Tax Court Reverses Itself on Statue of Limitations; Allows IRS to Assess Excise Tax (Law Office of John H. Eggertsen, P.C., TC)

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

Other References:

Code Sec. 4979A

CCH Reference – 2014FED ¶34,541.039

CCH Reference – 2014FED ¶34,541.10

Tax Research Consultant

CCH Reference – TRC RETIRE: 75,454.10



Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting