§ 4972. — Tax on nondeductible contributions to qualified employer plans.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 26USC4972]
TITLE 26--INTERNAL REVENUE CODE
Subtitle D--Miscellaneous Excise Taxes
CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
Sec. 4972. Tax on nondeductible contributions to qualified
employer plans
(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).
(b) Employer liable for tax
The tax imposed by this section shall be paid by the employer making
the contributions.
(c) Nondeductible contributions
For purposes of this section--
(1) In general
The term ``nondeductible contributions'' means, with respect to
any qualified employer plan, the sum of--
(A) the excess (if any) of--
(i) the amount contributed for the taxable year by the
employer to or under such plan, over
(ii) the amount allowable as a deduction under section
404 for such contributions (determined without regard to
subsection (e) thereof), and
(B) the amount determined under this subsection for the
preceding taxable year reduced by the sum of--
(i) the portion of the amount so determined returned to
the employer during the taxable year, and
(ii) the portion of the amount so determined deductible
under section 404 for the taxable year (determined without
regard to subsection (e) thereof).
(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--
(A) first from carryforwards to such taxable year from
preceding taxable years (in order of time), and
(B) then from contributions made during such taxable year.
(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).
(4) Special rule for self-employed individuals
For purposes of paragraph (1), if--
(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
(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.
(5) Pre-1987 contributions
The term ``nondeductible contribution'' shall not include any
contribution made for a taxable year beginning before January 1,
1987.
(6) Exceptions
In determining the amount of nondeductible contributions for any
taxable year, there shall not be taken into account--
(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 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
(B) so much of the contributions to a simple retirement
account (within the meaning of section 408(p)) or a simple plan
(within the meaning of section 401(k)(11)) 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)).
(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 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). 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.
(d) Definitions
For purposes of this section--
(1) Qualified employer plan
(A) In general
The term ``qualified employer plan'' means--
(i) any plan meeting the requirements of section 401(a)
which includes a trust exempt from tax under section 501(a),
(ii) an annuity plan described in section 403(a),
(iii) any simplified employee pension (within the
meaning of section 408(k)), and
(iv) any simple retirement account (within the meaning
of section 408(p)).
(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).
(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, Sec. 1131(c)(1), Oct. 22, 1986, 100
Stat. 2477; amended Pub. L. 100-647, title I, Sec. 1011A(e)(1), (2),
title II, Sec. 2005(a)(1), Nov. 10, 1988, 102 Stat. 3477, 3610; Pub. L.
103-465, title VII, Sec. 755(a), Dec. 8, 1994, 108 Stat. 5023; Pub. L.
104-188, title I, Sec. 1421(b)(9)(D), Aug. 20, 1996, 110 Stat. 1798;
Pub. L. 105-34, title XV, Sec. 1507(a), Aug. 5, 1997, 111 Stat. 1067;
Pub. L. 107-16, title VI, Secs. 616(b)(2)(B), 637(a), (b), 652(b),
653(a), June 7, 2001, 115 Stat. 103, 118, 130.)
Amendment of Section
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
Prior Provisions
A prior section, added Pub. L. 93-406, title II, Sec. 2001(f)(1),
Sept. 2, 1974, 88 Stat. 955; amended Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-34, title
III, Sec. 312(e)(3), Aug. 13, 1981, 95 Stat. 285; Pub. L. 97-448, title
I, Sec. 103(c)(10)(B), Jan. 12, 1983, 96 Stat. 2377; Pub. L. 98-369,
div. A, title IV, Sec. 491(d)(40), July 18, 1984, 98 Stat. 851, related
to tax on excess contributions for self-employed individuals, prior to
repeal applicable to years beginning after Dec. 31, 1983, by Pub. L. 97-
248, title II, Sec. 237(c)(1), Sept. 3, 1982, 96 Stat. 511.
Amendments
2001--Subsec. (c)(6). Pub. L. 107-16, Secs. 652(b)(4), 901,
temporarily substituted ``Subparagraph (B)'' for ``Subparagraph (C)'' in
concluding provisions. See Effective and Termination Dates of 2001
Amendment note below.
Pub. L. 107-16, Secs. 652(b)(3), 901, which directed the temporary
substitution of ``subparagraph (A)'' for ``subparagraph (B)'' in
concluding provisions, was executed by making the substitution in two
places, to reflect the probable intent of Congress. See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 652(b)(2), 901, in concluding provisions,
temporarily struck out first sentence which 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).'' See
Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 637(b), 901, in concluding provisions,
temporarily inserted at end ``Subparagraph (C) 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)).'' See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(6)(A). Pub. L. 107-16, Secs. 652(b)(1), 901, temporarily
redesignated subpar. (B) as (A) and struck out former subpar. (A) which
read as follows: ``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,''.
See Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 637(a), 901, temporarily struck out ``and'' at
end. See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(6)(B). Pub. L. 107-16, Secs. 652(b)(1), 901, temporarily
redesignated subpar. (C) as (B). Former subpar. (B) redesignated (A).
See Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 637(a), 901, temporarily substituted ``, or''
for period at end. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(6)(B)(i). Pub. L. 107-16, Secs. 616(b)(2)(B), 901,
temporarily substituted ``(within the meaning of section 404(a) and as
adjusted under section 404(a)(12))'' for ``(within the meaning of
section 404(a))''. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(6)(C). Pub. L. 107-16, Secs. 652(b)(1), 901, temporarily
redesignated subpar. (C) as (B). See Effective and Termination Dates of
2001 Amendment note below.
Pub. L. 107-16, Secs. 637(a), 901, temporarily added subpar. (C).
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(7). Pub. L. 107-16, Secs. 653(a), 901, temporarily added
par. (7). See Effective and Termination Dates of 2001 Amendment note
below.
1997--Subsec. (c)(6)(B). Pub. L. 105-34 amended subpar. (B)
generally. Prior to amendment, subpar. (B) read as follows:
``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)(A)(iv). Pub. L. 104-188 added cl. (iv).
1994--Subsec. (c)(6). Pub. L. 103-465 added par. (6).
1988--Subsec. (c). Pub. L. 100-647, Sec. 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, Sec. 2005(a)(1), added par.
(4) and redesignated former par. (4) as (5).
Subsec. (d)(1). Pub. L. 100-647, Sec. 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 and Termination Dates of 2001 Amendment
Amendment by section 616(b)(2)(B) of Pub. L. 107-16 applicable to
years beginning after Dec. 31, 2001, see section 616(c) of Pub. L. 107-
16, set out as a note under section 404 of this title.
Pub. L. 107-16, title VI, Sec. 637(d), June 7, 2001, 115 Stat. 118,
provided that: ``The amendments made by this section [amending this
section] shall apply to taxable years beginning after December 31,
2001.''
Amendment by section 652(b) of Pub. L. 107-16 applicable to plan
years beginning after Dec. 31, 2001, see section 652(c) of Pub. L. 107-
16, set out as a note under section 404 of this title.
Pub. L. 107-16, title VI, Sec. 653(b), June 7, 2001, 115 Stat. 130,
provided that: ``The amendment made by this section [amending this
section] shall apply to years beginning after December 31, 2001.''
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal Revenue
Code of 1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 901 of Pub. L. 107-16, set
out as a note under section 1 of this title.
Effective Date of 1997 Amendment
Section 1507(b) of Pub. L. 105-34 provided that: ``The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997.''
Effective Date of 1996 Amendment
Amendment by Pub. L. 104-188 applicable to taxable years beginning
after Dec. 31, 1996, see section 1421(e) of Pub. L. 104-188, set out as
a note under section 72 of this title.
Effective Date of 1994 Amendment
Section 755(b) of Pub. L. 103-465 provided that:
``(1) Section 4972(c)(6)(a).--Section 4972(c)(6)(A) of the Internal
Revenue Code of 1986 (as added by this section) shall apply to taxable
years ending on or after the date of enactment of this Act [Dec. 8,
1994].
``(2) Section 4972(c)(6)(b).--Section 4972(c)(6)(B) of such Code (as
added by this section) shall apply to taxable years ending on or after
December 31, 1992.''
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 amendment made by section 1131(c) of Pub. L. 99-514, see
section 2005(e) of Pub. L. 100-647, as amended, 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.
Construction of 2001 Amendment
Pub. L. 107-16, title VI, Sec. 637(c), June 7, 2001, 115 Stat. 118,
provided that: ``Nothing in the amendments made by this section
[amending this section] shall be construed to infer the proper treatment
of nondeductible contributions under the laws in effect before such
amendments.''
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, 1998
For provisions directing that if any amendments made by subtitle D
[Secs. 1401-1465] of title I of Pub. L. 104-188 require an amendment to
any plan or annuity contract, such amendment shall not be required to be
made before the first day of the first plan year beginning on or after
Jan. 1, 1998, see section 1465 of Pub. L. 104-188, set out as a note
under section 401 of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII
[Secs. 1800-1899A] 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, as amended, set out as a note under section 401 of this
title.
Section Referred to in Other Sections
This section is referred to in section 45E of this title.
