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Employee Plans Compliance Unit (EPCU) - Projects with Summary Reports - Party-In-Interest Transaction Project

The Project

The project goals were to determine whether filed Forms 5500 contained correctly reported non-exempt party-in-interest transactions and whether the related Schedules G and/or Forms 5330 were accurately prepared and timely filed when required.

The project selected returns with large reported non-exempt transactions, representing 253 plans with plan years that ended in 2003 and 2004. The EPCU sent compliance check letters to plans requesting further information on the reported transactions, and analyzed response to determine whether the plans were compliant. Where warranted, the EPCU required the plans to correct transactions and file or amend returns; the EPCU also  requested examinations of some of the plans.

Results of the Project

The compliance checks demonstrated both systemic errors in processing Form 5500 returns and significant reporting and compliance issues. Of the 253 plans selected, EPCU removed 120 due to examinations in progress or processing errors.

The EPCU contacted 133 plans, corrected 14 prohibited transactions, collected 38 delinquent or amended returns, and referred 13 cases for field examination. In all, there were errors in over 51% of the 253 plans selected (90% of those contacted);  the errors included entering incorrect data on Form 5500, failure to complete Schedule G, failure to file Form 5330 and pay the excise tax, errors on filed Forms 5330, and incorrect tax computations.

The EPCU found issues unrelated to these transactions, including failures to report deemed distributions upon plan termination, failures to issue Forms 1099-R, and failures to file Form 5500.


A “Party-in-Interest” is an individual or an entity related to an employee benefit plan. The Employee Retirement and Income Security Act of 1974 (ERISA) gave the Internal Revenue Service (IRS) and the Department of Labor (DOL) responsibility in dealing with the conflicts of interest presented by these relationships. Under ERISA, direct and indirect transfers or uses of plan assets between a plan and a related party-in-interest are prohibited transactions; some types of prohibited transactions, however, are exempt from these rules either statutorily or because of administrative exemptions.

ERISA refers to “parties-in-interest,” while the corresponding Code section 4975 refers to “disqualified persons;” Code section 4975 levies an excise tax only on prohibited transactions involving disqualified persons.

As part of the joint administration of ERISA, DOL and IRS share jurisdiction for prohibited transactions; DOL is responsible for fiduciary breaches inherent in prohibited transactions, and IRS is responsible for the taxes on breaches involving disqualified persons. If a plan enters into non-exempt transactions with disqualified persons, the plan must report them on Form 5500 and Form 5500 Schedule G, and the transaction details and excise tax on Form 5330.

Page Last Reviewed or Updated: 06-Jun-2016