Form 5330 Instructions: When and How to File

Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, is an Internal Revenue Service (IRS) form used to report and pay specific taxes arising from mistakes or certain transactions involving retirement and benefit plans. Plan sponsors, administrators, or fiduciaries who oversee plans like 401(k)s or pensions may need to file this form. Filing this return is a necessary step for maintaining the tax-advantaged status of a retirement plan when specific compliance issues arise. The form covers a range of excise taxes, each corresponding to a different type of compliance failure or transaction, and serves as a mechanism for self-reporting these issues.

Identifying When Form 5330 is Required

A primary reason for filing Form 5330 is the occurrence of a prohibited transaction under Internal Revenue Code (IRC) Section 4975. A prohibited transaction is a financial interaction between a retirement plan and a “disqualified person,” which includes the employer, plan fiduciaries, and major shareholders. Examples include loans between the plan and a disqualified person or the sale of property. The intent behind these rules is to prevent self-dealing and conflicts of interest.

Another event that necessitates filing is a failure to meet minimum funding standards, as outlined in IRC Section 4971. This applies to defined benefit pension plans and other plans subject to these standards. If an employer’s contribution for a plan year falls short of the required amount, an excise tax is imposed on the funding deficiency. Form 5330 must be filed to report and pay this tax.

Employers may also trigger a filing requirement by making nondeductible contributions to a qualified plan. IRC Section 4972 imposes a 10% excise tax on employer contributions that exceed the deductible amount for their tax year. This tax applies to the amount of the nondeductible contribution remaining in the plan at the end of the employer’s tax year and is reported using Form 5330.

A reversion of plan assets to an employer can also trigger a filing. According to IRC Section 4980, if a defined benefit plan is terminated with surplus assets after all benefits are paid, those assets may revert to the employer. This reversion is a taxable event subject to a substantial excise tax, which the employer reports and pays by filing Form 5330.

Information and Calculations Needed Before Filing

Before completing Form 5330, gather all necessary identifying information for the plan and the filer. This includes the official name of the plan, its nine-digit Employer Identification Number (EIN), and the three-digit Plan Number (PN). You will also need the plan year ending date, and for the filer, their name, address, and taxpayer identification number (SSN or EIN).

You must also collect details specific to the taxable event. For a prohibited transaction, this involves documenting the date, providing a clear description of it, and listing the names and addresses of all disqualified persons who participated. Having precise records of the event is necessary for accurately completing the form.

Calculating the excise tax correctly is a main component of the preparation. For a prohibited transaction, the initial tax is 15% of the “amount involved.” The amount involved is defined as the greater of the fair market value of the property given or the fair market value of the property received, determined as of the date the transaction occurred.

To illustrate, consider a scenario where a disqualified person sells property to a retirement plan for $20,000, but its fair market value was only $15,000. The amount involved would be $20,000, as it is the greater value. The initial excise tax would be 15% of this amount, resulting in a tax of $3,000.

Completing Form 5330

Once all information has been gathered and the tax calculated, you can fill out the form. The top of the form requires the entry of the plan and filer details you have already collected.

The main page of the form serves as a summary of all excise taxes due. You will transfer the results from the various schedules to the corresponding lines on the form. For instance, if reporting a tax on a prohibited transaction, you first complete Schedule C, and the total tax calculated there is then entered on line 21 of the main form.

The detailed reporting of the taxable event occurs in the attached schedules. For a prohibited transaction, use Schedule C. Part I of Schedule C is where you list each transaction, including its date and description. In Part II, you will enter the “amount involved” into column (c), multiply it by the 15% tax rate in column (d), and enter the resulting tax in column (e).

After completing all applicable schedules, total the tax amounts. Before finalizing, ensure you have signed and dated the form on the bottom of the first page. If a paid preparer completed the form, they must also sign and provide their information.

Filing the Form and Paying the Tax

The deadline for filing Form 5330 depends on the specific excise tax. For a prohibited transaction, the return is due by the last day of the seventh month after the end of the tax year in which the transaction took place. For a failure to meet minimum funding standards, the due date is the later of the last day of the seventh month after the employer’s tax year ends or 8.5 months after the end of the plan year.

For filers not required to file electronically, the paper Form 5330 should be mailed to the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201. Regulations mandate electronic filing for those who file at least 10 returns of any type during the calendar year. Filers should verify the current e-filing requirements for the year they are filing.

Payment of the excise tax can be made by check or money order attached to the paper return, payable to the “United States Treasury.” You should write your name, identifying number, plan number, and the relevant form and section number on the payment. Alternatively, payment can be submitted electronically through the Electronic Federal Tax Payment System (EFTPS).

Filing the form and paying the initial tax is only one part of the process. You must also take steps to correct the underlying issue, such as reversing the prohibited transaction. This correction is necessary to avoid a second-tier excise tax, which can be significantly higher.