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that the prohibited transaction was not "corrected" within the
meaning of section 4975.
Disqualified persons are subject to the first-tier excise
tax only for years, or portions of years, within the "taxable
period." Sec. 4975(a). The second-tier excise tax does not
apply if the prohibited transaction was corrected within the
"taxable period". Sec. 4975(b). The "taxable period" is the
period beginning on the date the prohibited transaction occurs
(i.e., December 1, 1986) and ending on the earliest of three
dates: (1) The date of mailing the notice of deficiency (i.e.,
June 25, 1997); (2) the date on which the section 4975(a) excise
tax is assessed (no assessment has been made); or (3) the date on
which correction of the prohibited transaction is completed.
Sec. 4975(f)(2).
A prohibited transaction is corrected by "undoing the
transaction to the extent possible, but in any case placing the
plan in a financial position not worse than that in which it
would be if the disqualified person were acting under the highest
fiduciary standards." Sec. 4975(f)(5). Where the prohibited
transaction is the lending of money, the disqualified person
corrects the transaction by repaying the principal plus
reasonable interest. See Kadivar v. Commissioner, T.C. Memo.
1989-404; sec. 53.4941(e)-1(c)(4), Foundation Excise Tax Regs.
Mr. Medina's assignment to the plan of future sales proceeds did
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Last modified: May 25, 2011