Edward Clasby and C.T. Garrahan Insurance Agency, Inc. - Page 17




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          The District Court held that nonfiduciaries are not liable for              
          knowingly participating in a breach of fiduciary duty.  Id. at              
          33.  Petitioners' reliance on that case is misplaced because the            
          basis for liability of a disqualified person for the section 4975           
          excise tax differs from the basis for liability of a fiduciary              
          under ERISA section 406(a), 88 Stat. 879.  See O'Malley v.                  
          Commissioner, 96 T.C. 644, 650-651 (1991), affd. 972 F.2d 150               
          (7th Cir. 1992).  A fiduciary is liable under ERISA section                 
          406(a) if he or she knowingly caused the plan to engage in a                
          transaction described in ERISA section 406(a)(1).  A fiduciary              
          need not participate in the transaction to be liable under ERISA            
          section 406(a).  In contrast, a disqualified person is liable for           
          the section 4975(a) excise tax if he or she participates in the             
          transaction even if that person may have acted innocently or in             
          good faith or otherwise did not know or understand the nature of            
          the transaction.  O'Malley v. Commissioner, supra at 651; Rutland           
          v. Commissioner, 89 T.C. 1137 (1987).  We have found above at               
          paragraphs II-B-1 and II-B-2 that petitioner was a disqualified             
          person because he participated in a prohibited transaction.                 
               3.   Conclusion                                                        
               We conclude that petitioner was a disqualified person under            
          section 4975(e)(2), and that he is liable for the 5-percent                 
          excise tax imposed by section 4975(a).                                      
          C.   Whether the Garrahan Agency Was a Disqualified Person                  
               The Garrahan Agency is a disqualified person if it provided            
          services to the plan, section 4975(e)(2)(B), or if 50 percent or            

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