General Instructions

Changes To Note

• The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended section 4972(c)(6) which provides exceptions for determining nondeductible contributions of defined contribution plans.
• EGTRRA added new section 4972(c)(7) which provides an elective exception for determining nondeductible contributions to defined benefit plans. Section 4972(c)(7) allows employers to elect to not take into account any contribution to a defined benefit plan except to the extent that the contributions exceed the accrued liability full funding limitation contained in section 412(c)(7).
• The exemptions to the prohibited transaction rules have been expanded by EGTRRA to include non-IRA loans to sole proprietors, partners, and S corporation owners. See section 4975(f)(6)(B)(iii) for more information.
• The alternative limitations election for section 403(b) contracts available to employees of an educational organization, hospital, or home health services agency under section 415(c)(4) has been repealed by EGTRRA section 632(a)(3)(E).
• EGTRRA added new section 4972(c)(6)(B) which provides that nondeductible contributions to qualified plans for domestic and similar workers are no longer subject to a 10% excise tax.

Purpose of Form

File Form 5330 to report the tax on:

1. a minimum funding deficiency (section 4971);
2. nondeductible contributions to qualified plans (section 4972);
3. excess contributions to a section 403(b)(7)(A) custodial account (section 4973(a)(3));
4. a prohibited transaction (section 4975);
5. a disqualified benefit provided by funded welfare plans (section 4976);
6. excess fringe benefits (section 4977);
7. certain ESOP dispositions (sections 4978, 4978A, and 4978B);
8. excess contributions to plans with cash or deferred arrangements (section 4979);
9. certain prohibited allocations of qualified securities by an ESOP (section 4979A);
10. reversions of qualified plan assets to employers (section 4980);
11. a failure to pay liquidity shortfall (section 4971(f));
12. a failure of applicable plans reducing future benefit accruals to satisfy notice requirements (section 4980F).

Who Must File

A Form 5330 must be filed by:

1. Any employer who is liable for the tax under section 4971 for failure to meet the minimum funding standards under section 412 (liability for tax in the case of an employer who is a party to a collective bargaining agreement, see section 413(b)(6));
2. Any employer who is liable for the tax under section 4971(f) for a failure to meet the liquidity requirement of section 412(m)(5);
3. Any employer who is liable for the tax under section 4972 for nondeductible contributions to qualified plans;
4. Any individual who is liable for the tax under section 4973(a)(3) because an excess contribution to a section 403(b)(7)(A) custodial account was made for them and that excess has not been eliminated as specified in sections 4973(c)(2)(A) and (B);
5. Any disqualified person who is liable for the tax under section 4975 for participating in a prohibited transaction (other than a fiduciary acting only as such), or an individual (or his or her beneficiary) who engages in a prohibited transaction with respect to his or her individual retirement account for each tax year or part of a tax year in the taxable period applicable to such prohibited transaction;
6. Any employer who is liable for the tax under section 4976 for maintaining a funded welfare benefit plan that provides a disqualified benefit during any tax year;
7. Any employer who pays excess fringe benefits and has elected to be taxed under section 4977 on such payments;
8. Any employer or worker-owned cooperative (as defined in section 1042(c)(2)) that maintains an ESOP that disposes of the qualified securities (as defined in section 1042(c)(1)) or section 133 securities within the specified 3-year period. See the instructions for Part V for details on the excise tax under sections 4978, 4978A, and 4978B;
9. Any employer who is liable for the tax under section 4979 on excess contributions to plans with a cash or deferred arrangement, etc.;
10. Any employer or worker-owned cooperative that made the written statement described in section 664(g)(1)(E) or 1042(b)(3)(B) and made an allocation prohibited under section 409(n) of qualified securities of an ESOP taxable under section 4979A or any employer or worker-owned cooperative who made an allocation of S corporation stock of an ESOP prohibited under section 409(p) taxable under section 4979A; or
11. Any employer who receives an employer reversion from a deferred compensation plan that is taxable under section 4980.
12. Any employer or multiemployer plan liable for the tax under section 4980F for failure to give notice of a significant reduction in the rate of future benefit accrual.

A Form 5330 and tax payment is required:

• For each year that you fail to meet the minimum funding standards under section 412 or contribute an excess amount to your section 403(b)(7)(A) custodial account,
• For each year that any of the items in 2 or 3 or 5 through 10 or 12 above apply,
• For a reversion of plan assets from a qualified plan that is taxable under section 4980, or
• For each year (or part of a year) in the taxable period applicable to a prohibited transaction. See the instructions for Part VII, line 26b, column (c), for a definition of taxable period.

Definitions

Plan. For purposes of prohibited transactions (section 4975), the term plan means any of the following:

• A trust described in section 401(a) that forms part of a plan;
• A plan described in section 403(a), and that trust or plan is exempt from tax under section 501(a);
• An individual retirement account described in section 408(a);
• An individual retirement annuity described in section 408(b);
• An Archer MSA described in section 220(d);
• A Coverdale education savings account described in section 530.
• A trust described in section 501(c)(22).

Note. 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 (section 4975). This also applies to the tax on minimum funding deficiencies (section 4971).

Section 4979 applies to plans described in sections 401(a), 403(a), 403(b), 408(k), or 501(c)(18).

Plan sponsor. The term plan sponsor means:

1. The employer, for an employee benefit plan that a single employer establishes or maintains;
2. The employee organization in the case of a plan of an employee organization; or
3. The association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan, if the plan is established or maintained jointly by one or more employers and one or more employee organizations, or by two or more employers.

Disqualified person. A disqualified person is any person who is:

1. A fiduciary;
2. A person providing services to the plan;
3. An employer, any of whose employees are covered by the plan;
4. An employee organization, any of whose members are covered by the plan;
5. Any direct or indirect owner of 50% or more of
   1. the combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation,
   2. the capital interest or the profits interest of a partnership, or
   3. the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in 3 or 4;
6. A member of the family of any individual described in 1, 2, 3, or 5 (member of a family is the spouse, ancestor, lineal descendant, and any spouse of a lineal descendant);
7. A corporation, partnership, or trust or estate of which (or in which) any direct or indirect owner holds 50% or more of the interest described in 5(a), (b), or (c). For purposes of (c), the beneficial interest of the trust or estate is owned directly or indirectly, or held by persons described in 1 through 5;
8. An officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10% or more shareholder or highly compensated employee (earning 10% or more of the yearly wages of an employer) of a person described in 3, 4, 5, or 7;
9. A 10% or more (in capital or profits) partner or joint venturer of a person described in 3, 4, 5, or 7; or
10. Any disqualified person, as described in 1 through 9 above, who is a disqualified person with respect to any plan to which a section 501(c)(22) trust applies, is permitted to make payments under section 4223 of ERISA.

Prohibited transaction. A prohibited transaction is any direct or indirect:

1. Sale or exchange, or leasing of any property between a plan and a disqualified person; or a transfer of real or personal property by a disqualified person to a plan where the property is subject to a mortgage or similar lien placed on the property by the disqualified person within 10 years prior to the transfer, or the property transferred is subject to a mortgage or similar lien which the plan assumes;
2. Lending of money or other extension of credit between a plan and a disqualified person;
3. Furnishing of goods, services, or facilities between a plan and a disqualified person;
4. Transfer to, or use by or for the benefit of, a disqualified person of income or assets of a plan;
5. Act by a disqualified person who is a fiduciary whereby he or she deals with the income or assets of a plan in his or her own interest or account; or
6. Receipt of any consideration for his or her own personal account by any disqualified person who is a fiduciary from any party dealing with the plan connected with a transaction involving the income or assets of the plan.

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 have been exempted.

When To File

Use one Form 5330 to report excise taxes with the same filing due date. For example, all of the excise taxes on pages 2 and 3 of the form have the same filing due dates. One Form 5330 may be filed to report one or more of these taxes. However, if the taxes are from separate plans, file separate forms for each plan. Also file a separate Form 5330 to report taxes with different filing due dates. Generally, the filing of a 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.

1. For taxes due under sections 4972, 4973(a)(3), 4975, 4976, 4978, 4978A, 4978B, and 4979A, file Form 5330 by the last day of the 7th month after the end of the tax year of the employer or other person who must file this return.
2. For tax due under section 4971 and 4971(f), file Form 5330 by the later of the last day of the 7th month after the end of the employer's tax year or 8� months after the last day of the plan year that ends with or within the filer's tax year.
3. For tax due under section 4977, file Form 5330 by the last day of the 7th month after the end of the calendar year in which the excess fringe benefits were paid to your employees.
4. For tax due under section 4979, file Form 5330 by the last day of the 15th month after the close of the plan year to which the excess contributions or excess aggregate contributions relate.
5. For tax due under section 4980, file Form 5330 by the last day of the month following the month in which the reversion occurred.
6. For tax due under section 4980F, file Form 5330 by the last day of the month following the month in which the failure occurred.

Extension. File Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, to request an extension of time to file. If approved, you may be granted an extension of up to 6 months.

Caution: Form 5558 does not extend the time to pay your taxes. See the instructions for Form 5558.

Where To File

File Form 5330 with the Internal Revenue Service Center, Ogden, UT 84201.

Private delivery services. You can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in September 2002 and includes only the following:

• Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
• DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
• United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

Interest and Penalties

Interest. Interest is charged on taxes not paid by the due date even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, gross valuation overstatements, and substantial understatements of tax from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

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 minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $100. 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 must 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 � 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.

Note. Interest and penalties will be billed separately after the return is filed.

Claim for Refund or Credit/Amended Return

File an amended Form 5330 for any of the following:

• To claim a refund of overpaid taxes reportable on Form 5330;
• For a credit for overpaid taxes; or
• To report additional taxes due within the same tax year of the filer if those taxes have the same due date as those previously reported. Check the Amended Return box in item H on page 1 of the return and report the correct amount of taxes in Parts II through XV, as appropriate, and on lines 1 through 12a of Part I. See instructions for lines 12a through 12c.

Note. 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 to promptly consider your claim, you must explain why you are filing the claim and provide the appropriate supporting evidence. See Regulations section 301.6402-2 for more details.

Specific Instructions

Filer tax year. Enter the tax year of the employer, entity, or individual on whom the tax is imposed.

Item A. Name and address of filer. 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 numbers 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.

Item B. Filer's identifying number. The identifying number of an individual (other than a sole proprietor with an employer identification number (EIN)) is his or her social security number. The identifiying number of all others is their EIN.

Item C. Name and address of plan sponsor. The term plan sponsor means:

1. The employer, for an employee benefit plan that a single employer established or maintains;
2. The employee organization in the case of a plan of an employee organization; or
3. The association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan, if the plan is established or maintained jointly by one or more employers and one or more employee organizations, or by two or more employers.

Include the suite, room, or other unit numbers 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.

Item D. Name of plan. Enter the formal name of the plan, group insurance arrangement, or enough information to identify the plan. This should be the same name indicated on the Form 5500 series return/report filed for the plan.

Item E. Plan sponsor's EIN. 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. Plan year means the calendar or fiscal year on which the records of the plan are kept. Enter four digits in year-month 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 ended March 31, 2002, should be shown as 0203.

Item G. Plan number. Enter the three-digit number that the employer or plan administrator assigned to the plan.

Filer's signature. Please sign and date the form. Also enter a daytime phone number where you can be reached.

Preparer's signature. 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 a return must sign it and fill in the Paid Preparer's Use Only area.

The paid preparer must complete the required preparer information and -

• Sign the return by hand, in the space provided for the preparer's signature (signature stamps and labels are not acceptable).
• Give a copy of the return to the filer.

Part I

Lines 12a through 12c. If you are filing an amended Form 5330 and you paid tax 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 12b. If you file Form 5330 for a claim for refund or credit, show the amount of overreported tax in parentheses on line 12c. Otherwise, show the amount of additional tax due on line 12c and include the payment with the amended Form 5330.

Part II (Section 4972)

Tax on Nondeductible Employer Contributions to Qualified Plans

Section 4972 imposes an excise tax on employers who make nondeductible contributions to their qualified plans. A qualified plan for purposes of this tax 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 408(p). The term qualified plan does not include certain governmental plans and certain plans maintained by tax-exempt organizations.

The nondeductible contributions are computed as of the end of the employer's tax year. The current year nondeductible contributions are equal to the amount contributed during the employer's tax year over the amount of contributions allowable as a deduction under section 404. In addition, prior year nondeductible contributions continue to be subject to this tax annually until eliminated by either distributions to the employer of the amount of nondeductible contributions, or a carryforward deduction in years after the nondeductible contributions are made.

Note. 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. Generally, contributions up to the current unfunded liability of a defined benefit plan are deductible, regardless of the number of participants in the plan. In addition, when determining the amount of nondeductible contributions for any tax year, an employer may elect, for that tax year, not to include any contributions to a defined benefit plan except to the extent they exceed the full-funding limitation (as defined in section 412(c)(7), determined without regard to section 412(c)(7)(A)(i)(I)). 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 benefits plan. 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).

Defined contribution plans exception. Employer contributions to one or more defined contribution plans that are nondeductible because they exceed the combined plan deduction limits of section 404(a)(7), are not subject to the 10% excise tax to the extent the contributions do not exceed the greater of:

• 6% of compensation (within the meaning of section 404(a) and as adjusted under section 404(a)(12)) paid or accrued (during the tax year in which the contributions were made) to beneficiaries under plans, or
• The sum of the amount of contributions described in sections 401(m)(4)(A) and 402(g)(3)(A), or
• Contributions to a SIMPLE 401K or a SIMPLE IRA that are considered nondeductible because they are not made in connection with the employer's trade or business.

The combined plan deduction limits are first applied to contributions to the defined benefit plan then to defined contribution plans.

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