The Tax Court reversed its ruling in Law Office of John H. Eggertsen, P.C. , 142 TC —, No. 4, Dec. 59,830 (Eggertsen I), and held that the IRS was not precluded by the statute of limitation from assessing the excise tax under Code Sec. 4979A for prohibited allocations of qualified securities in connection with an Employee Stock Ownership Plan (ESOP). An excise tax return must be filed by the taxpayer to start the running of the limitations period, and none was.
Under Code Sec. 4979A(e)(2)(D), there is a three year limitations period starting from the later of the allocation or ownership giving rise to the tax, or the date the IRS has notice of the allocation or ownership. The Code Sec. 6501 three-year limitations period begins running when the taxpayer files a return.
The plan did not file Form 5330 , Return of Excise Taxes Related to Employee Benefit Plans (the IRS filed a substitute form). The employer filed Form 1120S, U.S. Income Tax Return for an S Corporation, and the plan filed Form 5500 Annual Return/Report of Employee Benefit Plan (and amended Form 5500).
In Eggertsen I, the Tax Court ruled that filing Form 1120S by the employer, and Form 5500 by the plan was sufficient to provide notice to the IRS that excise tax was owed and that the limitations had started to run at that point.
Now the Tax Court has changed its mind. Under Code Sec. 6501 a return (in this case it would be Form 5330) must be filed to start the running of the limitations period. The Forms 1120S and 5500 could not be treated as a return for the excise tax under Code Sec. 4979A since they did not provide sufficient information to calculate the tax liability.
Law Office of John H. Eggertsen P.C., 143 TC —, No. 13, Dec. 60,036
Code Sec. 4979A
CCH Reference – 2014FED ¶34,541.039
CCH Reference – 2014FED ¶34,541.10
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CCH Reference – TRC RETIRE: 75,454.10