§4979A — Title 26 Internal Revenue Code | U.S. Code

Summary

A tax must be paid when certain forbidden stock allocations or synthetic equity ownership happen in employee stock ownership plans, eligible worker-owned cooperatives, or S corporations. The tax applies if an ESOP or eligible worker-owned cooperative makes a forbidden allocation of qualified stock, if there is an allocation covered by section 664(g)(5)(A), if employer stock is allocated in a way that breaks section 409(p) or it is a nonallocation year for an ESOP, or if a disqualified person owns synthetic equity in a nonallocation year. For the first two kinds, the employer that sponsors the plan or the eligible cooperative pays the tax. For the last two kinds, the S corporation pays. A “prohibited allocation” means qualified stock bought in a section 1042 sale that violates section 409(n) or any benefit that improperly accrues under section 409(n). Other terms generally match sections 409 and 4978, except: the amount at issue for a 409(p) violation is the amount wrongly put into a person’s account; for synthetic equity it is the value of the underlying shares; and for the first nonallocation year it is the total value of deemed-owned shares of all disqualified persons. The government has at least 3 years to assess the tax, measured from the later of the relevant allocation or ownership event or the date the Secretary is notified (special timing rules apply for qualified gratuitous transfers).

Title 26, §4979A

Internal Revenue Code — Source: USLM XML via OLRC

(a)If—

(1)there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative,

(2)there is an allocation described in section 664(g)(5)(A),

(3)there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year described in subsection (e)(2)(C) with respect to an employee stock ownership plan, or

(4)any synthetic equity is owned by a disqualified person in any nonallocation year,

(b)For purposes of this section, the term “prohibited allocation” means—

(1)any allocation of qualified securities acquired in a sale to which section 1042 applies which violates the provisions of section 409(n), and

(2)any benefit which accrues to any person in violation of the provisions of section 409(n).

(c)The tax imposed by this section shall be paid—

(1)in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by—

(A)the employer sponsoring such plan, or

(B)the eligible worker-owned cooperative,

(2)in the case of an allocation or ownership referred to in paragraph (3) or (4) of subsection (a), by the S corporation the stock in which was so allocated or owned.

(d)The statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of—

(1)the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(g)(1)), or

(2)the date on which the Secretary is notified of the allocation described in subsection (a)(2).

(e)For purposes of this section—

(1)Except as provided in paragraph (2), terms used in this section have the same respective meanings as when used in section 409 and 4978.

(2)(A)The amount involved with respect to any tax imposed by reason of subsection (a)(3) is the amount allocated to the account of any person in violation of section 409(p)(1).

(B)The amount involved with respect to any tax imposed by reason of subsection (a)(4) is the value of the shares on which the synthetic equity is based.

(C)For purposes of subparagraph (A), the amount involved for the first nonallocation year of any employee stock ownership plan shall be determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

(D)The statutory period for the assessment of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of—

(i)the allocation or ownership referred to in such paragraph giving rise to such tax, or

(ii)the date on which the Secretary is notified of such allocation or ownership.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2001—Subsec. (a). Pub. L. 107–16, § 656(c)(1), added pars. (3) and (4) and, in concluding provisions, substituted “there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.” for “there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.” Subsec. (c). Pub. L. 107–16, § 656(c)(2), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The tax imposed by this section shall be paid by— “(1) the employer sponsoring such plan, or “(2) the eligible worker-owned cooperative, which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be).” Subsec. (e). Pub. L. 107–16, § 656(c)(3), amended heading and text of subsec. (e) generally. Prior to amendment, text read as follows: “Terms used in this section have the same respective meaning as when used in section 4978.” 1997—Subsec. (a). Pub. L. 105–34, § 1530(c)(15), amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: “If there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative, there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.” Subsec. (c). Pub. L. 105–34, § 1530(c)(16), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The tax imposed by this section shall be paid by— “(1) the employer sponsoring such plan, or “(2) the eligible worker-owned cooperative, which made the written statement described in section 1042(b)(3)(B).” Subsecs. (d), (e). Pub. L. 105–34, § 1530(c)(17), added subsec. (d) and redesignated former subsec. (d) as (e). 1996—Subsec. (c). Pub. L. 104–188 amended directory language of Pub. L. 101–239, § 7304(a)(2)(D)(ii). See 1989 Amendment note below. 1989—Subsec. (b)(1). Pub. L. 101–239, § 7304(a)(2)(D)(i), struck out “or section 2057” after “section 1042”. Subsec. (c). Pub. L. 101–239, § 7304(a)(2)(D)(ii), as amended by Pub. L. 104–188, struck out “or section 2057(d)” after “section 1042(b)(3)(B)” in concluding provisions. 1986—Subsec. (b)(1). Pub. L. 99–514, § 1172(b)(2)(A), inserted reference to section 2057. Subsec. (c). Pub. L. 99–514, § 1172(b)(2)(B), inserted reference to section 2057(d).

Statutory Notes and Related Subsidiaries

Effective Date

of 2001 AmendmentAmendment by Pub. L. 107–16 applicable to plan years beginning after Dec. 31, 2004, except that in the case of any employee stock ownership plan established after Mar. 14, 2001, or established on or before such date if employer securities held by the plan consist of stock in a corporation with respect to which an election under section 1362(a) of this title is not in effect on such date, amendment applicable to plan years ending after Mar. 14, 2001, see section 656(d) of Pub. L. 107–16, set out as a note under section 409 of this title.

Effective Date

of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to transfers made by trusts to, or for the use of, an employee stock ownership plan after Aug. 5, 1997, see section 1530(d) of Pub. L. 105–34, set out as a note under section 401 of this title.

Effective Date

of 1989 AmendmentAmendment by Pub. L. 101–239 applicable to estates of decedents dying after Dec. 19, 1989, see section 7304(a)(3) of Pub. L. 101–239, set out as a note under section 409 of this title.

Effective Date

of 1986 AmendmentAmendment by section 1172(b)(2) of Pub. L. 99–514 applicable to sales after Oct. 22, 1986, with respect to which election is made by executor of an estate who is required to file the return of the tax imposed by this title on a date (including extensions) after Oct. 22, 1986, see section 1172(c) of Pub. L. 99–514, set out as a note under section 409 of this title.

Effective Date

Pub. L. 99–514, title XVIII, § 1854(a)(9)(D), Oct. 22, 1986, 100 Stat. 2878, provided that: “The

Amendments

made by this paragraph [enacting this section and amending section 1042 of this title] shall apply to sales of securities after the date of the enactment of this Act [Oct. 22, 1986].” Plan

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Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§4979A Tax on certain prohibited allocations of qualified securities

Summary

Title 26, §4979A

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