Neil M. Baizer - Page 14

          date of mailing of the notice of deficiency, August 18, 1994.8              
          Sec. 4975(f)(2)(A).                                                         
               The statute mandates that a correction must occur which                
          undoes the transaction to the extent possible.  Sec. 4975(f)(5).            
          The temporary regulations under section 4975 provide that, in the           
          absence of permanent regulations for section 4975(f)(4) and (5),            

               8  Petitioner contends that the second-tier tax of sec.                
          4975(b) is not applicable because of ERISA sec. 502(i), 29 U.S.C.           
          1132(i) (1988).  ERISA sec. 502(i) provides the following:                  
               In the case of a transaction prohibited by section 1106                
               of this title by a party in interest with respect to a                 
               plan to which this part applies, the Secretary may                     
               assess a civil penalty against such party in interest.                 
               The amount of such penalty may not exceed 5 percent of                 
               the amount involved in each such transaction * * * for                 
               each year or part thereof during which the prohibited                  
               transaction continues, except that, if the transaction                 
               is not corrected * * * within 90 days after notice from                
               the Secretary * * * such penalty may be in an amount                   
               not more than 100 percent of the amount involved. * * *                
               [Emphasis added.]                                                      
          Petitioner argues that the 100-percent excise tax is applicable             
          only if the transaction is not corrected within 90 days from the            
          notice from the Secretary.  According to petitioner, the notice             
          mentioned is the notice of deficiency.  Petitioner argues that              
          the filing of the petition with the Tax Court within the 90-day             
          period makes the 100-percent second-tier penalty inapplicable.              
               However, ERISA sec. 502(i) establishes the time in which the           
          Secretary of Labor (not the Secretary of the Treasury) can assess           
          a civil penalty (not the tax penalty under sec. 4975).  The                 
          second-tier tax of sec. 4975(b) applies if a prohibited                     
          transaction is not corrected within the "taxable period", which             
          is defined under sec. 4975(f)(2).  In this case, the taxable                
          period ended on the date of the mailing of the notice of                    
          deficiency.  Therefore, the second-tier tax is applicable if we             
          find that the transaction was not corrected within the taxable              
          period.  See sec. 4961 (providing abatement of second-tier taxes            
          if the taxable event is corrected within the "correction period"            
          as provided in sec. 4963).                                                  

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