Part III (Section 4973(a)(3))

Tax on Excess Contributions to Section 403(b)(7)(A) Custodial Accounts

Line 14. Reduce total current year contributions by contributions to a Roth IRA and by any rollover contributions described in sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3).

Line 15. The amount excludable for your tax year is the smaller of the exclusion allowance or the annual employer contribution limitation. Figure the amount to enter on line 15 according to the following steps:

Step 1. Multiply the compensation received during the tax year from your employer that was included in gross income by 20%.

Step 2. Multiply the amount in step 1 by the number of years of service as of the end of the tax year for the tax year you are computing this exclusion allowance.

Step 3. Add all of the amounts contributed by your employer in previous years that were not included in your gross income.

Step 4. Subtract step 3 from step 2.

Step 5. Enter the smaller of $40,000 (see the note below), or 100% of the compensation you received during the tax year.

Step 6. Enter the smaller of step 4 or step 5 on line 15, Part III of Form 5330.

Note. The $40,000 limitation in effect under section 415(c)(1)(A) is subject to changes in the cost-of-living as described in section 415(d). Currently, the dollar limit for a calendar year as adjusted annually for cost-of-living increases is published during the fourth quarter of the prior calendar year in the Internal Revenue Bulletin.

Part IV (Section 4976)

Tax on Disqualified Benefits for Funded Welfare Plans

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:

• Any post-retirement medical benefit or life insurance benefit provided for a key employee unless the benefit is provided from a separate account established for the key employee under section 419A(d);
• Any post-retirement medical or life insurance benefit unless the plan meets the nondiscrimination requirements of section 505(b) for those benefits; or
• Any portion of the fund that reverts to the benefit of the employer.

Part V (Sections 4978, 4978A and 4978B)

Tax on Certain ESOP Dispositions

Caution. Section 4978A does not apply to the estate of a person who died after December 19, 1989. Section 4978B does not apply to the disposition of employer securities to which former section 133 applied which are acquired by loans after August 20, 1996, or to the refinancing of such loans after August 20, 1996.

Line 24a. Report the section 4978 or section 4978A tax on line 24a. Check the box on line 24a to show which tax you are reporting.

Section 4978 imposes an excise tax on dispositions of securities acquired in a sale to which section 1042 applied or in a qualified gratuitous transfer to which section 664(g) applied, if the dispositions take place within 3 years after the date of the acquisition of the 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:

• The total number of shares held by that plan or cooperative after the disposition is less than the total number of employer securities held immediately after the sale, or
• Except to the extent provided in regulations, the value of qualified securities held by the plan or cooperative after the disposition is less than 30% of the total value of all employer securities as of the disposition (60% of the total value of all employer securities in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied).

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:

• The death of the employee;
• The retirement of the employee after the employee has reached age 59½;
• The disability of the employee (within the meaning of section 72(m)(7)); or
• The separation of the employee from service for any period that results in a 1-year break in service (as defined in section 411(a)(6)(A)).

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.

Section 4978A imposes a tax on certain transactions involving qualified employer securities. Qualified employer securities for purposes of this tax are defined in section 2057(d).

Section 4978A taxes any disposition of qualified employer securities acquired on or before December 20, 1989, if the disposition of the qualified securities takes place within 3 years after the date the ESOP or eligible worker-owned cooperative acquired the qualified securities.

The section 4978A tax also applies to dispositions of qualified securities that occur after the 3-year period if the qualified securities were not allocated to participants' accounts or the proceeds from the disposition were not allocated to the participants' accounts.

The tax under section 4978A is 30% of the amount realized on the disposition or 30% of the amount repaid on the loan, whichever applies.

Line 24b. Section 4978B imposes a tax on certain dispositions of section 133 securities held by an employee stock ownership plan (ESOP). This tax is 10% of the amount realized on section 133 securities that are (1) disposed of within 3 years of the date the securities were acquired or (2) disposed of before the securities were allocated to the participants' accounts and the proceeds of the disposition are not allocated to the accounts of the participants. For exceptions, see section 4978B.

This tax must be paid by the employer.

Part VI (Section 4979A)

Tax on Certain Prohibited Allocations of Qualified ESOP Securities

Section 4979A. Report on lines 25 and 5 the section 4979A tax on the prohibited allocation of qualified securities by any ESOP or eligible worker-owned cooperative or an allocation described in section 664(g)(5)(A). The tax is 50% of the prohibited allocation.

EGTRRA amended section 4979A for any ESOP established: (a) after March 14, 2001, or (b) on or before March 14, 2001, if the employer securities held by the ESOP consist of stock in a corporation that did not have an S corporation election in effect. As enacted, the tax also applies to the amount involved when an ESOP holding employer securities consisting of stock in an S corporation allocates such employer securities during a nonallocation year for the benefit of any disqualified person.

During the first nonallocation year the amount involved is determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

The tax also applies to any synthetic entity owned by a disqualified person in any nonallocation year and the amount involved is the value of the shares on which the synthetic entity is based.

Part VII (Section 4975)

Tax on Prohibited Transactions

Note. 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.

Line 26a. 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 26b, Column (a). 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.

Line 26b, Columns (c) and (d). The amount involved in a prohibited transaction means the greater of the amount of money and the fair market value of the other property given, or the amount of money and the fair market value of the other property received. However, for services described in sections 4975(d)(2) and (10), the amount involved only applies to excess compensation. Fair market value 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 fair market value 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 is the period of time beginning with the date of the prohibited transaction and ending with the earliest of: (a) the date correction is completed, (b) the date of the mailing of a notice of deficiency, or (c) the date on which the tax under section 4975(a) is assessed. See the instruction for line 27 for the definition of correction.

The following example of a prohibited transaction does not cover all types of prohibited transactions. For more examples, see Regulations section 53.4941(e)-1(b)(4).

Example. A disqualified person borrows money from a plan in a prohibited transaction under section 4975. The fair market value of the use of the money and the actual interest on the loan is $1,000 per month. The loan was made on July 1, 2001, (date of transaction) and repaid on December 31, 2002 (date of correction). The disqualified person's taxable year is the calendar year. On July 31, 2003, the disqualified person files a delinquent Form 5330 for the 2001 plan year and a timely Form 5330 for the 2002 plan 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 tax has been made before the time the disqualified person filed the Forms 5330.

Examples of Part VII

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 taxable year (or portion of a taxable year) within the taxable period that begins on the date the loan occurs. Each prohibited transaction has its own separate taxable period which 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, 2001 (date of loan) through December 31, 2002 (date of correction). Therefore, in this example, there are two prohibited transactions, the first occurring on July 1, 2001, and the second occurring on January 1, 2002.

Section 4975(a) imposes a 15% excise tax on the amount involved for each taxable year or part thereof in the taxable period of each prohibited transaction.

The amount involved to be reported on the Form 5330 filed for 2001 is $6,000 (6 months × $1,000). The amount of tax due is $900 ($6,000 × 15%). (Any interest and penalties imposed for the delinquent filing of the Form 5330 for 2001 will be billed separately to the disqualified person.)

The taxable period for the second prohibited transaction runs from January 1, 2002, through December 31, 2002 (date of correction). Because there are two prohibited transactions with taxable periods running during 2002, the section 4975(a) tax is due for the 2002 taxable year for both prohibited transactions. The excise tax to be reported on the Form 5330 filed for 2002 would include both the prohibited transaction of July 1, 2001, with an amount involved of $6,000, resulting in a tax due of $900 ($6,000 × 15%) and the second prohibited transaction of January 1, 2002, with an amount involved of $12,000 (12 months × $1,000), resulting in a tax due of $1,800 ($12,000 × 15%). Complete line 26 of the Forms 5330 as shown.

Line 27. To avoid liability for additional taxes and penalties under section 4975, and in some cases further initial taxes, a correction of the prohibited transaction 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 No box is checked on line 27, 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 indicating when correction has been or will be made. Also, complete line 29, Part IX, for each prohibited transaction that has been corrected, if any, giving the following information: (a) the number of the transaction from Part VII; (b) the nature of the correction; and (c) the date of the correction.

Note. When an initial tax has been imposed by section 4975(a) on a prohibited transaction and the transaction is not corrected within the tax 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 the tax imposed by section 4975(b).

Part VIII

Schedule of Other Participating Disqualified Persons

If more than one disqualified person participated in the same prohibited transaction, list on this schedule the name, address, and the social security number or employer identification number of each disqualified person, other than the disqualified person who files this return.

Part X (Section 4971(a))

Tax on Failure To Meet Minimum Funding Standards

Line 30. If your plan has an accumulated funding deficiency as defined in section 412(a) (section 418B if this is a multiemployer plan in reorganization), complete line 30.

Line 31. Multiply line 30 by the applicable tax rate shown below and enter the result on line 31.

• 10% for plans (other than multiemployer plans) or
• 5% for all multiemployer plans.

Note. 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 (section 414(b)), a group of trades or businesses under common control (section 414(c)), an affiliated service group (section 414(m)), and any other group treated as a single employer under section 414(o).

Note. When an initial tax is imposed by section 4971(a) on an accumulated funding deficiency and the accumulated funding deficiency is not corrected within the tax period, an additional tax equal to 100% of the accumulated funding deficiency to the extent not corrected is imposed.

Part XI (Section 4977)

Tax on Excess Fringe Benefits

Line 32. 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 the Yes box on line 32a and complete lines 32b through 32d.

Line 32c. The excess fringe benefits are figured by subtracting 1% of the aggregate compensation paid by you to your employees during the calendar year that was includable in their gross income from the aggregate value of the nontaxable fringe benefits under sections 132(a)(1) and 132(a)(2).

Part XII (Section 4979)

Tax on Excess Contributions to Plans With a Cash or Deferred Arrangement

Section 4979. 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 the excess aggregate contributions made on behalf of highly compensated employees. The employer may also be subject to an excise tax on the 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)).

A highly compensated employee generally is an employee who:

1. Was a 5-percent owner at any time during the year or the preceding year, or,
2. For the preceding year had compensation from the employer in excess of a dollar amount for the year ($85,000 for 2001) and, if the employer so elects, was in the top-paid group for the preceding year.

An employee is in the top-paid group for any year if the employee is in the group consisting of the top 20 percent of the employees of the employer when ranked on the basis of compensation paid. An employee (who is not a 5-percent owner) who has compensation in excess of $85,000 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).

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 the 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 2½ months after the end of the plan year.

Part XIII (Section 4980)

Tax on Reversion of Qualified Plan Assets to an Employer

Section 4980. Include on lines 36 and 10 the section 4980 tax on employer reversions from a qualified plan. The reversion excise tax is either 50% or 20%. The excise tax rate is 50% if the employer (1) does not establish or maintain a qualified replacement plan following the plan termination or (2) provide certain pro-rata benefit increases in connection with the plan termination. See section 4980(d)(1)(A) or (B) for more information.

If you owe the section 4980 tax, enter the date of the reversion on line 34 and the reversion amount and applicable excise tax rate on line 35. If you use a tax percentage other than 50%, explain on line 37 why you qualify to use a rate other than 50%.

Part XIV (Section 4980F)

Tax on Failure to Provide Notice of Significant Reduction in Future Accruals

Section 4980F imposes on an employer (or, in the case of a multiemployer plan, the plan) an excise tax of $100 per day per each applicable individual for each day of the noncompliance period for the failure to give 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. This notice is called section 204(h) notice (because the same notice requirement appears at section 204(h) of ERISA). An applicable individual is a participant in the plan, or an alternative 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. The noncompliance period is the number of days in which a section 204(h) failure is not corrected.

No excise tax is imposed during any period during which any person subject to liability for the tax did not know that the failure existed and exercised reasonable diligence to meet the notice requirement. In addition, no excise tax is imposed on any failure if any person subject to liability for the tax exercised reasonable diligence to meet the notice requirements and such person provides the section 204(h) notice during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence would have known, that the failure existed. 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 taxable 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. 2002-4, 2002-1 I.R.B. 127 for procedures to follow in applying for a waiver of part or all of the excise tax due to reasonable cause. You can find Rev. Proc. 2002-4 on page 127 of Internal Revenue Bulletin 2002-1 at www.irs.gov/pub/irs-irbs/irb02-01.pdf.

Line 41. A failure occurs on any day that any applicable individual is not provided section 204(h) notice.

Example: There are 1000 applicable individuals (AI). The plan administrator fails to give section 204(h) notice to 100 applicable individuals for 60 days, and to 50 of those applicable individuals for an additional 30 days. In this case there are 7,500 failures ((100 AI x 60 days) + (50 AI x 30 days) = 7,500).

Part XV (Section 4971(f))

Tax on Failure to Correct Liquidity Shortfall

Section 4971(f). If your plan has a liquidity shortfall for which an excise tax under section 4971(f) is imposed for any quarter of the plan year, complete lines 44 through 47.

Line 44. Include on line 44 the amount of the liquidity shortfall(s) for each quarter of the plan year.

Line 45. Include on line 45 the amount of any contributions made to the plan by the due date of the required quarterly installment(s) which partially corrected the liquidity shortfall(s) reported on line 44.

Line 46. Include on line 46 the net amount of the liquidity shortfall (subtract line 45 from line 44).

Note. 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.

Privacy Act and Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. This form is required to be filed under sections 4971, 4972, 4973, 4975, 4976, 4977, 4978, 4978A, 4978B, 4979, 4979A, 4980, and 4980F of the Internal Revenue Code. Section 6109 requires you to provide your taxpayer identification number (SSN or EIN). If you fail to provide this information in a timely manner, you may be liable for penalties and interest. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation, and cities, states, and the District of Columbia for use in administering their tax laws. We may also disclose this information to Federal and state or local agencies to enforce Federal nontax criminal laws and to combat terrorism.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by Code section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	20 hr., 19 min.
Learning about the law or the form	10 hr., 7 min.
Preparing and sending the form to the IRS	10 hr., 54 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send this form to this address. Instead, see Where To File on page 2.

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