Correcting property contributions to qualified plans.

• Author: Elinsky, Peter I.

In Ann. 95-14, the IRS has released a correction program for plan sponsors that have contributed unencumbered property to qualified defined benefit or defined contribution plans in violation of Sec. 4975. Under the announcement, such sponsors should (1) correct the transaction and 2 on or before Aug. 21, 1995, file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, for each year in the taxable period and pay the 5% excise tax described in Sec. 4975(a).

Ann. 95-14 is a follow-up to the Department of Labor's (DOL) Interpretative Bulletin 94-3. That bulletin essentially held that in-kind contributions of any type to a welfare or defined contribution plan to reduce an obligation measured in terms of cash, or to a defined benefit plan - even when such contributions were not required to meet funding obligations - were considered prohibited transactions in violation of Sec. 4975 and Section 406 of the Employee Retirement Income Security Act of 1974, absent some exception to those prohibitions. In Keystone Consolidated Industries, Inc., 113 Sup. Ct. 2006 (1993), the Supreme Court held that the contribution of unencumbered property to a defined benefit plan to satisfy a funding obligation was a violation of Sec. 4975.

The Service recognizes that many employers have contributed property to qualified defined contribution and qualified defined benefit plans to satisfy obligations. Ann. 95-14 gives such employers a way to cure what the DOL and the IRS now consider a violation of Sec. 4975(c)(1)(A).

Employers should write the words "Announcement 95-14" at the top of the Form 5330 used to report and pay the tax under Sec. 4975...