26 U.S.C. § 4979A: Tax on certain prohibited allocations of qualified securities

Cases: Law Office of John H Eggertsen v. Commissioner, 800 F.3d 758 (6th Cir. 2015)

(a) Imposition of tax If—

Textual readingANY OF= tax imposed on allocation or ownershipGate Wizard 🧙

(1) there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative,

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(2) there is an allocation described in section 664(g)(5)(A), needs § 664(g)(5)(A)

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(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year described in subsection (e)(2)(C) with respect to an employee stock ownership plan, or

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(4) any synthetic equity is owned by a disqualified person in any nonallocation year,

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there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.

§ 664(g)(5)(A)

If any portion of the assets of the plan attributable to securities acquired by the plan in a qualified gratuitous transfer are allocated to the account of—

Textual readingANY OF= Plan treated as distributing

“any person who is related to the decedent (within the meaning of section 267(b)) or a member of the decedent’s family (within the meaning of section 2032A(e)(2)), or” § 664(g)(5)(A)(i)

“any person who, at the time of such allocation or at any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5-percent shareholder of the employer maintaining the plan,” § 664(g)(5)(A)(ii)

the plan shall be treated as having distributed (at the time of such allocation) to such person or shareholder the amount so allocated.

Amended 1997, 2001

2001 Pub. L. 107-16 Pub. L. 107–16, § 656(c)(1), added pars. (3) and (4) and, in concluding provisions, substituted “there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.” for “there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.”
1997 Pub. L. 105-34 Pub. L. 105–34, § 1530(c)(15), amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: “If there is a prohibited allocation of qualified securities by any employee stock ownership plan or eligible worker-owned cooperative, there is hereby imposed a tax on such allocation equal to 50 percent of the amount involved.”

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(b) Prohibited allocation For purposes of this section, the term “prohibited allocation” means—

(1) any allocation of qualified securities acquired in a sale to which section 1042 applies which violates the provisions of section 409(n), and

Amended 1986, 1989

1989 Pub. L. 101-239 Pub. L. 101–239, § 7304(a)(2)(D)(i), struck out “or section 2057” after “section 1042”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1172(b)(2)(A), inserted reference to section 2057.

(2) any benefit which accrues to any person in violation of the provisions of section 409(n).

Amended 1986, 1989, 1996, 1997, 2001

2001 Pub. L. 107-16 Pub. L. 107–16, § 656(c)(2), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The tax imposed by this section shall be paid by—
“(1) the employer sponsoring such plan, or
“(2) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be).”
1997 Pub. L. 105-34 Pub. L. 105–34, § 1530(c)(16), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The tax imposed by this section shall be paid by—
“(1) the employer sponsoring such plan, or
“(2) the eligible worker-owned cooperative,
which made the written statement described in section 1042(b)(3)(B).”
1996 Pub. L. 104-188 Pub. L. 104–188 amended directory language of Pub. L. 101–239, § 7304(a)(2)(D)(ii). See 1989 Amendment note below.
1989 Pub. L. 101-239 Pub. L. 101–239, § 7304(a)(2)(D)(ii), as amended by Pub. L. 104–188, struck out “or section 2057(d)” after “section 1042(b)(3)(B)” in concluding provisions.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1172(b)(2)(B), inserted reference to section 2057(d).

(1) in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by—

(A) the employer sponsoring such plan, or

(B) the eligible worker-owned cooperative,

which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), and

(2) in the case of an allocation or ownership referred to in paragraph (3) or (4) of subsection (a), by the S corporation the stock in which was so allocated or owned.

(d) Special statute of limitations for tax attributable to certain allocations The statutory period for the assessment of any tax imposed by this section on an allocation described in subsection (a)(2) of qualified employer securities shall not expire before the date which is 3 years from the later of—

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1530(c)(17), added subsec. (d) and redesignated former subsec. (d) as (e).

(1) the 1st allocation of such securities in connection with a qualified gratuitous transfer (as defined in section 664(g)(1)), or

(2) the date on which the Secretary is notified of the allocation described in subsection (a)(2).

(e) Definitions and special rules For purposes of this section—

Amended 1997, 2001

2001 Pub. L. 107-16 Pub. L. 107–16, § 656(c)(3), amended heading and text of subsec. (e) generally. Prior to amendment, text read as follows: “Terms used in this section have the same respective meaning as when used in section 4978.”
1997 Pub. L. 105-34 Pub. L. 105–34, § 1530(c)(17), added subsec. (d) and redesignated former subsec. (d) as (e).

(1) Definitions Except as provided in paragraph (2), terms used in this section have the same respective meanings as when used in sections 409 and 4978.

(2) Special rules relating to tax imposed by reason of paragraph (3) or (4) of subsection (a)

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(A) Prohibited allocations The amount involved with respect to any tax imposed by reason of subsection (a)(3) is the amount allocated to the account of any person in violation of section 409(p)(1).

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(B) Synthetic equity The amount involved with respect to any tax imposed by reason of subsection (a)(4) is the value of the shares on which the synthetic equity is based.

(C) Special rule during first nonallocation year For purposes of subparagraph (A), the amount involved for the first nonallocation year of any employee stock ownership plan shall be determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.

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(D) Statute of limitations The statutory period for the assessment of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of—

(i) the allocation or ownership referred to in such paragraph giving rise to such tax, or

(ii) the date on which the Secretary is notified of such allocation or ownership.