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Discussion
Section 4975 imposes two tiers of excise taxes on a
prohibited transaction. The first tier is 5 percent of the
"amount involved" relating to a prohibited transaction for each
year, or part thereof, in the "taxable period". Sec. 4975(a).
If the first-tier excise tax applies and the transaction is not
corrected within the "taxable period", a 100-percent second-tier
tax is imposed on the "amount involved" relating to the
prohibited transaction. Sec. 4975(b).
I. Application of Section 4975 to a Loan Subject to
Section 72(p)
The lending of money between a plan and a disqualified
person generally is a prohibited transaction. See sec.
4975(c)(1)(B). Respondent determined that petitioners are
disqualified persons who participated in a prohibited transaction
(i.e., the loan) and, thus, are liable for section 4975 excise
taxes. Petitioners do not contest respondent's contention that
petitioners are disqualified persons. Petitioners contend,
however, that they did not participate in a prohibited
transaction during the years in issue (i.e., 1991 through 1997)
because, pursuant to section 72(p), the loan was a taxable
distribution in an earlier year (i.e., 1986). As a result,
petitioners contend, section 4975 excise taxes are not
applicable. Respondent contends that the loan was subject to
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