§4972. Tax on nondeductible contributions to qualified employer plans

(a) Tax imposed

In the case of any qualified employer plan, there is hereby imposed a tax equal to 10 percent of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer).

(b) Employer liable for tax

The tax imposed by this section shall be paid by the employer making the contributions.

(c) Nondeductible contributions

For purposes of this section-

(1) In general

The term "nondeductible contributions" means, with respect to any qualified employer plan, the sum of-

(A) the excess (if any) of-

(i) the amount contributed for the taxable year by the employer to or under such plan, over

(ii) the amount allowable as a deduction under section 404 for such contributions (determined without regard to subsection (e) thereof), and

(B) the amount determined under this subsection for the preceding taxable year reduced by the sum of-

(i) the portion of the amount so determined returned to the employer during the taxable year, and

(ii) the portion of the amount so determined deductible under section 404 for the taxable year (determined without regard to subsection (e) thereof).

(2) Ordering rule for section 404

For purposes of paragraph (1), the amount allowable as a deduction under section 404 for any taxable year shall be treated as-

(A) first from carryforwards to such taxable year from preceding taxable years (in order of time), and

(B) then from contributions made during such taxable year.

(3) Contributions which may be returned to employer

In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account any contribution for such taxable year which is distributed to the employer in a distribution described in section 4980(c)(2)(B)(ii) if such distribution is made on or before the last day on which a contribution may be made for such taxable year under section 404(a)(6).

(4) Special rule for self-employed individuals

For purposes of paragraph (1), if-

(A) the amount which is required to be contributed to a plan under section 412 on behalf of an individual who is an employee (within the meaning of section 401(c)(1)), exceeds

(B) the earned income (within the meaning of section 404(a)(8)) of such individual derived from the trade or business with respect to which such plan is established,

such excess shall be treated as an amount allowable as a deduction under section 404.

(5) Pre-1987 contributions

The term "nondeductible contribution" shall not include any contribution made for a taxable year beginning before January 1, 1987.

(6) Exceptions

In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account-

(A) contributions that would be deductible under section 404(a)(1)(D) if the plan had more than 100 participants if-

(i) the plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, and

(ii) the plan is terminated under section 4041(b) of such Act on or before the last day of the taxable year, and

(B) contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7), but only to the extent such contributions do not exceed 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans.

If 1 or more defined benefit plans were taken into account in determining the amount allowable as a deduction under section 404 for contributions to any defined contribution plan, subparagraph (B) shall apply only if such defined benefit plans are described in section 404(a)(1)(D). For purposes of subparagraph (B), the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (B).

(d) Definitions

For purposes of this section-

(1) Qualified employer plan

(A) In general

The term "qualified employer plan" means-

(i) any plan meeting the requirements of section 401(a) which includes a trust exempt from tax under section 501(a),

(ii) an annuity plan described in section 403(a), and

(iii) any simplified employee pension (within the meaning of section 408(k)).

(B) Exemption for governmental and tax exempt plans

The term "qualified employer plan" does not include a plan described in subparagraph (A) or (B) of section 4980(c)(1).

(2) Employer

In the case of a plan which provides contributions or benefits for employees some or all of whom are self-employed individuals within the meaning of section 401(c)(1), the term "employer" means the person treated as the employer under section 401(c)(4).

(Added Pub. L. 99–514, title XI, §1131(c)(1), Oct. 22, 1986, 100 Stat. 2477 ; amended Pub. L. 100–647, title I, §1011A(e)(1), (2), title II, §2005(a)(1), Nov. 10, 1988, 102 Stat. 3477 , 3610; Pub. L. 103–465, title VII, §755(a), Dec. 8, 1994, 108 Stat. 5023 .)

References in Text

Sections 4021 and 4041(b) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (c)(6)(A), are classified to sections 1321 and 1341(b), respectively, of Title 29, Labor.

Prior Provisions

A prior section, added Pub. L. 93–406, title II, §2001(f)(1), Sept. 2, 1974, 88 Stat. 955 ; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834 ; Pub. L. 97–34, title III, §312(e)(3), Aug. 13, 1981, 95 Stat. 285 ; Pub. L. 97–448, title I, §103(c)(10)(B), Jan. 12, 1983, 96 Stat. 2377 ; Pub. L. 98–369, div. A, title IV, §491(d)(40), July 18, 1984, 98 Stat. 851 , related to tax on excess contributions for self-employed individuals, prior to repeal applicable to years beginning after Dec. 31, 1983, by Pub. L. 97–248, title II, §237(c)(1), Sept. 3, 1982, 96 Stat. 511 .

Amendments

1994-Subsec. (c)(6). Pub. L. 103–465 added par. (6).

1988-Subsec. (c). Pub. L. 100–647, §1011A(e)(1), amended subsec. (c) generally, revising and restating as pars. (1) to (4) provisions of former pars. (1) and (2).

Subsec. (c)(4), (5). Pub. L. 100–647, §2005(a)(1), added par. (4) and redesignated former par. (4) as (5).

Subsec. (d)(1). Pub. L. 100–647, §1011A(e)(2), amended par. (1) generally. Prior to amendment, par. (1) read as follows: "The term 'qualified employer plan' means-

"(A) any plan meeting the requirements of section 401(a) which includes a trust exempt from the tax under section 501(a),

"(B) an annuity plan described in section 403(a), and

"(C) any simplified employee pension (within the meaning of section 408(k))."

Effective Date of 1994 Amendment

Section 755(b) of Pub. L. 103–465 provided that:

"(1) Section 4972(c)(6)(a).-Section 4972(c)(6)(A) of the Internal Revenue Code of 1986 (as added by this section) shall apply to taxable years ending on or after the date of enactment of this Act [Dec. 8, 1994].

"(2) Section 4972(c)(6)(b).-Section 4972(c)(6)(B) of such Code (as added by this section) shall apply to taxable years ending on or after December 31, 1992."

Effective Date of 1988 Amendment

Amendment by section 1011A(e)(1), (2) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Amendment by section 2005(a)(1) of Pub. L. 100–647 effective as if included in the amendment made by section 1131(c) of Pub. L. 99–514, see section 2005(e) of Pub. L. 100–647, as amended, set out as a note under section 404 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1986, with special rules in case of plans maintained pursuant to collective bargaining agreements, see section 1131(d) of Pub. L. 99–514, as amended, set out as an Effective Date of 1986 Amendment note under section 404 of this title.

Increase in Amount for Plan Termination Insurance Under Employee Retirement Insurance Security Act of 1974

Section 1011A(e)(5) of Pub. L. 100–647 provided that: "In the case of any taxable year beginning in 1987, the amount under section 4972(c)(1)(A)(ii) of the 1986 Code for a plan to which title IV of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.] applies shall be increased by the amount (if any) by which, as of the close of the plan year with or within which such taxable year begins-

"(A) the liabilities of such plan (determined as if the plan had terminated as of such time), exceed

"(B) the assets of such plan."

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.