§4980 — Tax on reversion of qualified plan assets to employer
49 cases·3 followed·8 distinguished·2 questioned·1 overruled·35 cited—6% support
Statute Text — 26 U.S.C. §4980
There is hereby imposed a tax of 20 percent of the amount of any employer reversion from a qualified plan.
The tax imposed by subsection (a) shall be paid by the employer maintaining the plan.
For purposes of this section—
The term “qualified plan” means any plan meeting the requirements of section 401(a) or 403(a), other than—
a plan maintained by an employer if such employer has, at all times, been exempt from tax under subtitle A, or
a governmental plan (within the meaning of section 414(d)).
Such term shall include any plan which, at any time, has been determined by the Secretary to be a qualified plan.
The term “employer reversion” means the amount of cash and the fair market value of other property received (directly or indirectly) by an employer from the qualified plan.
The term “employer reversion” shall not include—
except as provided in regulations, any amount distributed to or on behalf of any employee (or his beneficiaries) if such amount could have been so distributed before termination of such plan without violating any provision of section 401,
any distribution to the employer which is allowable under section 401(a)(2)—
in the case of a multiemployer plan, by reason of mistakes of law or fact or the return of any withdrawal liability payment,
in the case of a plan other than a multiemployer plan, by reason of mistake of fact, or
in the case of any plan, by reason of the failure of the plan to initially qualify or the failure of contributions to be deductible, or
any transfer described in section 420(f)(2)(B)(ii)(II).
If, upon an employer reversion from a qualified plan, any applicable amount is transferred from such plan to an employee stock ownership plan described in section 4975(e)(7) or a tax credit employee stock ownership plan (as described in section 409), such amount shall not be treated as an employer reversion for purposes of this section (or includible in the gross income of the employer) if the requirements of subparagraphs (B), (C), and (D) are met.
The requirements of this subparagraph are met if, within 90 days after the transfer (or such longer period as the Secretary may prescribe), the amount transferred is invested in employer securities (as defined in section 409(l)) or used to repay loans used to purchase such securities.
The requirements of this subparagraph are met if the portion of the amount transferred which is not allocated under the plan to accounts of participants in the plan year in which the transfer occurs—
is credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over a period not to exceed 7 years, and
when allocated to accounts of participants under the plan, is treated as an employer contribution for purposes of section 415(c), except that—
the annual addition (as determined under section 415(c)) attributable to each such allocation shall not exceed the value of such securities as of the time such securities were credited to such suspense account, and
no additional employer contributions shall be permitted to an employee stock ownership plan described in subparagraph (A) of the employer before the allocation of such amount.
The amount allocated in the year of transfer shall not be less than the lesser of the maximum amount allowable under section 415 or ⅛ of the amount attributable to the securities acquired. In the case of dividends on securities held in the suspense account, the requirements of this subparagraph are met only if the dividends are allocated to accounts of participants or paid to participants in proportion to their accounts, or used to repay loans used to purchase employer securities.
The requirements of this subparagraph are met if at least half of the participants in the qualified plan are participants in the employee stock ownership plan (as of the close of the 1st plan year for which an allocation of the securities is required).
For purposes of this paragraph, the term “applicable amount” means any amount which—
is transferred after
March 31, 1985
, and before
January 1, 1989
, or
is transferred after
December 31, 1988
, pursuant to a termination which occurs after
March 31, 1985
, and before
January 1, 1989
.
No credit or deduction shall be allowed under chapter 1 for any amount transferred to an employee stock ownership plan in a transfer to which this paragraph applies.
The amount transferred shall not be treated as meeting the requirements of subparagraphs (B) and (C) unless amounts attributable to such amount also meet such requirements.
For purposes of subtitle F, the time for payment of the tax imposed by subsection (a) shall be the last day of the month following the month in which the employer reversion occurs.
Subsection (a) shall be applied by substituting “50 percent” for “20 percent” with respect to any employer reversion from a qualified plan unless—
the employer establishes or maintains a qualified replacement plan, or
the plan provides benefit increases meeting the requirements of paragraph (3).
For purposes of this subsection, the term “qualified replacement plan” means a qualified plan established or maintained by the employer in connection with a qualified plan termination (hereinafter referred to as the “replacement plan”) with respect to which the following requirements are met:
At least 95 percent of the active participants in the terminated plan who remain as employees of the employer after the termination are active participants in the replacement plan.
A direct transfer from the terminated plan to the replacement plan is made before any employer reversion, and the transfer is in an amount equal to the excess (if any) of—
25 percent of the maximum amount which the employer could receive as an employer reversion without regard to this subsection, over
the amount determined under clause (ii).
The amount determined under this clause is an amount equal to the present value of the aggregate increases in the accrued benefits under the terminated plan of any participants or beneficiaries pursuant to a plan amendment which—
is adopted during the 60-day period ending on the date of termination of the qualified plan, and
takes effect immediately on the termination date.
In the case of the transfer of any amount under clause (i)—
such amount shall not be includible in the gross income of the employer,
no deduction shall be allowable with respect to such transfer, and
such transfer shall not be treated as an employer reversion for purposes of this section.
In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is—
allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or
credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over the 7-plan-year period beginning with the year of the transfer.
If, by reason of any limitation under section 415, any amount credited to a suspense account under clause (i)(II) may not be allocated to a participant before the close of the 7-year period under such clause—
such amount shall be allocated to the accounts of other participants, and
if any portion of such amount may not be allocated to other participants by reason of any such limitation, shall be allocated to the participant as provided in section 415.
Any income on any amount credited to a suspense account under clause (i)(II) shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period determined under such clause (after application of clause (ii)).
If any amount credited to a suspense account under clause (i)(II) is not allocated as of the termination date of the replacement plan—
such amount shall be allocated to the accounts of participants as of such date, except that any amount which may not be allocated by reason of any limitation under section 415 shall be allocated to the accounts of other participants, and
if any portion of such amount may not be allocated to other participants under subclause (I) by reason of such limitation, such portion shall be treated as an employer reversion to which this section applies.
The requirements of this paragraph are met if a plan amendment to the terminated plan is adopted in connection with the termination of the plan which provides pro rata increases in the accrued benefits of all qualified participants which—
have an aggregate present value not less than 20 percent of the maximum amount which the employer could receive as an employer reversion without regard to this subsection, and
take effect immediately on the termination date.
For purposes of subparagraph (A), a pro rata increase is an increase in the present value of the accrued benefit of each qualified participant in an amount which bears the same ratio to the aggregate amount determined under subparagraph (A)(i) as—
the present value of such participant’s accrued benefit (determined without regard to this subsection), bears to
the aggregate present value of accrued benefits of the terminated plan (as so determined).
Notwithstanding the preceding sentence, the aggregate increases in the present value of the accrued benefits of qualified participants who are not active participants shall not exceed 40 percent of the aggregate amount determined under subparagraph (A)(i) by substituting “equal to” for “not less than”.
A benefit may not be increased under paragraph (2)(B)(ii) or (3)(A), and an amount may not be allocated to a participant under paragraph (2)(C), if such increase or allocation would result in a failure to meet any requirement under section 401(a)(4) or 415.
Any increase in benefits under paragraph (2)(B)(ii) or (3)(A), or any allocation of any amount (or income allocable thereto) to any account under paragraph (2)(C), shall be treated as an annual benefit or annual addition for purposes of section 415.
Except as provided by the Secretary, section 415(b)(5)(D) shall not apply to any increase in benefits by reason of this subsection to the extent that the application of this subparagraph does not discriminate in favor of highly compensated employees (as defined in section 414(q)).
For purposes of this subsection—
The term “qualified participant” means an individual who—
is an active participant,
is a participant or beneficiary in pay status as of the termination date,
is a participant not described in clause (i) or (ii)—
who has a nonforfeitable right to an accrued benefit under the terminated plan as of the termination date, and
whose service, which was creditable under the terminated plan, terminated during the period beginning 3 years before the termination date and ending with the date on which the final distribution of assets occurs, or
is a beneficiary of a participant described in clause (iii)(II) and has a nonforfeitable right to an accrued benefit under the terminated plan as of the termination date.
Present value shall be determined as of the termination date and on the same basis as liabilities of the plan are determined on termination.
Except as provided in paragraph (2)(C), if any benefit increase is reduced by reason of the last sentence of paragraph (3)(A)(ii) or paragraph (4), the amount of such reduction shall be allocated to the remaining participants on the same basis as other increases (and shall be treated as meeting any allocation requirement of this subsection).
For purposes of determining whether there is a qualified replacement plan under paragraph (2), the Secretary may provide that—
2 or more plans may be treated as 1 plan, or
a plan of a successor employer may be taken into account.
For purposes of paragraph (2)(A), all employers treated as 1 employer under section 414(b), (c), (m), or (o) shall be treated as 1 employer.
This subsection shall not apply to an employer who, as of the termination date of the qualified plan, is in bankruptcy liquidation under chapter 7 of title 11 of the United States Code or in similar proceedings under State law.
49 Citing Cases
Therefore, respondent contends that petitioner is not an employer who has,,at äll times, been exempt from tax under subtitle A as is required by section 4980(c)(1)(A). With respect to section 501(b), respondent argues that "the present case is not a revocation case; the Service is not seeking to revoke.petitioner'stax-exempt status under [section] 501(c)(3). Rather, at issue is the imposition ofthe excise tax pursuant to [section] 4980 which is contained in subtitle D". Therefore section 501(b)
The issues for decision after concessions are: (1) whether petitioner is liable for excise tax under section 4980 for 2003 on a reversion received from an employee pension plan, and (2) if we find that petitioner is not liable for excise tax under section 4980, whether petitioner is entitled to an overpayment credit or refund.
- 2 - OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: Respondent determined a deficiency in petitioners' Federal excise tax under section 4980A for the taxable year 1990 in the amount of $7,569.2 In the petition, petitioners claimed an overpayment of income tax in the amount of $30,139 with respect to the additional tax imposed under section 72(t).
However, section 4980 literally relates solely to an excise tax.
4980A imposes a 15-percent excise tax on excess distributions from qualified retirement plans. Both of these taxes are included within ch. 43 of the I.R.C. They are therefore subject to the deficiency procedures set forth in subch. B of ch. 63 of the I.R.C. See sec. 6211(a). 3 The notice of deficiency is not a model of clarity. However, the de
OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: Respondent determined a deficiency in petitioners' Federal excise tax under section 4980A for the taxable year 1991 in the amount of $35,308.2 After a concession by respondent,3 the only issue for decision is whether the Transfer Refund distribution received by petitioner Anna Mae Emmons in 1991 from the Maryland State Employees' Retirement System is subject to the 15-percent excise tax under section 4980A as an excess dis
taxes, as provided in section 6665(a)”). Other civil penalty statutes follow the guide of sections 6671(a) and 6665(a) and dictate that the penalty is treated as a tax. See, e.g., § 9707(f) (“shall be treated in the same manner as the tax imposed by section 4980B”). Finally, other statutes dictate that the penalty should be paid in the same manner as a tax. See, e.g., §§ 856(g)(5)(C) (“pays (as prescribed by the Secretary in regulations and in the same manner as tax)”), 857(f)(2)(A) (“shall pay
2013) (holding that employer mandate exaction in section 4980H is not a tax for purposes of the Anti-Injunction Act in part because it is not included in subchapter B of chapter 68 and no other provision deems it a tax).
See § 4980B(f); 29 U.S.C. §§ 1161–1163. Petitioners maintained their COBRA coverage from shortly after Mr. Sek’s termination in 2015 through August 2016. From January 2016 through August 2016 the monthly premiums were $1,827.99, totaling $14,623.92 for those eight months of coverage.2 From September 2016 through the end of that year, petitioners purcha
OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: For the taxable year 1991, respondent determined a deficiency in petitioners' Federal income tax, as well as a deficiency in Federal excise tax under section 4980A,2 in the total amount of $58,464.
OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: Respondent determined a deficiency in petitioner's Federal excise tax under section 4980A for the taxable year 1991 in the amount of $26,672.2 The issue for decision is whether the Transfer Refund distribution received by petitioner in 1991 from the Maryland State Employees' Retirement System is subject to the 15-percent excise tax under section 4980A as an excess distribution from a qualified plan.
Respondent also determined that petitioners are liable for an excise tax under section 4980A for the taxable year 1990 in the amount of $5,514.2 The only issue for decision is whether the Transfer Refund distribution received by petitioner C.
4980A imposes a 15-percent excise tax on excess distributions from qualified retirement plans. Both of these taxes are included within ch. 43 of the Internal Revenue Code. They are therefore subject to the deficiency procedures set forth in subch. B of ch. 63 of the Internal Revenue Code. See sec. 6211(a). - 3 - decide: (1) Whether petitioner
4980A imposes a 15-percent excise tax on excess distributions from qualified retirement plans. Both of these taxes are included within ch. 43 of the I.R.C. They are therefore subject to the deficiency procedures set forth in subch. B of ch. 63 of the I.R.C. See sec. 6211(a). 3 At trial, respondent conceded that the notice of deficiency oversta