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For prohibited transactions occurring after August 5, 1997, the
rate of the first-tier tax is 15 percent. See sec. 4975(a) after
amendment by the Taxpayer Relief Act of 1997, Pub. L. 105-34,
sec. 1074, 111 Stat. 949 (first-tier tax rate increased from 10
percent to 15 percent). The second-tier excise tax, equal to 100
percent of the “amount involved”, is imposed when a transaction
to which the first-tier tax applies is not corrected within the
taxable period. See sec. 4975(b). In this context, the taxable
period begins with the date on which the prohibited transaction
occurs and ends on the earliest of (A) the date of mailing of a
notice of deficiency with respect thereto, (B) the date on which
the tax imposed by section 4975(a) is assessed, or (C) the date
on which correction of the prohibited transaction is completed.2
Sec. 4975(f)(2). A correction of a prohibited transaction may be
accomplished 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).
As to the first-tier tax, each of the three loans falls
within the wide span of section 4975(a). Each of these loans is
2 Here, the earliest of these three dates is Nov. 7, 2001;
i.e., the date of which the notice of deficiency was mailed to
petitioner. The taxable period, therefore, ends on that date
absent an earlier correction of a prohibited transaction.
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