Part I. Taxes — 1225 Inst 5330 (PDF)

Line 4. Enter the total amount of the disqualified benefit under section 4976. Section 4976 imposes an excise tax on employers who maintain a funded welfare benefit plan that provides a disqualified benefit during any tax year. The tax is 100% of the disqualified benefit.

Generally, a disqualified benefit is any of the following.

Any post-retirement medical benefit or life insurance benefit provided for a key employee unless the benefit is provided from a separate account established for the key employee under section 419A(d).
Any post-retirement medical benefit or life insurance benefit unless the plan meets the nondiscrimination requirements of section 505(b) for those benefits.
Any portion of the fund that reverts to the benefit of the employer.

Lines 5a and 5b. Section 4978 imposes an excise tax on the sale or transfer of securities acquired in a sale or qualified gratuitous transfer to which section 1042 or

section 664(g) applied, respectively, if the sale or transfer takes place within 3 years after the date of the acquisition of qualified securities, as defined in section 1042(c)(1) or a section 664(g) transfer.

The tax is 10% of the amount realized on the disposition of the qualified securities if an ESOP or eligible worker-owned cooperative, as defined in section 1042(c) (2), disposes of the qualified securities within the 3-year period described above, and either of the following applies.

The total number of shares held by that plan or cooperative after the disposition is less than the total number of employer securities held immediately after the sale.
Except to the extent provided in regulations, the value of qualified securities held by the plan or cooperative after the disposition is less than 30% of the total value of all employer securities as of the disposition (60% of the total value of all employer securities in the case of any qualified employer securities acquired in a qualified gratuitous transfer to which section 664(g) applied).

See section 4978(b)(2) for the limitation on the amount of tax.

The section 4978 tax must be paid by the employer or the eligible worker-owned cooperative that made the written statement described in section 1042(b)(3)(B) on dispositions that occurred during their tax year.

The section 4978 tax does not apply to a distribution of qualified securities or sale of such securities if any of the following occurs.

The death of the employee.
The retirement of the employee after the employee has reached age 59 ¹ /2.
The disability of the employee (within the meaning of section 72(m)(7)).
The separation of the employee from service for any period that results in a 1-year break in service, as defined in section 411(a)(6)(A).

For purposes of section 4978, an exchange of qualified securities in a reorganization described in section 368(a) (1) for stock of another corporation will not be treated as a disposition.

Tip: For section 4978 excise taxes, the amount entered on Part I, line 5a, is the amount realized on the disposition of qualified securities, multiplied by 10%. Also, check the appropriate box on line 5b.

Line 6. Section 4979A imposes a 50% excise tax on allocated amounts involved in any of the following.

A prohibited allocation of qualified securities by any ESOP or eligible worker-owned cooperative.
A prohibited allocation described in section 664(g)(5) (A). Section 664(g)(5)(A) prohibits any portion of the assets of the ESOP attributable to securities acquired by the plan in a qualified gratuitous transfer to be allocated to the account of:

a. Any person related to the decedent within the

meaning of section 267(b) or a member of the

Instructions for Form 5330 (Rev. 12-2025) 5

decedent’s family within the meaning of section 2032A(e)(2); or

b. Any person who, at the time of the allocation or at

any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5% shareholder of the employer maintaining the plan.

The accrual or allocation of S corporation shares in an ESOP during a nonallocation year constituting a prohibited allocation under section 409(p).
A synthetic equity owned by a disqualified person in any nonallocation year.

directly or indirectly under the ESOP or any other plan of the employer qualified under section 401(a) for the benefit of a disqualified person. For additional information, see Regulations section 1.409(p)-1(b)(2).

The total value of all deemed-owned shares of all disqualified persons.

For purposes of determining a nonallocation year, the attribution rules of section 318(a) will apply; however, the option rule of section 318(a)(4) will not apply. Additionally, the attribution rules defining family member are modified to include the individual’s:

Spouse,
Ancestor or lineal descendant of the individual or the individual’s spouse, and
A brother or sister of the individual or of the individual’s spouse and any lineal descendant of the brother or sister.

A spouse of an individual legally separated from an individual under a decree of divorce or separate maintenance is not treated as the individual’s spouse.

An individual is a disqualified person if:

The total number of shares owned by the person and the members of the person’s family, as defined in section 409(p)(4)(D), is at least 20% of the deemed-owned shares, as defined in section 409(p) (4)(C), in the S corporation; or
The person owns at least 10% of the deemed-owned shares, as defined in section 409(p)(4)(C), in the S corporation.

Caution: Under section 409(p)(7), the Secretary of the Treasury may, through regulations or other guidance of general applicability, provide that a nonallocation year occurs in any case in which the principal purpose of the ownership structure of an S corporation constitutes an avoidance or evasion of section 409(p). See Regulations section 1.409(p)-1.

For section 4979A excise taxes, the amount entered on Part I, line 6, is 50% of the amount involved in the prohibited allocations described in items 1 through 4, earlier, under Line 6 .

Line 10a. Under section 4971(g)(2), each employer who contributes to a multiemployer plan and fails to comply with a funding improvement or rehabilitation plan will be liable for an excise tax for each failure to make a required contribution within the time frame under such plan. Enter the amount of each contribution the employer failed to make in a timely manner.

A funding improvement plan is a plan which consists of the actions, including options or a range of options to be proposed to the bargaining parties, formulated to provide, based on reasonably anticipated experience and reasonable actuarial assumptions, for the attainment of the following requirements by the plan during the funding improvement period.

The plan’s funded percentage as of the close of the funding improvement period equals or exceeds a percentage equal to the sum of:

a. The percentage as of the beginning of the funding

improvement period, plus

Prohibited allocations for ESOP or worker-owned cooperative. For purposes of items 1 and 2 above, a “prohibited allocation of qualified securities by any ESOP or eligible worker-owned cooperative” is any allocation of qualified securities acquired in a nonrecognition-of-gain sale under section 1042, which violates section 409(n), and any benefit that accrues to any person in violation of section 409(n).

Under section 409(n), an ESOP or worker-owned cooperative cannot allow any portion of assets attributable to employer securities acquired in a section 1042 sale to accrue or be allocated, directly or indirectly, to the taxpayer, or any person related to the taxpayer, involved in the transaction during the nonallocation period. For purposes of section 409(n), relationship to the taxpayer is defined under section 267(b).

The nonallocation period is the period beginning on the date the qualified securities are sold and ending on the later of:

10 years after the date of sale, or
The date on which the final payment is made if acquisition indebtedness was incurred at the time of sale.

The employer sponsoring the plan or the eligible worker-owned cooperative is responsible for paying the tax.

For purposes of items 3 and 4, under Line 6, earlier, the excise tax on these transactions under section 4979A is 50% of the amount involved. The amount involved includes the following.

The value of any synthetic equity owned by a disqualified person in any nonallocation year. “Synthetic equity” means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S corporation in the future. Synthetic equity may also include a stock appreciation right, phantom stock unit, or similar right to a future cash payment based on the value of the stock or appreciation; and nonqualified deferred compensation as described in Regulations section 1.409(p)-1(f)(2)(iv). The value of a synthetic equity is the value of the shares on which the synthetic equity is based or the present value of the nonqualified deferred compensation.
The value of any S corporation shares in an ESOP accruing during a nonallocation year or allocated

6 Instructions for Form 5330 (Rev. 12-2025)

b. 33% of the difference between 100% and the

percentage as of the beginning of the funding improvement period (or 20% of the difference if the plan is in seriously endangered status).

No accumulated funding deficiency for any plan year during the funding improvement period, taking into account any extension of the amortization period under section 431(d).

A rehabilitation plan is a plan which consists of actions, including options or a range of options to be proposed to the bargaining parties, formulated to enable the plan to cease to be in critical status by the end of the rehabilitation period.

All or part of this excise tax may be waived under section 4971(g)(5).

Line 16. If a tax-exempt entity manager approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction during the year and knows or has reason to know that the transaction is a prohibited tax shelter transaction, the entity manager must pay an excise tax under section 4965(b)(2).

For purposes of section 4965, plan entities are:

Qualified pension, profit-sharing, and stock bonus plans described in section 401(a);
Annuity plans described in section 403(a);
Annuity contracts described in section 403(b);
Qualified tuition programs described in section 529;
Retirement plans maintained by a governmental employer described in section 457(b);
Individual retirement accounts within the meaning of section 408(a);
Individual retirement annuities within the meaning of section 408(b);
Archer medical savings accounts (MSAs) within the meaning of section 220(d);
Coverdell education savings accounts described in section 530; and
Health savings accounts (HSAs) within the meaning of section 223(d).

An entity manager is the person who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction.

The excise tax under section 4965(a)(2) is $20,000 for each approval or other act causing the organization to be a party to a prohibited tax shelter transaction.

A prohibited tax shelter transaction is any listed transaction and any prohibited reportable transaction, as defined later.

A listed transaction is a reportable transaction that is the same as, or substantially similar to, a transaction specifically identified by the Secretary of the Treasury as a tax avoidance transaction for purposes of section
A prohibited reportable transaction is:

a. Any confidential transaction within the meaning of

Regulations section 1.6011-4(b)(3), or

b. Any transaction with contractual protection within

the meaning of Regulations section 1.6011-4(b) (4).