§ 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 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 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 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 if such distribution is made on or before the last day on which a contribution may be made for such taxable year under section . (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 on behalf of an individual who is an employee (within the meaning of section ), 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 . (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 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 and as adjusted under section ) 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 , plus (II) the amount of contributions described in section , or (B) so much of the contributions to a simple retirement account (within the meaning of section ) or a simple plan (within the meaning of section ) 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 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 ). (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 , determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the deductible limits under section 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 which includes a trust exempt from tax under section , (ii) an annuity plan described in section , (iii) any simplified employee pension (within the meaning of section ), and (iv) any simple retirement account (within the meaning of section ). (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 . (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 , the term “employer” means the person treated as the employer under section .

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