[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR54.4979-1]

[Page 278-280]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 54_PENSION EXCISE TAXES--Table of Contents
 
Sec.  54.4979-1  Excise tax on certain excess contributions and excess 
aggregate contributions.

    (a) In general--(1) General rule. In the case of any plan (as 
defined in paragraph (b)(3) of this section), there is imposed a tax for 
the employer's taxable year equal to 10 percent of the sum of:
    (i) Any excess contributions under a plan for the plan year ending 
in the taxable year; and
    (ii) Any excess aggregate contributions under the plan for the plan 
year ending in the taxable year.
    (2) Liability for tax. The tax imposed by paragraph (a)(1) of this 
section is to be paid by the employer. In the case of a collectively 
bargained plan to which section 413(b) applies, all employers who are 
parties to the collective bargaining agreement and whose employees are 
participants in the plan are jointly and severally liable for the tax.
    (3) Due date and form for payment of tax--(i) The tax described in 
paragraph (a)(1) of this section is due on the last day of the 15th 
month after the close of the plan year to which the excess contributions 
or excess aggregate contributions relate.

[[Page 279]]

    (ii) An employer that owes the tax described in paragraph (a)(1) of 
this section must file the form prescribed by the Commissioner for the 
payment of the tax.
    (4) Special rule for simplified employee pensions--(i) An employer 
that maintains a simplified employee pension (SEP) as defined in section 
408(k) that accepts elective contributions is exempted from the tax of 
section 4979 and paragraph (a)(1) of this section if it notifies its 
employees of the fact and tax consequences of excess contributions 
within 2\1/2\ months following the plan year for which excess 
contributions are made. The notification must meet the standards of 
paragraph (a)(4)(ii) of this section.
    (ii) The employer's notification to each affected employee of the 
excess SEP contributions must specifically state, in a manner calculated 
to be understood by the average plan participant: the amount of the 
excess contributions attributable to that employee's elective deferrals; 
the calendar year for which the excess contributions were made; that the 
excess contributions are includible in the affected employee's gross 
income for the specified calendar year; and that failure to withdraw the 
excess contributions and income attributable thereto by the due date 
(plus extensions) for filing the affected employee's tax return for the 
preceding calendar year may result in significant penalties.
    (iii) If an employer does not notify its employees by the last day 
of the 12-month period following the year of excess SEP contributions, 
the SEP will no longer be considered to meet the requirements of section 
408(k)(6).
    (b) Definitions. The following is a list of terms and definitions to 
be used for purposes of section 4979 and this section:
    (1) Excess aggregate contributions. The term ``excess aggregate 
contribution'' has the meaning set forth in Sec.  1.401(m)-5 of this 
chapter. For purposes of determining excess aggregate contributions 
under an annuity contract described in section 403(b), the contract is 
treated as a plan described in section 401(a).
    (2) Excess contributions. The term ``excess contributions'' has the 
meaning set forth in sections 401(k)(8)(B), 408(k)(6)(C)(ii), and 
501(c)(18). See, e.g., Sec.  1.401(k)-6 of this chapter.
    (3) Plan. The term ``plan'' means:
    (i) A plan described in section 401(a) that includes a trust exempt 
from tax under section 501(a);
    (ii) Any annuity plan described in section 403(a);
    (iii) Any annuity contract described in section 403(b);
    (iv) A simplified employee pension of an employer that satisfies the 
requirements of section 408(k); and
    (v) A plan described in section 501(c)(18).

The term includes any plan that at any time has been determined by the 
Secretary to be one of the types of plans described in this paragraph 
(b)(3).
    (c) No tax when excess distributed within 2\1/2\ months of close of 
year or additional employer contributions made--(1) General rule. No tax 
is imposed under this section on any excess contribution or excess 
aggregate contribution, as the case may be, to the extent the 
contribution (together with any income allocable thereto) is corrected 
before the close of the first 2\1/2\ months of the following plan year. 
Qualified nonelective contributions and qualified matching contributions 
taken into account under Sec.  1.401(k)-2(a)(6) of this chapter or 
qualified nonelective contributions or elective contributions taken into 
account under Sec.  1.401(m)-2(a)(6) of this chapter for a plan year may 
permit a plan to avoid excess contributions or excess aggregate 
contributions, respectively, even if made after the close of the 2\1/2\ 
month period. See Sec.  1.401(m)-2(b)(1)(i) and (5)(i) of this chapter 
for methods to avoid excess contributions, and Sec.  1.401(m)-2(b)(1)(i) 
of this chapter for methods to avoid excess aggregate contributions.
    (2) Tax treatment of distributions. See Sec.  1.401(k)-2(b)(3)(ii) 
and (2)(vi) of this chapter for rules for determining the tax 
consequences to a participant of a distribution or recharacterization of 
excess contributions and income allocable thereto, including a special 
rule for de minimis distributions. See Sec.  1.401(m)-2(b)(2)(vi) of 
this chapter for rules for determining the tax consequences to a 
participant of a distribution of excess aggregate contributions and 
income allocable thereto.

[[Page 280]]

    (3) Income. See Sec.  1.401(k)-2(b)(2)(iv) of this chapter for rules 
for determining income allocable to excess contributions. See Sec.  
1.401(m)-2(b)(2)(iv) of this chapter for rules for determining income 
allocable to excess aggregate contributions.
    (4) Example. The provisions of this paragraph (c) are illustrated by 
the following example.

    Example. (i) Employer X maintains Plan Y, a calendar year profit-
sharing plan that includes a qualified cash or deferred arrangement. 
Under the plan, failure to satisfy the actual deferral percentage test 
may only be corrected by distributing the excess contributions or making 
qualified nonelective contributions (QNECs).
    (ii) On December 31, 1990, X determines that Y does not satisfy the 
actual deferral percentage test for the 1990 plan year, and that excess 
contributions for the year equal $5,000. On March 1, 1991, Y distributes 
$2,000 of these excess contributions. On May 30, 1991, X distributes 
another $2,000 of excess contributions. On December 17, 1991, X 
contributes QNECs for certain nonhighly compensated employees, thereby 
eliminating the remainder of the excess contributions for 1990.
    (iii) X has incurred a tax liability under section 4979 for 1990 
equal to 10 percent of the excess contributions that were in the plan as 
of December 31, 1990. However, this tax is not imposed on the $2,000 
distributed on March 1, 1991, or the amount corrected by QNECs. X must 
pay an excise tax of $200, 10 percent of the $2,000 of excess 
contributions distributed after March 15, 1991. This tax must be paid by 
March 31, 1992.

    (d) Effective date--(1) General rule. Except as provided in 
paragraphs (d)(2) through (4), this section is effective for plan years 
beginning after December 31, 1986.
    (2) Section 403(b) annuity contracts. In the case of an annuity 
contract under section 403(b), this section applies to plan years 
beginning after December 31, 1988.
    (3) Collectively bargained plans and plans of state or local 
governments. For plan years beginning before January 1, 1993, the 
provisions of this section do not apply to a collectively bargained plan 
that automatically satisfies the requirements of section 410(b). See 
Sec. Sec.  1.401(a)(4)-1(c)(5) and 1.410(b)-2(b)(7) of this chapter. In 
the case of a plan (including a collectively bargained plan) maintained 
by a state or local government, the provisions of this section do not 
apply for plan years beginning before the later of January 1, 1996, or 
90 days after the opening of the first legislative session beginning on 
or after January 1, 1996, of the governing body with authority to amend 
the plan, if that body does not meet continuously. For purposes of this 
paragraph (d)(3), the term governing body with authority to amend the 
plan means the legislature, board, commission, council, or other 
governing body with authority to amend the plan.
    (4) Plan years beginning before January 1, 1992. For plan years 
beginning before January 1, 1992, a reasonable interpretation of the 
rules set forth in section 4979, as in effect during those years, may be 
relied upon in determining whether the excise tax is due for those 
years.

[T.D. 8357, 56 FR 40550, Aug. 15, 1991, as amended by T.D. 8581, 59 FR 
66181, Dec. 23, 1994; T.D. 9169, 69 FR 78153, Dec. 29, 2004]