Background
We are contacting taxpayers who have filed a Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, reporting prohibited transaction excise taxes imposed by section 4975 of the Internal Revenue Code. During this process, we noticed that returns filed relating to the late deposits of 401(k) deferrals generally resulted in a refund.
The Project Process
We want to reach as many taxpayers as possible who may be potentially affected by paying too much excise tax. Therefore we determined the best approach to achieve this goal was to utilize the compliance check approach rather than performing examinations. The primary goals are to inform taxpayers of the law, provide an example of the excise tax calculation, and instruct taxpayers regarding the refund process should they need to do so.
If You Receive a Letter
Review the letter and your late 401(k) deferral deposit situation. Compare the example calculation with the one you used to calculate your excise tax. If you are owed a refund, simply follow the instructions provided in the letter. There is no need to respond to the EPCU concerning the compliance contact letter. If you need additional assistance, please communicate with the EPCU contact as indicated on the letter.
If You Have Questions
Please feel free to e-mail us and we will be glad to answer any questions you have about the project and how it relates to your situation. Please include the “401(k) Untimely Deferral Deposit” in the Subject line.
Other Resources:
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Revenue Ruling 2006-38 provides the instructions to calculate the excise tax due to 401(k) untimely deferral deposits.
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