Form 5330

[benpat3]

If a prohibited transaction is discovered and it is determined that a Form 5330 must be filed, if the disqualified person fails to file a Form 5330 or fails to pay the applicable excise tax, is there any recourse against the Plan? The Plan had no knowledge or part in the prohibited transaction until the disqualified person identified to the Plan.

[JanetM]

It is the plan sponsors responsibility to file the 5330. If they had not knowledge of PT they would not file. Not sure what you mean by recourse of the disqualified person. IRS/DOL goes for the plan sponsor for the filing and payment not the disqualified person.

[benpat3]

The instructions for Form 5330 state that "A Form 5330 must be filed by: 9. Any disqualified person who is liable for the tax under section 4975 for participating in a prohibited transaction." No other subpoint (i.e. section referenced) seems to match this situation. The instructions further state that a Form 5330 is filed to report the tax on a prohibited transaction (section 4975). The tax applicable to this situation is under section 4975. I do not see anything else that states the plan sponsor is responsible for filing the Form 5330 and paying the excise tax under section 4975. Can you point me to what says the plan sponsor is responsible?

In terms of recourse, assuming the disqualified person is responsible for filing and paying but they do not do so, will the IRS/DOL come after the plan or plan sponsors?

Thanks

[Guest Sieve]

JanetM -- IRC Section 4975(a): " . . . The [15%] tax imposed by this section shall be paid by any disqualified person who participates in any prohibited transaction (other than a fiduciary acting only as such)]." Often, the disqualified person is the employer sponsoring the plan (such as if there are late 401(k) deferral deposits), but often it is not.

benpat3 -- The PT has to be undone, but that probably cannot happen if the disqualified person does not cooperate. But, the 502(i) DOL civil penalty applies to the disqualified party, and, of course, the IRS excise tax can be assessed against the disqualified party and then be increased to 100% if not paid, so that certainly is incentive for that person to cooperate!! The plan is not liable for the penalty, but the DOL could assert breach of fiduciary duty by the responsible fiduciary for allowing a PT to occur: "A fiduciary with respect to a plan shall not cause the plan to engage in a prohibited transaction if [the fiduciary] knows or should know that such a transaction constitutes [a PT]." (ERISA Section 406(a).)

[JanetM]

If the disqualified person isn't the plans sponsor good luck getting them to file and pay. It will fall back to the plan sponsor to do.

[Guest Sieve]

Janet --

The fiduciary has the obligation to identify non-exempt party in interest transactions on the Form 5500. On what basis, however, can the IRS require the non-party in interest to file/pay re: Form 5330 filing?