Exceptions. The section 4980F excise tax will not be imposed for a failure during any period in which the following occurs.
Generally, section 204(h) notice must be provided at least 45 days before the effective date of the section 204(h) amendment. For exceptions to this rule, see Regulations section 54.4980F-1, Q&A 9.
If the person subject to liability for the excise tax exercised reasonable diligence to meet the notice requirement, the total excise tax imposed during a tax year of the employer will not exceed $500,000. Furthermore, in the case of a failure due to reasonable cause and not to willful neglect, the Secretary of the Treasury is authorized to waive the excise tax to the extent that the payment of the tax would be excessive relative to the failure involved. See Rev. Proc. 2013-4, 2013-1 I.R.B. 123, as revised by subsequent documents, available at www.irs.gov/irb/2013-01_IRB/ar09.html, for procedures to follow in applying for a waiver of part or all of the excise tax due to reasonable cause.
Line 4. top A failure occurs on any day that any applicable individual (AI) is not provided section 204(h) notice.
Example. There are 1,000 AIs. The plan administrator fails to give section 204(h) notice to 100 AIs for 60 days, and to 50 of those AIs for an additional 30 days. In this case, there are 7,500 failures ((100 AIs x 60 days) + (50 AIs x 30 days) = 7,500).
Section 4965 provides that an entity manager of a tax-exempt organization may be subject to an excise tax on prohibited tax shelter transactions under section 4965. In the case of a plan entity, an entity manager is any person who approves or otherwise causes the tax-exempt entity to be a party to a prohibited tax shelter transaction. The excise tax is $20,000 and is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction.
A cooperative and small employer charity (CSEC) plan is:
Section 433(j)(3) requires a CSEC plan sponsor to establish a written funding restoration plan within 180 days of the receipt by the plan sponsor of a certification from the plan actuary that the plan is in funding restoration status for a plan year. Section 4971(h) imposes an excise tax on the CSEC plan sponsor for the plan in funding restoration status for the failure to adopt a funding restoration plan within the time prescribed under section 433(j)(3).
A CSEC plan is treated as being in funding restoration status for a plan year if the plan's funded percentage as of the beginning of such plan year is less than 80%. Funded percentage means the ratio that the value of plan assets bears to the plan's funding liability.
Line 1. top Under section 4971(h)(2), the excise tax amount with respect to any CSEC plan sponsor for any tax year should be the amount equal to $100 multiplied by the number of days during the tax year that are included in the period beginning on the day following the close of the 180-day period described in section 433(j)(3) and ending on the day on which the funding restoration plan is adopted.
Line 2. top Calculate the excise tax amount by multiplying days entered on line 1 by $100. Enter the excise tax amount on line 2 and on Part I, line 10d.
All or part of this excise tax may be waived if the IRS determines that a failure is due to reasonable cause and not to willful neglect.