Additional tax on Disqualified Persons

(1) If the initial 25% tax is imposed on an excess benefit transaction between an

ATEO and a disqualified person, and the excess benefit transaction isn’t corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed on the excess benefit transaction. See Section 4958(b) and Treas. Reg. 53.4958-1(c)(2)(i). The additional tax is also sometimes referred to as the "Second Tier Tax."

(2) The 200% tax is payable by the disqualified person who received an excess

benefit from the excess benefit transaction on which the 25% tax is imposed. If a disqualified person makes a payment of less than the full correction amount, the 200% tax is imposed only on the unpaid portion of the correction amount. See Section 4958(b) and Treas. Reg. 53.4958-1(c)(2)(i).

(3) All such disqualified persons are jointly and severally liable for the 200% tax If

more than one disqualified person received an excess benefit from an excess benefit transaction. See Section 4958(d)(1) and Treas. Reg. 53.4958-1(c)(2)(i).

a. Joint and several liability means that all or a portion of the 200% tax may be

assessed against and collected from one or more of the disqualified persons who received an excess benefit from an excess benefit transaction.

b. However, the total tax collected must not exceed 100% of the 200% tax.

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(4) A disqualified person must correct the excess benefit transaction during the

taxable period to avoid imposition of the 200% tax.

a. The taxable period begins when the excess benefit transaction occurs. See

Section 4958(f)(5) and Treas. Reg. 53.4958-1(c)(2)(ii).

b. The taxable period ends on the earlier of the following:

• The date of the mailing of a notice of deficiency to the disqualified

person regarding the 25% tax, or

• The date when the initial 25% tax is assessed on the disqualified

person. See Section 4958(f)(5) and Treas. Reg. 53.4958-1(c)(2)(ii).