I.R.C. § 4972(a) Tax Imposed —
In the case of any qualified employer plan, there is
hereby imposed a tax equal to 10 percent of the nondeductible contributions
under the plan (determined as of the close of the taxable year of
the employer).
I.R.C. § 4972(b) Employer Liable For Tax —
The tax imposed by this section shall be paid by the
employer making the contributions.
I.R.C. § 4972(c) Nondeductible Contributions —
For purposes of this section—
I.R.C. § 4972(c)(1) In General —
The term “nondeductible contributions” means, with
respect to any qualified employer plan, the sum of—
I.R.C. § 4972(c)(1)(A) —
the excess (if any) of—
I.R.C. § 4972(c)(1)(A)(i) —
the amount contributed for the taxable
year by the employer to or under such plan, over
I.R.C. § 4972(c)(1)(A)(ii) —
the amount allowable as a deduction
under section 404
for such contributions (determined without regard to subsection (e)
thereof), and
I.R.C. § 4972(c)(1)(B) —
the amount determined under this
subsection for the preceding taxable year reduced by the sum of—
I.R.C. § 4972(c)(1)(B)(i) —
the portion of the amount so determined
returned to the employer during the taxable year, and
I.R.C. § 4972(c)(1)(B)(ii) —
the portion of the amount so determined
deductible under section 404 for
the taxable year (determined without regard to subsection (e) thereof).
I.R.C. § 4972(c)(2) Ordering Rule For Section 404 —
For purposes of paragraph (1), the amount allowable
as a deduction under section 404 for
any taxable year shall be treated as—
I.R.C. § 4972(c)(2)(A) —
first from carryforwards to such
taxable year from preceding taxable years (in order of time), and
I.R.C. § 4972(c)(2)(B) —
then from contributions made during
such taxable year.
I.R.C. § 4972(c)(3) Contributions Which May Be Returned To Employer —
In determining the amount of nondeductible contributions
for any taxable year, there shall not be taken into account any contribution
for such taxable year which is distributed to the employer in a distribution
described in section 4980(c)(2)(B)(ii) if
such distribution is made on or before the last day on which a contribution
may be made for such taxable year under section 404(a)(6).
I.R.C. § 4972(c)(4) Special Rule For Self-Employed Individuals —
For purposes of paragraph (1), if—
I.R.C. § 4972(c)(4)(A) —
the amount which is required to
be contributed to a plan under section 412 on
behalf of an individual who is an employee (within the meaning of
section 401(c)(1)),
exceeds
I.R.C. § 4972(c)(4)(B) —
the earned income (within the meaning
of section 404(a)(8))
of such individual derived from the trade or business with respect
to which such plan is established,
such excess shall be treated as
an amount allowable as a deduction under section 404.
I.R.C. § 4972(c)(5) Pre-1987 Contributions —
The term “nondeductible contribution” shall not include
any contribution made for a taxable year beginning before January
1, 1987.
I.R.C. § 4972(c)(6) Exceptions —
In determining the amount of nondeductible contributions
for any taxable year, there shall not be taken into account—
I.R.C. § 4972(c)(6)(A) —
so much of the contributions to 1
or more defined contribution plans which are not deductible when
contributed solely because of section 404(a)(7) as does not exceed
the amount of contributions described in section 401(m)(4)(A), or
I.R.C. § 4972(c)(6)(B) —
so much of the contributions to
a simple retirement account (within the meaning of section 408(p)), a simple plan (within
the meaning of section 401(k)(11),
or a simplified employee pension (within the meaning of section 408(k))
which are not deductible when contributed solely because such contributions
are not made in connection with a trade or business of the employer.
For purposes of subparagraph (A),
the deductible limits under section 404(a)(7) shall first be
applied to amounts contributed to a defined benefit plan and then
to amounts described in subparagraph (A). Subparagraph (B) shall
not apply to contributions made on behalf of the employer or a member
of the employer's family (as defined in section 447(e)(1)).
I.R.C. § 4972(c)(7) Defined Benefit Plan Exception —
In determining the amount of nondeductible
contributions for any taxable year, an employer may elect for such
year not to take into account any contributions to a defined benefit
plan except, in the case of a multiemployer plan, to the extent
that such contributions exceed the full-funding limitation (as defined
in section 431(c)(6)).
For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be
applied to amounts contributed to defined contribution plans and then
to amounts described in this paragraph. If an employer makes an election
under this paragraph for a taxable year, paragraph (6) shall not
apply to such employer for such taxable year.
I.R.C. § 4972(d) Definitions —
For purposes of this section—
I.R.C. § 4972(d)(1) Qualified Employer Plan
I.R.C. § 4972(d)(1)(A) In General —
The term “qualified employer plan” means—
I.R.C. § 4972(d)(1)(A)(i) —
any plan meeting the requirements
of section 401(a)
which includes a trust exempt from tax under section 501(a),
I.R.C. § 4972(d)(1)(A)(ii) —
an annuity plan described in section 403(a),
I.R.C. § 4972(d)(1)(A)(iii) —
any simplified employee pension
(within the meaning of section 408(k)),
and
I.R.C. § 4972(d)(1)(A)(iv) —
any simple retirement account (within
the meaning of section 408(p)).
I.R.C. § 4972(d)(1)(B) Exemption For Governmental And Tax Exempt Plans —
The term “qualified employer plan” does not include
a plan described in subparagraph (A) or (B) of section 4980(c)(1).
I.R.C. § 4972(d)(2) Employer —
In the case of a plan which provides contributions
or benefits for employees some or all of whom are self-employed individuals
within the meaning of section 401(c)(1),
the term “employer” means the person treated as the employer under
section 401(c)(4).
(Added Pub. L. 99-514,
title XI, 1131(c)(1), Oct. 22, 1986, 100 Stat. 2477, and amended Pub. L. 100-647, title I, 1011A(e)(1),
(2), title II, 2005(a)(1), Nov. 10, 1988, 102 Stat. 3477, 3610; Dec.
8, 1994, Pub. L. 103-465, title
VII, Sec. 755; Aug. 20, 1996, Pub. L.
104-188, 1421, 110 Stat. 1755; June 7, 2001, Pub. L. 107-16, title VI, Sec. 616, 637,
652, 653, 115 Stat. 38; Pub. L. 108-311,
title IV, Sec. 404(c), Oct. 4, 2004, 118 Stat. 1166; Pub. L. 109-280, title I, VIII, Sec. 114(e)(5),
803(c), Aug. 17, 2006; Pub. L. 117-328,
Div. T, title I, Sec. 118(a)(1), (2), Dec. 29, 2022.)
BACKGROUND NOTES
AMENDMENTS
2022 —Subsec.
(c)(6)(B). Pub. L. 117-328, Div.
T, Sec. 118(a)(1)-(2), amended subpar. (B) by substituting “408(p)),”
for (408(p)) or” and inserting “or a simplified employee
pension (within the meaning of section 408(k))” after “401(k)(11))”.
2006 - Subsec. (c)(6)(A). Pub. L. 109-280, Sec. 803(c), amended
subpar. (A). Before amendment, it read as follows:
“(A) so much of the contributions to 1 or more
defined contribution plans which are not deductible when contributed
solely because of section 404(a)(7) as does not exceed the greater
of--
“(i) the amount of contributions not in excess
of 6 percent of compensation (within the meaning of section 404(a)
and as adjusted under section 404(a)(12)) paid or accrued (during
the taxable year for which the contributions were made) to beneficiaries
under the plans, or
“(ii) the amount of contributions described in
section 401(m)(4)(A), or” .
Subsec. (c)(7). Pub.
L. 109-280, Sec. 114(e)(5), amended par. (7) by substituting
“except, in the case of a multiemployer plan, to the extent that such
contributions exceed the full-funding limitation (as defined in section
431(c)(6))” for “except to the extent that such contributions exceed
the full-funding limitation (as defined in section 412(c)(7), determined
without regard to subparagraph (A)(i)(I) thereof)”.
2004-Subsec. (c)(6)(A)(ii). Pub. L. 108-311, Sec. 404(c), amended
clause (ii). Before amendment it read as follows:
“(ii) the sum of--
“(I) the amount of contributions
described in section 401(m)(4)(A), plus
“(II) the amount of contributions
described in section 402(g)(3)(A), or”.
2001-Subsec. (c)(6)(B)(i). Pub. L. 107-16, Sec. 616(b)(2)(B),
amended clause (i) by substituting “(within the meaning of section
404(a) and as adjusted under section 404(a)(12))” for “(within the
meaning of section 404(a))”.
Subsec. (c)(6). Pub.
L. 107-16, Sec. 637(b), amended par. (6) by adding the sentence
at the end.
Subsec. (c)(6)(A)-(C). Pub. L. 107-16, Sec. 637(a), amended
par. (6) by striking “and” at the end of subpar. (A), by substituting
“, or” for the period at the end of subpar. (B), and adding subpar.
(C).
Subsec. (c)(6)(A)-(C). Pub. L. 107-16, Sec. 652(b)(1),
struck subpar. (A) and redesignated subpar. (B) and (C) as subpar.
(A) and (B), respectively. Before being struck it read as follows:
“(A) contributions that would
be deductible under section 404(a)(1)(D) if the plan had more than
100 participants if--
“(i) the plan is covered under section 4021 of the Employee Retirement Income Security
Act of 1974, and
“(ii) the plan is terminated
under section 4041(b) of such Act on or before the last day of the
taxable year,”.
Subsec. (c)(6). Pub.
L. 107-16, Sec. 652(b), amended par. (6) by striking the
first sentence following subpar (B), as redesignated; by substituting
“subparagraph (A)” for “subparagraph (B)” in the next to last sentence;
and by substituting “Subparagraph (B)” for “Subparagraph (C)” in the
last sentence. Before being struck, the first sentence read as follows:
“If 1 or more defined benefit plans were taken into account in determining
the amount allowable as a deduction under section 404 for contributions
to any defined contribution plan, subparagraph (B) shall apply only
if such defined benefit plans are described in section 404(a)(1)(D).”
Subsec. (c)(7). Pub.
L. 107-16, Sec. 653(a), added par. (7).
1997--Subsec. (c)(6)(B). Pub. L. 105-34, Sec. 1507(a) amended
subpar. (B). Prior to amendment it read as follows:
“(B) contributions to 1 or more defined contribution
plans which are not deductible when contributed solely because of
section 404(a)(7), but only to the extent such contributions do not
exceed 6 percent of compensation (within the meaning of section 404(a))
paid or accrued (during the taxable year for which the contributions
were made) to beneficiaries under the plans.”
1996--Subsec. (d)(1). Pub. L. 104-188, 1421(b)(9)(D), struck
“and” at the end of clause (ii); substitute “, and” for “.” at the
end of clause (iii); and added clause (iv).
1994 -- Subsec. (c)(6). Pub. L. 103-465, Sec. 755, added paragraph
(6), effective as follows:
(1) Section 4972(c)(6)(A) shall
apply to taxable years ending on or after the date of enactment of
this Act.
(2) Section 4972(c)(6)(B) shall
apply to taxable years ending on or after December 31, 1992.
1988--Subsec. (c). Pub. L. 100-647, 1011A(e)(1), amended subsec.
(c) generally, revising and restating as pars. (1) to (4) provisions
of former pars. (1) and (2).
Subsec. (c)(4), (5). Pub.
L. 100-647, 2005(a)(1), added par. (4) and redesignated
former par. (4) as (5).
Subsec. (d)(1). Pub.
L. 100-647, 1011A(e)(2), amended par. (1) generally. Prior
to amendment, par. (1) read as follows: “The term ‘qualified employer
plan’ means--
“(A) any plan meeting the requirements
of section 401(a) which includes a trust exempt from the tax under
section 501(a),
“(B) an annuity plan described
in section 403(a), and
“(C) any simplified employee
pension (within the meaning of section 408(k)).”
EFFECTIVE
DATE OF 2022 AMENDMENTS
Amendments by Pub. L. 117-328, Div. T, Sec. 118(a)(1),
applicable to tax years beginning after the date of enactment of this
Act [Enacted: Dec. 29, 2022].
Pub.
L. 117-328, Div. T, Sec. 118(b)(2) provided:
“(2) NO INFERENCE.—Nothing
in the amendments made by this section shall be construed to infer
the proper treatment under section 4972(c)(6) of the Internal Revenue
Code of 1986 of nondeductible contributions to which the amendments
made by this section do not apply.”
EFFECTIVE DATE OF 2006 AMENDMENT
Sec. 114(g)(2) of Pub.
L. 109-280, added by Pub.
L. 110-458, Sec. 101(d)(3), provides that:
“(2) EXCISE TAX.—The amendments made by subsection
(e) shall apply to taxable years beginning after 2007, but only with
respect to plan years described in paragraph (1) which end with or
within any such taxable year.”
Amendment by Sec. 803(c) of Pub.
L. 109-280 effective for contributions for taxable years
beginning after December 31, 2005.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Sec. 404(c) of Pub.
L. 108-311 applicable as if included in the provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16, Sec. 614] to which it
relates [effective: years beginning after 2001].
EFFECTIVE DATE OF 2001 AMENDMENTS
Amendment by Sec. 616(b)(2)(B) of Pub. L. 107-16 applicable to years beginning
after December 31, 2001.
Amendments by Sec. 637(a) of Pub.
L. 107-16 applicable to taxable years beginning after December
31, 2001. Sec. 637(c) of Pub. L. 107-16 provided
that:
“(c) No Inference.--Nothing in the amendments made
by this section shall be construed to infer the proper treatment
of nondeductible contributions under the laws in effect before such
amendments.”
Amendments by Sec. 652(b) of Pub.
L. 107-16 applicable to plan years beginning after December
31, 2001.
Amendment by Sec. 653(a) of Pub.
L. 107-16 applicable to years beginning after December 31,
2001.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:
“(a) IN GENERAL.--All provisions of, and amendments
made by, this Act shall not apply--
“(1) to taxable, plan, or limitation
years beginning after December 31, 2010, or
“(2) in the case of title V,
to estates of decedents dying, gifts made, or generation skipping
transfers, after December 31, 2010.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal
Revenue Code of 1986 and the Employee Retirement Income Security Act
of 1974 shall be applied and administered to years, estates, gifts,
and transfers described in subsection (a) as if the provisions and
amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply
to section 803 (relating to no federal income tax on restitution received
by victims of the Nazi regime or their heirs or estates).”
PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT
PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF
2001 MADE PERMANENT
Section 811 of Pub. L.
109-280 provided that:
“Title IX of the Economic Growth and Tax Relief
Reconciliation Act of 2001 shall not apply to the provisions of,
and amendments made by, subtitles A through F of title VI of such
Act (relating to pension and individual retirement arrangement provisions).”
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendment by Sec. 1507(a) of Pub.
L. 105-34 applicable to taxable years beginning after December
31, 1997.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(9) of Pub. L. 104-188 effective for taxable years
beginning after December 31, 1996.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011A(e)(1), (2) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Amendment by section 2005(a)(1) of Pub. L. 100-647 effective as if included
in the amendments made by the provisions of the Omnibus Budget Reconciliation
Act of 1987, Pub. L. 100-203,
to which it relates, see section 2005(e) of Pub.
L. 100-647, set out as a note under section 404 of this
title.
EFFECTIVE DATE
Section applicable to taxable years beginning after
Dec. 31, 1986, with special rules in case of plans maintained pursuant
to collective bargaining agreements, see section 1131(d) of Pub. L. 99-514, as amended, set out as an
Effective Date of 1986 Amendment note under section 404 of this title.
INCREASE IN AMOUNT FOR PLAN TERMINATION INSURANCE
UNDER EMPLOYEE RETIREMENT INSURANCE SECURITY ACT OF 1974
Section 1011A(e)(5) of Pub.
L. 100-647 provided that: “In the case of any taxable year
beginning in 1987, the amount under section 4972(c)(1)(A)(ii) of the
1986 Code for a plan to which title IV of the Employee Retirement
Income Security Act of 1974 [29
U.S.C. 1301 et seq.] applies shall be increased
by the amount (if any) by which, as of the close of the plan year
with or within which such taxable year begins--
“(A) the liabilities of such
plan (determined as if the plan had terminated as of such time), exceed
“(B) the assets of such plan.”
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1,
1989
For provisions directing that if any amendments
made by section 1131(c)(1) of Pub. L. 99-514 require
an amendment to any plan, such plan amendment shall not be required
to be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514,
set out as a note under section 401 of this title.
PRIOR
PROVISIONS
A
prior section, added Pub. L. 93-406,
title II, 2001(f)(1), Sept. 2, 1974, 88 Stat. 955, and amended Pub. L. 94-455, title XIX, 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-34,
title III, 312(e)(3), Aug. 13, 1981, 95 Stat. 285; Pub. L. 97-448, title I, 103(c)(10)(B),
Jan. 12, 1983, 96 Stat. 2377; Pub. L. 98-369,
div. A, title IV, 491(d)(40), July 18, 1984, 98 Stat. 851, which related
to tax on excess contributions for self-employed individuals, was
repealed, applicable to years beginning after Dec. 31, 1983, by Pub. L. 97-248, title II, 237(c)(1), Sept.
3, 1982, 96 Stat. 511; Pub. L. 105-34,
title XVI, Sec. 1507(a), Aug. 5, 1997, 111 Stat 788; Pub. L. 108-311, title IV, Sec. 404(c),
Oct. 2004; Pub. L. 109-280, title
I, VIII, Sec. 114, Sec. 803(c), 120 Stat. 780.)
