Employee Plans Compliance Unit (EPCU) - Current Projects - Form 5330 - IRC Section 4979 Excise Tax
This project focuses on taxpayers who filed a Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, reflecting excise tax for excess contributions to plans with a cash or deferred arrangement (CODA). A CODA must be part of a profit sharing plan, a stock bonus plan, a pre-ERISA money purchase plan or a rural cooperative plan.
The employer is liable for an excise tax equal to 10 percent of any excess contributions or excess aggregate contributions not corrected within 2 ½ months after the end of the plan year being tested.
Under IRC section 401(k)(3) of the Internal Revenue Code (IRC), an employer maintaining a 401(k) plan must annually compare the elective contributions of eligible highly compensated employees (HCEs) with those made by eligible non-highly compensated employees (NHCEs) by performing nondiscrimination testing. These tests are the average deferral percentage (ADP) test and the average contribution percentage test (ACP).
The Project Process
Examination letters will be sent to a random sample of employers who filed a Form 5330 reflecting excise tax due under IRC section 4979. The letter requests details of the nondiscrimination test(s) so EPCU can determine the correct calculation and reporting of the excise tax amount.
Compliance Contact letters will be sent to employers who filed a Form 5330 reflecting excise tax due under IRC section 4979 for plans which may not be eligible to maintain a CODA. The responses may warrant EPCU follow-up actions.
If You Receive A Letter
Please provide the information requested. You may also furnish any other documents or clarifying material that you believe will be helpful for us to review. You should make every effort to be as complete as possible in your responses. If the employer has any questions or concerns regarding the letter, get in touch with the EPCU contact person at the address or phone number provided on the letter.
If There Are Any Questions
Please feel free to e-mail us and we will be glad to answer any questions you have about the project and how it relates to your situation. Please include “IRC Section 4979 Excise Tax” in the Subject line of the message.