Audit Cap Question

[Dougsbpc]

To simplify, suppose you had a 2 participant DB plan that had a failure discovered on plan audit.

Suppose the plan had existed for 15 years and one of the participants had a PVAB of $1,000,000.

Suppose audit cap was offered and the correction was made. Let's say the sanction was 40% of the maximum payment amount. The maximum payment amount is the tax that would be paid had the plan been disqualified for all open years. Suppose $200,000 of the $1,000,000 had accrued during the open years. With respect to the amount taxable to the participant, is the maximum payment amount $200,000 x tax rate or $1,000,000 x tax rate?

Thanks