Calculating Excise Tax & gains on late remittances.

[MBCarey]

Could someone just verify that my theory is correct in calculating this.

My client just uncovered that they withheld deferrals for one participant in July 2001 of $1,000 and failed to send them to the investment company and that again in Oct. 2001 they withheld $400 and failed to remit.

They have sent a check for the $1400, but I am now trying to figure the Gains and Excise amounts.

Should I calculate the excise tax (10%) on the 1,000 for 6 months and on the $400 for 3 months and then on the whole $1400 at 15% for the 9 months in 2002 which was when the error was uncovered and sent in?

Also, since there were so many losses to the funds in the plan last year, what should I use to calculate gains?

mbc

[R. Butler]

The excise tax is assessed on the "amount involved" not on the amount of the late deposit. The amount involved is essentailly the interest that could have been earned on the late deposit (i.e. interest rate 10%, late deposit $400, amount involved is $400*.10*5/12)

The excise tax is 15% of the amount involved for each prohibited transcation.

Lost earnings to the participant should probably be based on the 6621(a)(2) interest rate.

[maverick]

R.Butler:

Can you provide a link to the IRS web address that shows the current 6621(a)(2) interest rate? Thanks.

Maverick

[Jean]

Rev Rule 2002-59; Go to page 19

http://www.irs.gov/pub/irs-irbs/irb02-38.pdf

[MWeddell]

http://www.benefitsattorney.com/links/Appl..._Federal_Rates/

There's another link. If you borrow the interest methodology from the DOL's VFC Program, note that it's a modified version of those interest rates that are used.