Academic journal article Journal of Accountancy

Unmortgaged Property Transfer to Pension Plan Is Not a Prohibited Transaction

Academic journal article Journal of Accountancy

Unmortgaged Property Transfer to Pension Plan Is Not a Prohibited Transaction

Article excerpt

Keystone Consolidated Industries, Inc., had several pension plans for its employees. These tax-qualified plans, which were subject to the minimum funding rules of Internal Revenue Code section 412, were funded through a master trust. To satisfy its minimum funding liability, Keystone gave the trust five truck terminals and a piece of land, crediting itself with the contributed properties' fair market value (FMV). The properties were unencumbered.

Keystone deducted the properties' FMV as a plan contribution and reported the properties' appreciation element as capital gain from the sale of exchange of an asset.

The Internal Revenue Service claimed this contribution was a prohibited transaction subject to section 4975, which imposes excise taxes on certain transactions. Specifically, section 4975(c)(1)(A) includes among prohibited transactions a "sale or exchange ... of any property between a plan and a disqualified person...." Disqualified persons would include employers, fiduciaries and others.

Keystone argued the contribution of property was not a "sale or exchange" under the prohibited transaction rules, citing section 4975(f)(3). …

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