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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The IRS has issued final, temporary and proposed regulations providing guidance on prohibited tax shelter transactions for “non-plan” tax-exempt entities, such as charitable organizations, and “plan” tax-exempt entities, such as tax-favored retirement plans and IRAs. The guidance defines prohibited tax shelter transactions, sets forth disclosure requirements and specifies parties subject to the applicable excise taxes and attendant reporting and disclosure requirements.
In an effort to discourage employee benefit plans and other tax-exempt entities from participating in tax-shelter arrangements deemed abusive, the American Jobs Creation Act (P.L. 108-357) imposed substantial penalties for the failure to report participation in prohibited tax shelter transactions. Subsequently, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA, P.L. 109-222), imposed an excise tax on certain tax-exempt entities participating in prohibited tax shelter transactions and on the entity manager who caused the entity to become a party to the prohibited transaction.
The guidance addresses the Code Sec. 4965(c) requirement that an information return accompany payment of an excise tax and the time for filing that return. The regs note that, while Code Sec. 4965 imposes an excise tax on the tax-exempt entity (the entity-level tax) and a separate excise tax on certain of the tax-exempt entity’s managers (the manager-level tax), the entity-level tax does not apply to plan entities, such as qualified employee benefit plans.
The manager-level tax is imposed on entity managers of all tax-exempt entities who approve the entity as a party to a prohibited tax shelter transaction and have reason to know that the transaction is a prohibited. In the case of plan entities, the term “entity manager” means the person who approves or otherwise causes the entity to be a party to the prohibited tax shelter transaction. An individual beneficiary (including a plan participant) or owner of the tax-favored retirement plans, IRAs, and savings arrangements may be liable as an entity manager if the individual beneficiary or owner has broad investment authority under the arrangement. The amount of the manager-level tax is $20,000 for each approval or other act causing the entity to be a party to a prohibited tax shelter transaction.
The final and temporary regulations provide that entity managers of plan entities who are liable for Code Sec. 4965 taxes as entity managers are required to file a return on Form 5330 (Return of Excise Taxes Related to Employee Benefit Plans). The return is due on or before the 15th day of the fifth month following the close of the manager’s taxable year during which the entity entered into a prohibited tax shelter transaction.
The guidance provides rules on the form, manner and timing of disclosure obligations imposed by Code Sec. 6033(a)(2) with respect to prohibited tax shelter transactions to which tax-exempt entities are parties.
The proposed and temporary regulations require tax-exempt entities which are parties to prohibited tax shelter transactions entered into after May 17, 2006 to file Form 8886–T (Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction). The temporary rules define when a tax-exempt entity is a party to a prohibited tax shelter transaction, and specify that a separate disclosure is required for each prohibited tax shelter transaction.
For tax-exempt entities such as self-directed qualified plans, IRAs, or other savings arrangements, the disclosure must be made by the entity manager and filed by May 15 of the calendar year following the year during which the tax-exempt entity entered into the prohibited tax shelter transaction.
With regard to the proposed regulation portion of the guidance, comments and requests for a public hearing must be received by October 4, 2007 and forwarded to: CC:PA:LPD:PR (REG–142039–06; REG–139268–06), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044, or via the Federal eRulemaking Portal at http://www.regulations.gov.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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