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VFCP - excise tax on ERISA 406(b)(2) transaction


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I have a 406(b)(2) transaction (payment of plan expenses out of the wrong plan).  Instructions for filing the VFCP indicate that you can be exempt from the excise tax if you fall under the PTE 2002-51, which we don't (2002-51 says exemption applies for payment of settlor expenses; our expenses are administrative non-settlor expenses).  We will file the 5500 Schedule G.  Do we need to file the 5330 and are we subject to excise tax under 4975? 4975 does not list a provision parallel to 406(b)(2) as a prohibited transaction subject to the excise tax.  

Is it possible to file the VFCP and report the transaction on the 5500 but not be subject to the excise tax and not have to file the 5330?  Note instructions for the 5330 under prohibited transactions do not list the transaction listed under 406(b)(2).

Any help appreciated.  Thanks.  

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TaxLawyer1978, of course there are not a lot of facts here to fully judge, but I would not have landed on 406(b)(2) as my problem if otherwise legitimate admin expenses were paid from "wrong plan." I would think your problem is 406(a)(1)(C), which normally would not be a problem because of 408(b)(2), but would be here if paid by wrong plan. Of course, there are 4975 counterparts to 406(a)(1)(C) and 408(b)(2).

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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TaxLawyer1978, I was thinking the party in interest was the service provider to whom fees were paid, but maybe the guidance you're referring to covers that. Do you have the cite?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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