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persons who engage in self-dealing rather than penalize innocent
employees, who were previously faced with plan disqualification
on account of a prohibited transaction. S. Rept. 93-383, at
94-95 (1973), 1974-3 C.B. (Supp.) 80, 173-174. Disqualification
penalized employee/plan participants in that they were denied
favorable tax consequences such as deferral of taxation. Id. at
94, 1974-3 C.B. (Supp.) at 173. The goal of Congress in enacting
section 4975 “was to bar categorically a transaction that was
likely to injure the pension plan.” Commissioner v. Keystone
Consol. Indus., Inc., 508 U.S. 152, 160 (1993) (citing S. Rept.
93-383, supra at 95-96, 1974-3 C.B. (Supp.) at 174-175).
Section 4975 imposes two tiers of excise taxes on a
prohibited transaction. The first-tier tax, the rate of which
depends on the date on which a prohibited transaction occurs, is
imposed on the “amount involved” in a prohibited transaction for
each year, or part thereof, in the taxable period. Sec. 4975(a).
For prohibited transactions occurring before August 21, 1996, the
rate of the first-tier tax is 5 percent. See sec. 4975(a) before
amendment by the Small Business Job Protection Act of 1996
(SBJPA), Pub. L. 104-188, sec. 1453, 110 Stat. 1817. For
prohibited transactions occurring after August 20, 1996, and
before August 6, 1997, the rate of the first-tier tax is 10
percent. See sec. 4975(a) after amendment by SBJPA sec. 1453
(first-tier tax rate increased from 5 percent to 10 percent).
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Last modified: May 25, 2011