Note:
Internal Revenue Manual Part 4. Examining Process · 2026-10-03 edition · updated 2026-10-04 · United States
IRC 4979 excise tax applies even when the SEP is determined to not satisfy the requirements of IRC 408(k), unless the SEP is determined to not satisfy the requirements of IRC 408(k) from its inception. See IRC 4979(e).
When you determine an IRA-based plan to be non-compliant and the issue is not resolved through a closing agreement, address the issue(s) through Form 1040 discrepancy adjustments.
When an IRA-based plan is non-compliant, all contributions allocated to participant accounts become taxable to the individual in the year for which they are made, except that the participant is still entitled to the "traditional IRA contribution."
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