-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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