§4971 — Title 26 Internal Revenue Code | U.S. Code

Summary

Employers who run retirement plans that must follow section 412 rules must pay extra taxes if the plan is underfunded or required payments are missed. For a single-employer plan the tax is 10% of all unpaid minimum required contributions that remain unpaid at the end of a plan year. For a multiemployer plan the tax is 5% of the accumulated funding deficiency. For a CSEC plan the tax is 10% of the CSEC accumulated funding deficiency. An “accumulated funding deficiency” and a “CSEC accumulated funding deficiency” are the shortfall amounts measured under sections 431 and 433. An “unpaid minimum required contribution” is any required payment under section 430 not paid by its due date. The “taxable period” starts at the end of the plan year when the shortfall or unpaid amount arose and ends when the IRS mails a notice of deficiency or assesses the tax, whichever comes first. Any payment to a plan is applied first to unpaid amounts for earlier plan years (first-in, first-out), then to the current year. Before the IRS issues a deficiency notice, it must tell the Secretary of Labor and give Labor up to 60 days to require the employer to fix the problem or to comment. The employer responsible for plan contributions must pay the tax. If the employer is part of a controlled group, every member of that group can be held jointly and severally liable. Extra rules add other penalties. If a plan subject to special quarterly rules has a liquidity shortfall, the tax is 10% of the shortfall that is not covered by the required timely installment. If that same shortfall exists for five consecutive quarters, an extra tax equal to 100% of the original quarter’s taxed amount is imposed. The IRS can waive these taxes if the taxpayer shows the shortfall was due to reasonable cause (not willful neglect) and steps were taken to fix it. For multiemployer plans in certain trouble states, taxes for failing to make required rehabilitation or funding-improvement contributions equal the missed amounts. If a multiemployer plan in critical status fails to adopt a rehabilitation plan on time, each plan sponsor owes either the regular tax amount or $1,100 times the number of days after the 240-day grace period until the plan is adopted, whichever is greater. For a CSEC plan that misses a funding restoration deadline, the plan sponsor owes $100 per day after the 180-day grace period until a plan is adopted. The IRS may waive these penalties for reasonable cause in some cases.

Title 26, §4971

Internal Revenue Code — Source: USLM XML via OLRC

(a)If at any time during any taxable year an employer maintains a plan to which section 412 applies, there is hereby imposed for the taxable year a tax equal to—

(1)in the case of a single-employer plan, 10 percent of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending with or within the taxable year,

(2)in the case of a multiemployer plan, 5 percent of the accumulated funding deficiency determined under section 431 as of the end of any plan year ending with or within the taxable year, and

(3)in the case of a CSEC plan, 10 percent of the CSEC accumulated funding deficiency as of the end of the plan year ending with or within the taxable year.

(b)If—

(1)a tax is imposed under subsection (a)(1) on any unpaid minimum required contribution and such amount remains unpaid as of the close of the taxable period,

(2)a tax is imposed under subsection (a)(2) on any accumulated funding deficiency and the accumulated funding deficiency is not corrected within the taxable period, or

(3)a tax is imposed under subsection (a)(3) on any CSEC accumulated funding deficiency and the CSEC accumulated funding deficiency is not corrected within the taxable period,

(c)For purposes of this section—

(1)The term “accumulated funding deficiency” has the meaning given to such term by section 431.

(2)The term “correct” means, with respect to an accumulated funding deficiency or CSEC accumulated funding deficiency, the contribution, to or under the plan, of the amount necessary to reduce such accumulated funding deficiency or CSEC accumulated funding deficiency as of the end of a plan year in which such deficiency arose to zero.

(3)The term “taxable period” means, with respect to an accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, the period beginning with the end of the plan year in which there is an accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, and ending on the earlier of—

(A)the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (a), or

(B)the date on which the tax imposed by subsection (a) is assessed.

(4)(A)The term “unpaid minimum required contribution” means, with respect to any plan year, any minimum required contribution under section 430 for the plan year which is not paid on or before the due date (as determined under section 430(j)(1)) for the plan year.

(B)Any payment to or under a plan for any plan year shall be allocated first to unpaid minimum required contributions for all preceding plan years on a first-in, first-out basis and then to the minimum required contribution under section 430 for the plan year.

(5)The term “CSEC accumulated funding deficiency” means the accumulated funding deficiency determined under section 433.

(d)Before issuing a notice of deficiency with respect to the tax imposed by subsection (a) or (b), the Secretary shall notify the Secretary of Labor and provide him a reasonable opportunity (but not more than 60 days)—

(1)to require the employer responsible for contributing to or under the plan to eliminate the accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution, whichever is applicable, or

(2)to comment on the imposition of such tax.

(e)(1)Except as provided in paragraph (2), the tax imposed by subsection (a), (b), or (f) shall be paid by the employer responsible for contributing to or under the plan the amount described in section 412(a)(2).

(2)(A)If an employer referred to in paragraph (1) is a member of a controlled group, each member of such group shall be jointly and severally liable for the tax imposed by subsection (a), (b), (f), or (g).

(B)For purposes of subparagraph (A), the term “controlled group” means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.

(f)(1)In the case of a plan to which section 430(j)(4) or 433(f) applies, there is hereby imposed a tax of 10 percent of the excess (if any) of—

(A)the amount of the liquidity shortfall for any quarter, over

(B)the amount of such shortfall which is paid by the required installment under section 430(j) or 433(f), whichever is applicable, for such quarter (but only if such installment is paid on or before the due date for such installment).

(2)If the plan has a liquidity shortfall as of the close of any quarter and as of the close of each of the following 4 quarters, there is hereby imposed a tax equal to 100 percent of the amount on which tax was imposed by paragraph (1) for such first quarter.

(3)(A)For purposes of this subsection, the terms “liquidity shortfall” and “quarter” have the respective meanings given such terms by section 430(j) or 433(f), whichever is applicable.

(B)If the tax imposed by paragraph (2) is paid with respect to any liquidity shortfall for any quarter, no further tax shall be imposed by this subsection on such shortfall for such quarter.

(4)If the taxpayer establishes to the satisfaction of the Secretary that—

(A)the liquidity shortfall described in paragraph (1) was due to reasonable cause and not willful neglect, and

(B)reasonable steps have been taken to remedy such liquidity shortfall,

(g)(1)Except as provided in this subsection—

(A)no tax shall be imposed under this section for a taxable year with respect to a multiemployer plan if, for the plan years ending with or within the taxable year, the plan is in critical status pursuant to section 432, and

(B)any tax imposed under this subsection for a taxable year with respect to a multiemployer plan if, for the plan years ending with or within the taxable year, the plan is in endangered status pursuant to section 432 shall be in addition to any other tax imposed by this section.

(2)(A)If any funding improvement plan or rehabilitation plan in effect under section 432 with respect to a multiemployer plan requires an employer to make a contribution to the plan, there is hereby imposed a tax on each failure of the employer to make the required contribution within the time required under such plan.

(B)The amount of the tax imposed by subparagraph (A) shall be equal to the amount of the required contribution the employer failed to make in a timely manner.

(C)The tax imposed by subparagraph (A) shall be paid by the employer responsible for contributing to or under the rehabilitation plan which fails to make the contribution.

(3)If—

(A)a plan which is in seriously endangered status fails to meet the applicable benchmarks by the end of the funding improvement period, or

(B)a plan which is in critical status either—

(i)fails to meet the requirements of section 432(e) by the end of the rehabilitation period, or

(ii)has received a certification under section 432(b)(3)(A)(ii) for 3 consecutive plan years that the plan is not making the scheduled progress in meeting its requirements under the rehabilitation plan,

(4)(A)In the case of a multiemployer plan which is in critical status, there is hereby imposed a tax on the failure of such plan to adopt a rehabilitation plan within the time prescribed under section 432.

(B)The amount of the tax imposed under subparagraph (A) with respect to any plan sponsor for any taxable year shall be the greater of—

(i)the amount of tax imposed under subsection (a) for the taxable year (determined without regard to this subsection), or

(ii)the amount equal to $1,100 multiplied by the number of days during the taxable year which are included in the period beginning on the day following the close of the 240-day period described in section 432(e)(1)(A) and ending on the day on which the rehabilitation plan is adopted.

(C)(i)The tax imposed by subparagraph (A) shall be paid by each plan sponsor.

(ii)For purposes of clause (i), the term “plan sponsor” has the meaning given such term by section 432(j)(9).

(5)In the case of a failure described in paragraph (2) or (3) which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by this subsection. For purposes of this paragraph, reasonable cause includes unanticipated and material market fluctuations, the loss of a significant contributing employer, or other factors to the extent that the payment of tax under this subsection with respect to the failure would be excessive or otherwise inequitable relative to the failure involved.

(6)For purposes of this subsection, any term used in this subsection which is also used in section 432 shall have the meaning given such term by section 432.

(h)(1)In the case of a CSEC plan that is in funding restoration status (within the meaning of section 433(j)(5)(A)), there is hereby imposed a tax on the failure of such plan to adopt a funding restoration plan within the time prescribed under section 433(j)(3).

(2)The amount of the tax imposed under paragraph (1) with respect to any plan sponsor for any taxable year shall be the amount equal to $100 multiplied by the number of days during the taxable year which are included in the period beginning on the day following the close of the 180-day period described in section 433(j)(3) and ending on the day on which the funding restoration plan is adopted.

(3)In the case of a failure described in paragraph (1) which the Secretary determines is due to reasonable cause and not to willful neglect, the Secretary may waive a portion or all of the tax imposed by such paragraph.

(4)The tax imposed by paragraph (1) shall be paid by the plan sponsor (within the meaning of section 433(j)(5)(E)).

(i)For disallowance of deduction for taxes paid under this section, see section 275. For liability for tax in case of an employer party to collective bargaining agreement, see section 413(b)(6). For provisions concerning notification of Secretary of Labor of imposition of tax under this section, waiver of the tax imposed by subsection (b), and other coordination between Secretary of the Treasury and Secretary of Labor with respect to compliance with this section, see section 3002(b) of title III of the Employee Retirement Income Security Act of 1974.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 3002(b) of title III of the Employee Retirement Income Security Act of 1974, referred to in subsec. (i), is classified to section 1202(b) of Title 29, Labor.

Amendments

2018—Subsec. (b). Pub. L. 115–141, § 401(a)(225), which directed substitution of “minimum required contribution, accumulated funding deficiency, or CSEC accumulated funding deficiency, whichever is applicable” for “minimum required contribution,” and all that followed through “whichever is applicable”, resulted in no change in text of concluding provisions after the probable intent execution of Pub. L. 113–97, § 202(c)(8)(B)(ii). See 2014 Amendment note below. Had the amendment by Pub. L. 113–97 not been executed, amendment by Pub. L. 115–141 would still require execution as the probable intent of Congress because the original text directed to be stricken would have read “minimum required contribution or accumulated funding deficiency, whichever is applicable”, with no comma following “contribution”. Subsec. (c)(3). Pub. L. 115–141, § 401(a)(226), substituted “applicable, and ending” for “applicable and ending” in introductory provisions. Subsec. (d). Pub. L. 115–141, § 401(b)(44), struck out concluding provisions which read as follows: “In the case of a multiemployer plan which is in reorganization under section 418, the same notice and opportunity shall be provided to the Pension Benefit Guaranty Corporation.” Subsec. (f)(1)(B). Pub. L. 115–141, § 401(a)(227), substituted “applicable, for” for “applicable for”. Subsec. (g)(4)(C)(ii). Pub. L. 115–141, § 401(a)(228), substituted “section 432(j)(9)” for “section 432(i)(9)”. 2014—Subsec. (a)(3). Pub. L. 113–97, § 202(c)(8)(A), added par. (3). Subsec. (b). Pub. L. 113–97, § 202(c)(8)(B)(ii), which directed substitution of “minimum required contribution, accumulated funding deficiency, or CSEC accumulated funding deficiency” for “minimum required contributions or accumulated funding deficiency”, was executed by making the substitution for “minimum required contribution or accumulated funding deficiency” in concluding provisions, to reflect the probable intent of Congress. Subsec. (b)(3). Pub. L. 113–97, § 202(c)(8)(B)(i), added par. (3). Subsec. (c)(2). Pub. L. 113–97, § 202(c)(8)(C)(i), substituted “accumulated funding deficiency or CSEC accumulated funding deficiency” for “accumulated funding deficiency” in two places. Subsec. (c)(3). Pub. L. 113–97, § 202(c)(8)(C)(ii), substituted “accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution” for “accumulated funding deficiency or unpaid minimum required contribution” in two places in introductory provisions. Subsec. (c)(5). Pub. L. 113–97, § 202(c)(8)(C)(iii), added par. (5). Subsec. (d)(1). Pub. L. 113–97, § 202(c)(8)(D), substituted “accumulated funding deficiency, CSEC accumulated funding deficiency, or unpaid minimum required contribution” for “accumulated funding deficiency or unpaid minimum required contribution”. Subsec. (f)(1). Pub. L. 113–97, § 202(c)(8)(E)(i), substituted “430(j)(4) or 433(f)” for “430(j)(4)” in introductory provisions. Subsec. (f)(1)(B). Pub. L. 113–97, § 202(c)(8)(E)(ii), substituted “430(j) or 433(f), whichever is applicable” for “430(j)”. Subsec. (f)(3)(A). Pub. L. 113–97, § 202(c)(8)(E)(iii), substituted “430(j) or 433(f), whichever is applicable” for “412(m)(5)”. Subsecs. (h), (i). Pub. L. 113–97, § 202(c)(9), added subsec. (h) and redesignated former subsec. (h) as (i). 2008—Subsec. (b)(1). Pub. L. 110–458, § 101(d)(2)(F)(i), substituted “minimum required” for “required minimum”. Subsec. (c)(3). Pub. L. 110–458, § 101(d)(2)(F)(ii), inserted “or unpaid minimum required contribution, whichever is applicable” after “accumulated funding deficiency” in two places in introductory provisions. Subsec. (d)(1). Pub. L. 110–458, § 101(d)(2)(F)(ii), inserted “or unpaid minimum required contribution, whichever is applicable” after “accumulated funding deficiency”. Subsec. (e)(1). Pub. L. 110–458, § 101(d)(2)(F)(iii), substituted “section 412(a)(2)” for “section 412(a)(1)(A)”. Subsec. (e)(2)(A). Pub. L. 110–458, § 102(b)(3)(A), amended directory language of Pub. L. 109–280, § 212(b)(2). See 2006 Amendment note below. Subsec. (g)(4)(B)(ii). Pub. L. 110–458, § 102(b)(2)(I)(i), substituted “day following the close of” for “first day of”. Subsec. (g)(4)(C)(ii). Pub. L. 110–458, § 102(b)(2)(I)(ii), added cl. (ii) and struck out former cl. (ii). Prior to amendment, text read as follows: “For purposes of clause (i), the term ‘plan sponsor’ in the case of a multiemployer plan means the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.” 2006—Subsecs. (a), (b). Pub. L. 109–280, § 114(e)(1), amended subsecs. (a) and (b) generally. Prior to amendment, subsecs. (a) and (b) read as follows: “(a) Initial tax.—For each taxable year of an employer who maintains a plan to which section 412 applies, there is hereby imposed a tax of 10 percent (5 percent in the case of a multiemployer plan) on the amount of the accumulated funding deficiency under the plan, determined as of the end of the plan year ending with or within such taxable year. “(b) Additional tax.—In any case in which an initial tax is imposed by subsection (a) on an accumulated funding deficiency and such accumulated funding deficiency is not corrected within the taxable period, there is hereby imposed a tax equal to 100 percent of such accumulated funding deficiency to the extent not corrected.” Subsec. (c)(1). Pub. L. 109–280, § 114(e)(2)(A), substituted “section 431” for “the last two sentences of section 412(a)”. Subsec. (c)(4). Pub. L. 109–280, § 114(e)(2)(B), added par. (4). Subsec. (e)(1). Pub. L. 109–280, § 114(e)(3), substituted “section 412(a)(1)(A)” for “section 412(b)(3)(A)”. Subsec. (e)(2)(A). Pub. L. 109–280, § 212(b)(2), as amended by Pub. L. 110–458, § 102(b)(3)(A), substituted “If an” for “In the case of a plan other than a multiemployer plan, if the” and “(f), or (g)” for “or (f)”. Subsec. (f)(1). Pub. L. 109–280, § 114(e)(4), substituted “section 430(j)(4)” for “section 412(m)(5)” in introductory provisions and “section 430(j)” for “section 412(m)” in subpar. (B). Subsecs. (g), (h). Pub. L. 109–280, § 212(b)(1), added subsec. (g) and redesignated former subsec. (g) as (h). 1996—Subsec. (f)(4). Pub. L. 104–188 added par. (4). 1994—Subsec. (e)(1), (2)(A). Pub. L. 103–465, § 751(a)(9)(B)(i), substituted “(a), (b), or (f)” for “(a) or (b)”. Subsecs. (f), (g). Pub. L. 103–465, § 751(a)(9)(B)(ii), added subsec. (f) and redesignated former subsec. (f) as (g). 1987—Subsec. (a). Pub. L. 100–203, § 9305(a)(2)(A), struck out at end “The tax imposed by this subsection shall be paid by the employer responsible for contributing to or under the plan the amount described in section 412(b)(3)(A).” Pub. L. 100–203, § 9304(c)(1), substituted “10 percent (5 percent in the case of a multiemployer plan)” for “5 percent”. Subsec. (b). Pub. L. 100–203, § 9305(a)(2)(B), struck out at end “The tax imposed by this subsection shall be paid by the employer described in subsection (a).” Subsecs. (e), (f). Pub. L. 100–203, § 9305(a)(1), added subsec. (e) and redesignated former subsec. (e) as (f). 1980—Subsec. (b). Pub. L. 96–596, § 2(a)(1)(J), substituted “taxable period” for “correction period”. Subsec. (c)(1). Pub. L. 96–364, § 204(1), substituted “last two sentences” for “last sentence”. Subsec. (c)(3). Pub. L. 96–596, § 2(a)(2)(H), substituted provision defining taxable period as the period beginning with the end of the plan year in which there is an accumulated funding deficiency and ending on the earlier of the date of mailing of a notice of deficiency with respect to the tax imposed by subsec. (a) of this section or the date on which the tax imposed by subsec. (a) of this section is assessed for provision defining correction period as the period beginning with the end of a plan year in which there is an accumulated funding deficiency and ending 90 days after the date of mailing of a notice of deficiency under section 6212 of this title with respect to the tax imposed by subsec. (b) of this section, extended by any period in which a deficiency cannot be assessed under section 6213(a) of this title and by any other period which the Secretary determines reasonable and necessary to permit a reduction of the accumulated funding deficiency to zero. Subsec. (d). Pub. L. 96–364, § 204(2), inserted provisions relating to a multiemployer plan in reorganization. 1976—Subsecs. (c), (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

Statutory Notes and Related Subsidiaries

§4971 Taxes on failure to meet minimum funding standards

Summary

Title 26, §4971

Notes & Related Subsidiaries

Editorial Notes

References in Text

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

Effective Date

Amendments

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Savings Provision

Amendments

Amendments

Amendments

Amendments

Citations & Metadata