5330 - Late earnings contribution

[katie58]

We have a client that made late contributions 4/06 and 10/06. The contributions were made but they did not include the earnings missed. The missed earnings are $20.52 and $112.55 and have been added to accounts this week.

I understand that they need to file a 5330. I believe that they only need to complete line 3a and schedule C.

It is my understanding that they will need to file a 5330 for 2006, 2007, 2008 and 2009. Would you agree?

Now the big question. How should I calculate the tax? I think it should be 15% of the prohibited amount. (20.52 plus 112.55 times 15%.) Would it be the same calculation for all years?

Also, what description should I use under the "Description Of Prohibited Transaction"?

Any guidance would be appreciated. As you can probably tell, I have never completed a 5330.

Thanks in advance!

[PAL]

I believe you are correct in that you are looking at a Form 5330 for 06, 07, 08 & 09 and the initial tax will be 15% of the "amount involved oe "interest" calculated.

What I'm comfused about is the second tier tax of 100% - item 3b on the Form 5330. I your case the initial tax under 4973a is 15% of 133.07 (20.52 plus 112.55) or 19.96. Under 4973(b), there is a second tier tax of 100% of the amount involved for failure to correct. So, I'm thinking that in 06, you'd have the $19.96 but then in 07, you'd have 19.96 for item 3a and 133.07 for item 3b. However, I am totaly confused by this so I'm not sure if this is correct.

Can anyone think of a reason why the second tier tax does not apply?

[katie58]

I believe you are correct in that you are looking at a Form 5330 for 06, 07, 08 & 09 and the initial tax will be 15% of the "amount involved oe "interest" calculated.

What I'm comfused about is the second tier tax of 100% - item 3b on the Form 5330. I your case the initial tax under 4973a is 15% of 133.07 (20.52 plus 112.55) or 19.96. Under 4973(b), there is a second tier tax of 100% of the amount involved for failure to correct. So, I'm thinking that in 06, you'd have the $19.96 but then in 07, you'd have 19.96 for item 3a and 133.07 for item 3b. However, I am totaly confused by this so I'm not sure if this is correct.

Can anyone think of a reason why the second tier tax does not apply?

Thanks for your reply. I guess this is something else I should investigate.