Academic journal article Journal of Accountancy

Supreme Court: Using Unmortgaged Property to Fund Pension Plan Triggers Excise Tax

Academic journal article Journal of Accountancy

Supreme Court: Using Unmortgaged Property to Fund Pension Plan Triggers Excise Tax

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 five truck terminals and a piece of land to the trust, crediting itself with the contributed property's fair market value. The property was not subject to debt. Keystone deducted the property's fair market value as a contribution to the plans and reported the appreciation element as capital gain from the sale or exchange of an asset.

The Internal Revenue Service claimed this contribution was a prohibited transaction subject to IRC section 4975, which imposes excise taxes on certain transactions, including sales and loans, between qualified plans and disqualified persons - employers, fiduciaries and others.

Keystone argued the contribution of property was not a sale or exchange for purposes of the prohibited transaction rules.

Section 4975(c)(1)(A) includes among prohibited transactions a "sale or exchange ... of any property between a plan and a disqualified person. ..." Section 4975(f)(3) says: "For purposes of this section . …

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