Late contribution excise tax

[Guest FAQ]

In 2000 a client made a late contribution of deferrals into their 401(k) plan on one occasion (30 days beyond the date the DOL said they could have been made).

Although the contributions were made in 2000, and thus the company ceased using the principal in a prohibited manner in 2000, the earnings on the late contributions were not deposited until 2004 (when the late deposit was discovered by the DOL).

Question: is there only one prohibited transaction (in 2000) for the late deferral, or are there additional prohibited transactions for each succeeding year because the company had the benefit of the use of the earnings on the late deposits through 2004? If so, I imagine the tax would be 15% of the value of the use of the earnings (which is all the employer still had the benefit of in the later years).

I saw this same question raised in a thread from 2001 that I cannot locate now, but there was no answer posted.

Thanks for any thoughts and comments.

[RCK]

Do I have a cite for this? NO, unfortunately.

Do I have experience with it? Yes, unfortunately.

And we treated it as a prohibited transaction until the trust was made whole. In our case, a late contribution of 1999 was deposited in 2000 and we filed 5330's for 1999, 2000, 2001, and 2002 (when the missing interest was restored).

In your case, I think that you have prohibited transactions for 2000, 2001, 2002, 2003, 2004 amd 2005 (if you're not careful). Those are based on the sponsor's tax year--not the plan years.

RCK