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

submitted 40 years ago by Pub. L. 99-514 to r/title-26-INTERNAL-REVENUE-CODE · 565 words · no verdicts yet

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This section imposes a 50% tax on specified prohibited allocations and synthetic-equity ownership. It assigns liability and extends assessment periods for listed events.

(a) The tax applies to the listed prohibited qualified-securities or section 664(g) allocations, section 409(p) allocation or nonallocation year, and synthetic equity owned by a disqualified person in a nonallocation year. (b) A prohibited allocation is the stated section 1042 allocation violating section 409(n) or benefit accruing in violation of section 409(n). (c) The sponsoring employer or applicable cooperative pays for (1) and (2); the S corporation pays for (3) and (4). (d) Assessment for the section 664(g) allocation remains open three years after the later of first allocation or notice. (e) Terms use sections 409 and 4978; the amount involved and first-nonallocation-year and limitation rules are as stated.

the actual law source: uscode.house.gov ↗public domain

(a) Imposition of tax

If—

(1)

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

(2)

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

(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

(4)

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

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

(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

(2)

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

The tax imposed by this section shall be paid—

(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—

(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—

(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)

(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).

(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.

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.

(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.

Source credit: (Added and amended Pub. L. 99–514, title XI, § 1172(b)(2), title XVIII, § 1854(a)(9)(A), Oct. 22, 1986, 100 Stat. 2514, 2877; Pub. L. 101–239, title VII, § 7304(a)(2)(D), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 104–188, title I, § 1704(t)(22), Aug. 20, 1996, 110 Stat. 1888; Pub. L. 105–34, title XV, § 1530(c)(15)–(17), Aug. 5, 1997, 111 Stat. 1079, 1080; Pub. L. 107–16, title VI, § 656(c), June 7, 2001, 115 Stat. 134.)

history & why it existsrecord from the source credit

1986Enacted · Pub. L. 99-514 · 100 Stat. 2514, 2877
1989Amended · Pub. L. 101-239 · 103 Stat. 2353
1996Amended · Pub. L. 104-188 · 110 Stat. 1888
1997Amended · Pub. L. 105-34 · 111 Stat. 1079, 1080
2001Amended · Pub. L. 107-16 · 115 Stat. 134

A history note hasn’t been published yet. The record shows enactment by Pub. L. 99-514 on 1986-10-22.

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