§4979 — Tax on certain excess contributions
8 citing cases
Statute Text — 26 U.S.C. §4979
In the case of any plan, there is hereby imposed a tax for the taxable year equal to 10 percent of the sum of—
any excess contributions under such plan for the plan year ending in such taxable year, and
any excess aggregate contributions under the plan for the plan year ending in such taxable year.
The tax imposed by subsection (a) shall be paid by the employer.
For purposes of this section, the term “excess contributions” has the meaning given such term by sections 401(k)(8)(B), 408(k)(6)(C), and 501(c)(18).
For purposes of this section, the term “excess aggregate contribution” has the meaning given to such term by section 401(m)(6)(B). For purposes of determining excess aggregate contributions under an annuity contract described in section 403(b), such contract shall be treated as a plan described in subsection (e)(1).
For purposes of this section, the term “plan” means—
a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
any annuity plan described in section 403(a),
any annuity contract described in section 403(b),
a simplified employee pension of an employer which satisfies the requirements of section 408(k), and
a plan described in section 501(c)(18).
Such term includes any plan which, at any time, has been determined by the Secretary to be such a plan.
No tax shall be imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent such contribution (together with any income allocable thereto through the end of the plan year for which the contribution was made) is distributed (or, if forfeitable, is forfeited) before the close of the first 2½ months (6 months in the case of an excess contribution or excess aggregate contribution to an eligible automatic contribution arrangement (as defined in section 414(w)(3))) of the following plan year.
Any amount distributed as provided in paragraph (1) shall be treated as earned and received by the recipient in the recipient’s taxable year in which such distributions were made.
Treasury Regulations
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Treas. Reg. §54.4979-0Excise tax on certain excess contributions and excess aggregate contributions; table of contents
This section contains the captions that appear in § 54.4979.
(a) In general.
(1) General rule.
(2) Liability for tax.
(3) Due date and form for payment of tax.
(4) Special rule for simplified employee pensions.
(b) Definitions.
(1) Excess aggregate contributions.
(2) Excess contributions.
(3) Plan.
(c) No tax when excess distributed within 2
1/2 months of close of year or additional employer contributions made.
(1) General rule.
(2) Tax treatment of distributions.
(3) Income.
(4) Example.
(d) Effective date.
(1) General rule.
(2) Section 403(b) annuity contracts.
(3) Collectively bargained plans and plans of state or local governments.
(4) Plan years beginning before January 1, 1992.
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Treas. Reg. §54.4979-0(a)In general.
In general.
(1) General rule.
(2) Liability for tax.
(3) Due date and form for payment of tax.
(4) Special rule for simplified employee pensions.
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Treas. Reg. §54.4979-0(b)Definitions.
Definitions.
(1) Excess aggregate contributions.
(2) Excess contributions.
(3) Plan.
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Treas. Reg. §54.4979-0(c)No tax when excess distributed within 2 1/2 months of close of year or additional employer contributions made.
No tax when excess distributed within 2
1/2 months of close of year or additional employer contributions made.
(1) General rule.
(2) Tax treatment of distributions.
(3) Income.
(4) Example.
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Treas. Reg. §54.4979-0(d)Effective date.
Effective date.
(1) General rule.
(2) Section 403(b) annuity contracts.
(3) Collectively bargained plans and plans of state or local governments.
(4) Plan years beginning before January 1, 1992.
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Treas. Reg. §54.4979-1Excise tax on certain excess contributions and excess aggregate contributions
(a) In general—(1) General rule. In the case of any plan (as defined in paragraph (b)(3) of this section), there is imposed a tax for the employer's taxable year equal to 10 percent of the sum of:
(i) Any excess contributions under a plan for the plan year ending in the taxable year; and
(ii) Any excess aggregate contributions under the plan for the plan year ending in the taxable year.
(2) Liability for tax. The tax imposed by paragraph (a)(1) of this section is to be paid by the employer. In the case of a collectively bargained plan to which section 413(b) applies, all employers who are parties to the collective bargaining agreement and whose employees are participants in the plan are jointly and severally liable for the tax.
(3) Due date and form for payment of tax—(i) The tax described in paragraph (a)(1) of this section is due on the last day of the 15th month after the close of the plan year to which the excess contributions or excess aggregate contributions relate.
(ii) An employer that owes the tax described in paragraph (a)(1) of this section must file the form prescribed by the Commissioner for the payment of the tax.
(4) Special rule for simplified employee pensions—(i) An employer that maintains a simplified employee pension (SEP) as defined in section 408(k) that accepts elective contributions is exempted from the tax of section 4979 and paragraph (a)(1) of this section if it notifies its employees of the fact and tax consequences of excess contributions within 2
1/2 months following the plan year for which excess contributions are made. The notification must meet the standards of paragraph (a)(4)(ii) of this section.
(ii) The employer's notification to each affected employee of the excess SEP contributions must specifically state, in a manner calculated to be understood by the average plan participant: the amount of the excess contributions attributable to that employee's elective deferrals; the calendar year for which the excess contributions were made; that the excess contributions are includible in the affected employee's gross income for the specified calendar year; and that failure to withdraw the excess contributions and income attributable thereto by the due date (plus extensions) for filing the affected employee's tax return for the preceding calendar year may result in significant penalties.
(iii) If an employer does not notify its employees by the last day of the 12-month period following the year of excess SEP contributions, the SEP will no longer be considered to meet the requirements of section 408(k)(6).
(b) Definitions. The following is a list of terms and definitions to be used for purposes of section 4979 and this section:
(1) Excess aggregate contributions. The term “excess aggregate contribution” has the meaning set forth in § 1.401(m)-5 of this chapter. For purposes of determining excess aggregate contributions under an annuity contract described in section 403(b), the contract is treated as a plan described in section 401(a).
(2) Excess contributions. The term “excess contributions” has the meaning set forth in sections 401(k)(8)(B), 408(k)(6)(C)(ii), and 501(c)(18). See, e.g., § 1.401(k)-6 of this chapter.
(3) Plan. The term “plan” means:
(i) A plan described in section 401(a) that includes a trust exempt from tax under section 501(a);
(ii) Any annuity plan described in section 403(a);
(iii) Any annuity contract described in section 403(b);
(iv) A simplified employee pension of an employer that satisfies the requirements of section 408(k); and
(v) A plan described in section 501(c)(18).
The term includes any plan that at any time has been determined by the Secretary to be one of the types of plans described in this paragraph (b)(3).
(c) No tax when excess distributed within 2
1/2 months of close of year or additional employer contributions made—(1) General rule. No tax is imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent the contribution (together with any income allocable thereto) is corrected before the close of the first 2
1/2 months of the following plan year (6 months in the case of a plan that includes an eligible automatic contribution arrangement within the meaning of section 414(w)). The extension to 6 months applies to a distribution of excess contributions or excess aggregate contributions for a plan year beginning on or after January 1, 2010, only where all the eligible NHCEs and eligible HCEs (both as defined in § 1.401(k)-6 of this Chapter) are covered employees under an eligible automatic contribution arrangement within the meaning of section 414(w) for the entire plan year (or the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees under the plan)). Qualified nonelective contributions and qualified matching contributions taken into account under § 1.401(k)-2(a)(6) of this Chapter or qualified nonelective contributions or elective contributions taken into account under § 1.401(m)-2(a)(6) of this Chapter for a plan year may permit a plan to avoid excess contributions or excess aggregate contributions, respectively, even if made after the close of the 2
1/2 month (or 6 month) period for distributing excess contributions or excess aggregate contributions without the excise tax. See § 1.401(k)-2(b)(1)(i) and (5)(i) of this Chapter for methods to avoid excess contributions, and § 1.401(m)-2(b)(1)(i) of the Chapter for methods to avoid excess aggregate contributions.
(2) Tax treatment of distributions. See § 1.401(k)-2(b)(3)(ii) and (2)(vi) of this chapter for rules for determining the tax consequences to a participant of a distribution or recharacterization of excess contributions and income allocable thereto, including a special rule for de minimis distributions. See § 1.401(m)-2(b)(2)(vi) of this chapter for rules for determining the tax consequences to a participant of a distribution of excess aggregate contributions and income allocable thereto.
(3) Income. See § 1.401(k)-2(b)(2)(iv) of this chapter for rules for determining income allocable to excess contributions. See § 1.401(m)-2(b)(2)(iv) of this chapter for rules for determining income allocable to excess aggregate contributions.
(4) Example. The provisions of this paragraph (c) are illustrated by the following example.
(d) Effective date—(1) General rule. Except as provided in paragraphs (d)(2) through (4), this section is effective for plan years beginning after December 31, 1986.
(2) Section 403(b) annuity contracts. In the case of an annuity contract under section 403(b), this section applies to plan years beginning after December 31, 1988.
(3) Collectively bargained plans and plans of state or local governments. For plan years beginning before January 1, 1993, the provisions of this section do not apply to a collectively bargained plan that automatically satisfies the requirements of section 410(b). See §§ 1.401(a)(4)-1(c)(5) and 1.410(b)-2(b)(7) of this chapter. In the case of a plan (including a collectively bargained plan) maintained by a state or local government, the provisions of this section do not apply for plan years beginning before the later of January 1, 1996, or 90 days after the opening of the first legislative session beginning on or after January 1, 1996, of the governing body with authority to amend the plan, if that body does not meet continuously. For purposes of this paragraph (d)(3), the term governing body with authority to amend the plan means the legislature, board, commission, council, or other governing body with authority to amend the plan.
(4) Plan years beginning before January 1, 1992. For plan years beginning before January 1, 1992, a reasonable interpretation of the rules set forth in section 4979, as in effect during those years, may be relied upon in determining whether the excise tax is due for those years.
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Treas. Reg. §54.4979-1(a)In general—(1) General rule.
In general—(1) General rule. In the case of any plan (as defined in paragraph (b)(3) of this section), there is imposed a tax for the employer's taxable year equal to 10 percent of the sum of:
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Treas. Reg. §54.4979-1(b)Definitions.
Definitions. The following is a list of terms and definitions to be used for purposes of section 4979 and this section:
(1) Excess aggregate contributions. The term “excess aggregate contribution” has the meaning set forth in § 1.401(m)-5 of this chapter. For purposes of determining excess aggregate contributions under an annuity contract described in section 403(b), the contract is treated as a plan described in section 401(a).
(2) Excess contributions. The term “excess contributions” has the meaning set forth in sections 401(k)(8)(B), 408(k)(6)(C)(ii), and 501(c)(18). See, e.g., § 1.401(k)-6 of this chapter.
(3) Plan. The term “plan” means:
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Treas. Reg. §54.4979-1(c)No tax when excess distributed within 2 1/2 months of close of year or additional employer contributions made—(1) General rule.
No tax when excess distributed within 2
1/2 months of close of year or additional employer contributions made—(1) General rule. No tax is imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent the contribution (together with any income allocable thereto) is corrected before the close of the first 2
1/2 months of the following plan year (6 months in the case of a plan that includes an eligible automatic contribution arrangement within the meaning of section 414(w)). The extension to 6 months applies to a distribution of excess contributions or excess aggregate contributions for a plan year beginning on or after January 1, 2010, only where all the eligible NHCEs and eligible HCEs (both as defined in § 1.401(k)-6 of this Chapter) are covered employees under an eligible automatic contribution arrangement within the meaning of section 414(w) for the entire plan year (or the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees under the plan)). Qualified nonelective contributions and qualified matching contributions taken into account under § 1.401(k)-2(a)(6) of this Chapter or qualified nonelective contributions or elective contributions taken into account under § 1.401(m)-2(a)(6) of this Chapter for a plan year may permit a plan to avoid excess contributions or excess aggregate contributions, respectively, even if made after the close of the 2
1/2 month (or 6 month) period for distributing excess contributions or excess aggregate contributions without the excise tax. See § 1.401(k)-2(b)(1)(i) and (5)(i) of this Chapter for methods to avoid excess contributions, and § 1.401(m)-2(b)(1)(i) of the Chapter for methods to avoid excess aggregate contributions.
(2) Tax treatment of distributions. See § 1.401(k)-2(b)(3)(ii) and (2)(vi) of this chapter for rules for determining the tax consequences to a participant of a distribution or recharacterization of excess contributions and income allocable thereto, including a special rule for de minimis distributions. See § 1.401(m)-2(b)(2)(vi) of this chapter for rules for determining the tax consequences to a participant of a distribution of excess aggregate contributions and income allocable thereto.
(3) Income. See § 1.401(k)-2(b)(2)(iv) of this chapter for rules for determining income allocable to excess contributions. See § 1.401(m)-2(b)(2)(iv) of this chapter for rules for determining income allocable to excess aggregate contributions.
(4) Example. The provisions of this paragraph (c) are illustrated by the following example.
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Treas. Reg. §54.4979-1(d)Effective date—(1) General rule.
Effective date—(1) General rule. Except as provided in paragraphs (d)(2) through (4), this section is effective for plan years beginning after December 31, 1986.
(2) Section 403(b) annuity contracts. In the case of an annuity contract under section 403(b), this section applies to plan years beginning after December 31, 1988.
(3) Collectively bargained plans and plans of state or local governments. For plan years beginning before January 1, 1993, the provisions of this section do not apply to a collectively bargained plan that automatically satisfies the requirements of section 410(b). See §§ 1.401(a)(4)-1(c)(5) and 1.410(b)-2(b)(7) of this chapter. In the case of a plan (including a collectively bargained plan) maintained by a state or local government, the provisions of this section do not apply for plan years beginning before the later of January 1, 1996, or 90 days after the opening of the first legislative session beginning on or after January 1, 1996, of the governing body with authority to amend the plan, if that body does not meet continuously. For purposes of this paragraph (d)(3), the term governing body with authority to amend the plan means the legislature, board, commission, council, or other governing body with authority to amend the plan.
(4) Plan years beginning before January 1, 1992. For plan years beginning before January 1, 1992, a reasonable interpretation of the rules set forth in section 4979, as in effect during those years, may be relied upon in determining whether the excise tax is due for those years.
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Treas. Reg. §54.4979-1(i)§54.4979-1(i)
A plan described in section 401(a) that includes a trust exempt from tax under section 501(a);
(ii) Any annuity plan described in section 403(a);
(iii) Any annuity contract described in section 403(b);
(iv) A simplified employee pension of an employer that satisfies the requirements of section 408(k); and
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Treas. Reg. §54.4979-1(v)A plan described in section 501(c)(18).
A plan described in section 501(c)(18).
The term includes any plan that at any time has been determined by the Secretary to be one of the types of plans described in this paragraph (b)(3).
8 Citing Cases
We hold that petitioner does.
We hold that it does.
Under IRC section 4979[A](e)(2)(C), all the deemed owned shares of all the disqualified persons with respect to the Law Office of John H Eggertsen P. C. Employee Stock Ownership Plan are taken into account for determining the amount involved in the prohibited allocation. The amount of the prohibited allocation in this case is $401,500.00. Under IRC secti
e ESOP. Prohibited allocations in favor ofdisqualified persons are treated as currentlytaxable to the disqualified persons, sec. 409(p)(2)(A), and - 12 - excise taxes equal to 50% ofthe total prohibited allocations are imposed on the S corporation, sec. 4979A. Further, the ESOP will not satisfy the requirements of section 4975(e)(7) and will cease to qualify as an ESOP. The temporary regulations concerning nonqualified deferred compensation and synthetic equity had an effective date.ofJuly 21, 2
e ESOP. Prohibited allocations in favor ofdisqualified persons are treated as currentlytaxable to the disqualified persons, sec. 409(p)(2)(A), and - 12 - excise taxes equal to 50% ofthe total prohibited allocations are imposed on the S corporation, sec. 4979A. Further, the ESOP will not satisfy the requirements of section 4975(e)(7) and will cease to qualify as an ESOP. The temporary regulations concerning nonqualified deferred compensation and synthetic equity had an effective date.ofJuly 21, 2
Section 4979" Excise Tax" Respondent determined that petitioner is liable for an excise tax of $178 for excess contributions to his Schedule C SEP plan. Section 408(k) (6) (C) (i) provides that any excess contribution under an SEP plan shall abe treated as an excess contribution for purposes of section 4979. See sec. 4979(e) (4). Section 4979 imposes a 10-percent" tax on employers who make excess contributions to an-SEP plan. Petitioner asserts that even if he did make an excess contribution to