Calculating excise tax on late remittance of deferrals

[Sully]

I have just taken over the administration of a 401(k) Plan from a reputable TPA firm. In looking back at last year's work I noticed that the employer was late in remitting some of their 401(k) deferrals. The 5330 was prepared and the excise tax was calculated based on the amount of the late deferrals. I have always calculated the excise tax on the 'use of the money', as if it is a prohibited loan.

I thought it was accepted practice to base the excise tax on the loan theory. Am I missing something?

Thanks in advance.

[Guest Boilerburm]

We have always done it the same as you. The DOL's VFC Program lays out the correction, and through it's terms definitions seems to be clear in that the error is on the use of the money.

I agree with your methodology.

[MWeddell]

In case you looking for more votes, I agree: the excise tax is based on the earnings due to the late deposit, not the amount of the late deposit.