Prohibited transactions for qualified employee benefits plans.

While determining if a person is disqualified from participating in a transaction with an employee benefit plan is usually quite straightforward, classifying which transactions are prohibited can be extremely complex. Practitioners who are not aware of the rules in this area may discover that their clients are subject to very large excise taxes, with little recourse, since the prohibited transaction rules are strictly enforced. In turn, they may face a malpractice claim.

This article will analyze the various legislative and judicial directives concerning the excise taxes imposed on prohibited transactions; explain the computation of the taxes; define who is subject to the taxes and the types of transactions that may be prohibited; focus on three of the more common types of prohibited transactions between disqualified persons and qualified plans: (1) sales and exchanges of property (including a recent Supreme Court decision and its implications), (2) leasing of property and (3) loans; and provide planning opportunities for avoiding the prohibited transaction excise taxes.

Legislative Background of Excise Taxes

Before the Employee Retirement Income Security Act of 1974 (ERISA) was enacted, when a disqualified person engaged in a prohibited transaction with a qualified employee benefits plan (hereinafter, "qualified plan"), the penalty under Sec. 503 was to disqualify the plan. Since this was considered to be a rather harsh consequence for the plan's participants (who usually had no involvement in the prohibited transaction), these rules were amended.

A dual enforcement procedure was established to provide retirement security for plan participants. First, the IRS enforces penalty excise taxes on parties that engage in prohibited transactions with qualified plans. Second, the Department of Labor (DOL) enforces civil and criminal sanctions against parties that use qualified plans to promote their own self-interests.

Under Sec. 4975 (which defines the excise taxes imposed on participants in prohibited transactions), persons with a close relationship to a qualified plan are prevented from benefiting from the plan at the expense of plan beneficiaries. Any disqualified party that engages in a prohibited transaction with a qualified plan must pay a 5% initial excise tax on the amount involved in the transaction. Furthermore, if the transaction is not corrected within a specified time period, an additional excise tax equal to 100% of the amount involved is also assessed.

These taxes have proven to be quite onerous for several reasons. (1) The excise taxes can be very large, because they are based on the "amount involved," which is basically defined as the fair market value (FMV) of all property involved in the transaction. (2) They are imposed regardless of whether the violation was inadvertent or entered into in good faith, even if the disqualified person acted on the advice of attorneys or other financial advisers.(1) (3) The IRS has very broad authority to assess the tax in a strict manner. If the letter of the law is violated, the excise taxes will be imposed even if the plan was better off as a result of the transaction.(2) (4) If more than one party is liable for the excise tax, all disqualified parties are jointly and severally liable.

The types of plans that typically fall under the prohibited transactions rules include individual retirement accounts, individual retirement annuities, and qualified pension, profit-sharing, stock bonus and annuity plans. A disqualified person subject to the excise tax is required to report such tax on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, for each prohibited transaction. Disqualified persons must file a Form 5330 for each tax year that includes any part of the time period extending from the day the prohibited transaction occurred until the transaction is corrected.(3)

* Calculating the excise taxes

Sec. 4975 dictates two levels of excise taxes on any disqualified person who participates in a prohibited transaction with a qualified plan. Sec. 4975(a) imposes a 5% excise tax on the amount involved for each prohibited transaction. Under Sec. 4975(f)(4), the "amount involved" generally is the greater of (1) the amount of money and the FMV of the other property involved in the transaction or (2) the amount of money and the FMV of the property paid by the plan as a result of the transaction. This tax is imposed for each of the disqualified person's tax years, or part of a year, in the taxable period. The taxable period begins with the date of the prohibited transaction and ends on the earliest of the date (1) a deficiency notice for the 5% excise tax is mailed, (2) the 5% excise tax is assessed or (3) correction is completed.(4) Since the taxable period can extend over more than one tax year of the disqualified person, the excise tax can apply for more than one year to the same underlying prohibited transaction. If the 5% excise tax is assessed, Sec. 4975(b) imposes an additional 100% tax on any prohibited transaction not corrected within the prescribed correction period. The correction period begins on the date the prohibited transaction occurred and ends 90 days after the mailing of a deficiency notice with respect to the prohibited transaction.

Example 1: E, a calendar-year employer, sells land with an FMV of $40,000 to a qualified plan for $50,000 on July 1, 1993. The IRS mails a deficiency notice to E on Aug. 1, 1993. E corrects the transaction on Dec. 31, 1993. The amount involved is $50,000. The taxable period begins on July 1, 1993 and ends on Aug. 1, 1993, the date on which the notice of deficiency was mailed. The correction period begins on July 1, 1993 and ends on Oct. 30, 1993, 90 days after the notice of deficiency was mailed.

Since this is a prohibited transaction, a Sec. 4975(a) excise tax of $2,500 ($50,000 x 5%) may be assessed against E. Although E corrected the transaction by returning the $50,000 to the plan and taking back the property, he did not do so by the end of the correction period. Therefore, E must also pay the 100% excise tax of $50,000, and report these taxes on Form 5330 for the calendar year ending Dec. 31, 1993.

Note: Both of these excise taxes would apply even if the property had been sold to the plan for its FMV of $40,000, regardless of whether the sale is a good or bad investment for the plan. For the same reason, an even more surprising result is that the excise taxes would apply even if the property was sold to the plan for less than its FMV.

Prohibited transactions can have a substantial impact on the financial position of an individual, family or corporation. If the taxable period extends over more than one tax year, the first-tier tax will be due for each year. If the transaction is not corrected within the correction period, the second-tier 100% tax will also be assessed. If the prohibited transaction is engaged in by both a husband and a wife, they may both be considered liable for the full amount of these taxes, thereby doubling the total Sec. 4975 excise tax to the family. In addition, the IRS may assess Sec. 6651 failure to file penalties if excise tax returns have not been filed.(5)

The Sec. 4975 excise taxes apply only to disqualified persons. Disqualified persons are defined, in general, as 50%-or-greater (direct or indirect) owners; employers; fiduciaries; persons providing services to a plan; certain family members of the disqualified parties; unions whose members are part of a plan; officers; directors; and highly compensated employees.(6) (See Checklist I on page 440 for the individuals most likely to be disqualified persons.)

Checklist I: Disqualified Person

Tax advisers should encourage their clients to develop a list of persons and/or entities that commonly qualify as disqualified persons to avoid engaging unknowingly in a prohibited transaction.

* The employer of any member covered by the plan.

* Individuals who, directly or indirectly, own 50% or more of (1) the combined voting power or value or corporate stock, (2) the capital or profits interest of a partnership or (3) the beneficial interest of a trust or unincorporated enterprise, if the corporation, partnership or trust is an employer whose employees are covered by the plan.

* Fiduciaries of the plan, including individuals that provide investment advice to the plan.

* Any individual who provides services to the plan, including lawyers, accountants and actuaries.

* Any unions whose members are plan participants,

* Employees, officers, directors, major shareholders (10% or greater ownership) or highly compensated employees (earning 10% or more of the yearly wages of an employer) of corporations that are disqualified parties.

* Any spouse, ancestor, lineal descendant or spouse of a lineal descendant of a disqualified person.

Classification of Prohibited Transactions

* General rules

Sec. 4975(c) defines a prohibited transaction, in part, as any direct or indirect - sale or exchange, or leasing, of any property between a plan and a disqualified person; - loans between a plan and a disqualified person; - furnishing of goods, services or facilities between a plan and a disqualified person; - transfer of the income or assets of a plan to or for the benefit of a disqualified person; or - any act by a disqualified person who is a fiduciary in which he benefits from the income or the assets of the plan.

(See Checklist II on page 441 for the most common types of prohibited transactions.)

Checklist II: Prohibited Transactions

The most common types of prohibited transactions that are subject to the Sec. 4975 excise taxes include:

* The sale or exchange or leasing of any property between a plan and a disqualified person.

* The lending of money or other extension of credit between a plan and a disqualified person.

* The furnishing of goods, services or facilities between a plan and disqualified person.

* The transfer of the income or assets of a plan to, or use by or for the benefit of, a disqualified person.

* An act by a plan fiduciary who deals with the income or assets of a plan in his own interest.

* The receipt of consideration by a plan fiduciary for the fiduciary's personal account from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.

Given the potential magnitude of these taxes, tax professionals should advise their clients to be extremely cautious in dealing with qualified plans. The key for individuals who interact with qualified plans is to know what qualifies as a prohibited transaction.

* Sales or exchanges

General rules: If a disqualified person sells property to or exchanges property with a qualified plan, as in Example 1, a prohibited transaction has occurred. This is very straightforward. However, the prohibition against sales and exchanges has proven extremely difficult to apply to contributions of property to a qualified plan, primarily because, for purposes of Sec. 4975(f)(3), a "sale or exchange" includes a transfer of real or personal property to the plan if the property is encumbered by a mortgage or similar lien assumed by the plan. The ERISA committee reports specifically stated that the purpose of this rule is to prevent circumvention of the prohibition against sales or exchanges by mortgaging the property before contributing it to the plan.(7) Thus, the rules for encumbered property are clear: any contribution of encumbered property to a qualified plan is a "sale or exchange" and, therefore, is a prohibited transaction if made by a disqualified person.

However, the rules for contributions of unencumbered property are quite ambiguous. Two recent cases have focused on these rules. The central issue in Wood(8) and Keystone(9) revolved around whether Sec. 4975(f)(3) limited the definition of a "sale or exchange" only to transfers of encumbered property, or expanded the generally accepted definition to include such transfers.

Keystone and Wood:

Facts: Keystone maintained several defined benefit plans over the period 1983-1988 and met its funding obligation by making contributions to a pension trust. In 1983, Keystone contributed five truck terminals with an aggregate FMV of $9,655,454 to meet part of its funding obligation for the year. In 1984, Keystone contributed real property to the trust with an FMV of $5,336,751. The terminals and real property were not encumbered by any mortgages at the time they were transferred, nor were they ever leased back to Keystone.

Wood was a self-employed real estate broker. He was the sole participant in his defined benefit pension plan, as well as its administrator and trustee. The actuary appointed by Wood determined that the required contribution for 1984 was $114,000. To meet his funding obligation, Wood contributed three third-party promissory notes, which had been generated by the sale of three residential properties. The notes' combined face amount was $114,000, although their FMV was only $94,430. Wood claimed a deduction of $114,000 on his 1984 return for the contribution to the plan.

The underlying question in both cases was whether the contribution of unencumbered property by a disqualified person in satisfaction of an obligation to fund a qualified plan was a prohibited transaction.

IRS's reasoning: The Service argued that Keystone's and Wood's contributions in satisfaction of the funding obligations were sales or exchanges under Sec. 4975(c)(1)(A). The IRS reasoned that the term "sale or exchange" should be given the same meaning that it has throughout the Code. In general, the term is broad enough to include any transfer of property to satisfy indebtedness. Thus, the Service reasoned that the contributions qualified as prohibited sales or exchanges since they were made to satisfy funding liabilities, and that the Sec. 4975 excise tax should apply.

The IRS's argument centered on distinguishing between mandatory contributions, which it defined as contributions required to meet the minimum funding obligation, and voluntary contributions, defined as contributions over and above the required funding level. The Service asserted that Sec. 4975(f)(31 applies only to voluntary contributions of property. That is, it interpreted Sec. 4975(f)(3) to mean that voluntary contributions of property will be prohibited transactions if the plan assumes any liens on the contributed property, while voluntary contributions of unencumbered property will not be a prohibited transaction. However, in the case of mandatory contributions, such as Keystone's and Wood's, all contributions of property are prohibited transactions.

The Service also warned that if property could be contributed by a disqualified person to satisfy a funding obligation, the potential for abuse exists, since the disqualified person has an incentive to overstate the value of the property, or to transfer "bad" or "illiquid" investments to a plan. In fact, Wood had done so when he deducted the face value of the notes, even though he was aware that their FMV was less. Therefore, Wood overstated the deduction on his tax return, and did not satisfy the funding obligation for the plan.

Taxpayers' reasoning: Both Wood's and Keystone's basic reasoning was that Congress chose to provide a specific definition of "sale or exchange" for purposes of Sec. 4975 in Sec. 4975(f)(3). Since Sec. 4975(f)(3) does not state that a contribution of unencumbered property to a plan will be treated as a sale or exchange, the taxpayers contended that their transactions should not be considered to be prohibited. They also noted that the IRS's distinction between voluntary and mandatory contributions is not mentioned in Sec. 4975, or in the applicable regulations and conference reports.

The judiciary's decisions: The Tax Court ruled in the taxpayer's favor in both Wood and Keystone. The court focused on a principle of statutory construction that states that when Congress chooses to use specific language in describing a particular classification, any application of general language should be removed with regard to that classification.(10) This principle suggests that, in this case, "detailed definitions of sale or exchange for purposes of the prohibited transaction rules should be applied in lieu of general definitions found in other areas of the tax law."(11) Since Sec. 4975(f)(3) provides a specific definition of "sale or exchange," which is not broad enough to include Wood's or Keystone's transactions, the Tax Court determined that the taxpayers' transactions should not be classified as prohibited transactions. As such, the transactions were not prohibited and, therefore, the Sec. 4975(a) excise tax did not apply.

The Tax Court also quickly dismissed the reasoning that Sec. 4975(f)(3) should apply only to voluntary contributions, stating that such an interpretation would diminish the meaning of Sec. 4975(f)(3), since there was no language in the statute or in any part of the ERISA indicating that Sec. 4975(f)(3) should apply only to voluntary contributions.

The Tax Court admitted that its opinion did leave the door open for potential abuse. However, it reasoned that the purpose of Sec. 4975 was not to prevent such an abuse. Consequently, although the IRS's position would prevent abuse, Sec. 4975 could not be so interpreted because the legislative history of the statute did not support such an interpretation.

Note: Any problems with contributions to a plan should be reflected in an asset's FMV, which is the valuation that controls at the time of contribution. Thus, if an asset was "bad," its FMV should be lower than it would be if the asset was "good," and more of the bad asset would be needed in relation to the good asset to meet the minimum funding obligation. Furthermore, Sec. 4975 does not need to be interpreted to play such a role, since Sec. 4971 exists specifically to tax funding deficiencies caused by the contribution of overvalued assets to a plan by assessing a 10% tax on failures to meet minimum funding standards.

To summarize, the Tax Court found nothing in the legislative history of Sec. 4975 to suggest that unencumbered property could not be transferred to a plan in satisfaction of minimum funding requirements. The Tax Court further stated that if this provision results in poor policy, Congress, rather than the judiciary, would have the responsibility to change the law.

On appeal, the Fifth Circuit affirmed the Tax Court's decision in support of Keystone. However, Wood was not as fortunate; the Fourth Circuit reversed the Tax Court's decision only three weeks after the Keystone decision.

The Fourth Circuit focused on congressional intent. Sales and exchanges of property between insiders and pension plans were designated prohibited transactions to ensure the safety of the pension plan system, by eliminating the possibility that such sales and exchanges may not be arm's-length transactions. The court cited Wood's transaction as a potentially abusive situation, since Wood contributed notes with an FMV of $94,430 to purportedly meet his $114,000 funding obligation.

The Fourth Circuit disagreed with the Fifth Circuit's reasoning in Keystone that Sec. 4975(f)(3) defines only transfers of property encumbered by mortgages or liens as "sales or exchanges" under Sec. 4975. The Fourth Circuit returned to Congress's general intent to reason that Sec. 4975(f)(3) expands the definition of "sale or exchange" to include all transfers of encumbered property, with the assumption being that the designation of contributions of unencumbered property as prohibited transactions is implied.

Given the disagreement over the application of Sec. 4975(f)(3) in the circuit courts, the Supreme Court agreed to hear the Keystone case. In May 1993, the Supreme Court reversed the Fifth Circuit's decision, holding that any mandatory contribution of property to a qualified plan, whether or not encumbered, is a prohibited transaction. The Court interpreted See. 4975(f)(3) to apply only to voluntary contributions, holding that voluntary contributions were sales or exchanges only if the property contributed was encumbered. However, mandatory contributions of property will be considered to be a sale or exchange, regardless of whether the property is encumbered. As to the purpose of See. 4975(f)13), the Supreme Court stated that the legislative history demonstrated that Congress intended to expand the scope of the Sec. 4975 excise tax by including contributions of encumbered property. However, it is interesting to note that Sec. 4975(f)(3) cannot expand the definition of "sale or exchange," since the Supreme Court previously stated that the general definition of "sale or exchange" includes any transfer of property that satisfies an obligation. Therefore, if the Supreme Court's decision does reflect congressional intent to include all mandatory contributions of property as sales or exchanges, Sec. 4975(f)(3) is redundant, rather than expansive. (The only judge dissenting from the opinion, justice Stevens, noted that the distinction between voluntary and mandatory contributions has no basis in the statute itself.)

* Leasing transactions

The leasing of property between a disqualified person and a qualified plan is also prohibited. The consequences of such a transaction are especially severe, because of the manner in which the amount involved is computed for leases and other continuing transactions. In Lambos,(12) a disqualified person leased property from a qualified plan. The Tax Court determined that, for multiyear leases, the amount involved is determined by considering the leases to be separate prohibited transactions on the date they were entered into and continuing on the first day of each tax year of the disqualified person that occurs within the taxable period. Thus, for continuing transactions such as leases, the penalty pyramids.

Example 2: A calendar-year employer leases property from a qualified plan, beginning Jan. 1, 1993. Since the transaction is prohibited, the Sec. 4975 excise taxes will apply. The lease calls for payments of $500 per month for two years. The amount involved for each year in which the lease is in effect is the FMV of the annual rent multiplied by the number of months remaining on the lease (including the current year). Thus, a prohibited transaction first occurred on Jan. 1, 1993, and the 5% excise tax is $600 ($500 x 24 months x 5%). On the first day of the next tax year, Jan. 1, 1994, another prohibited transaction occurs, and the 5% excise tax is $300 ($500 x 12 months x 5%).

Practitioners should also be careful when interpreting the changes made to the unrelated business income rules for qualified pension and retirement plans by the Revenue Reconciliation Act of 1993 (RRA). Leasebacks between qualified organizations and the seller of the property and leases between qualified retirement plans and certain disqualified persons were removed from the unrelated business income rules, if two conditions are met. First, no more than 25% of the leasable floor space in a building can be leased back to the seller or to the disqualified person. Second, the lease must be on commercially reasonable terms. However, the RRA House Report makes clear that both of these transactions remain subject to the prohibited transaction rules under Sec. 4975.(13) Therefore, tax advisers should make sure that such transactions are not prohibited before advising their clients to participate in them solely because of the relaxation of the unrelated business income requirements.

* Loans

The lending of money between a disqualified person and a qualified plan is also a prohibited transaction. This prohibition also applies if a loan to the plan is guaranteed by a disqualified person. In addition, a plan cannot purchase debt instruments that are obligations of a disqualified person.(14)

Planning Techniques

* Correction of a prohibited transaction

If a disqualified person engages in a prohibited transaction, the 5% excise tax will apply. However, if the transaction is corrected promptly enough, the second-tier 100% excise tax can be avoided. The correction period begins on the date the prohibited transaction occurred and ends 90 days after the mailing of a deficiency notice.

For a correction to be valid, it need not be the direct result of some action taken by the disqualified person (although this is the ordinary remedy). In Zabolotny,(15) the disqualified parties sold three tracts of land to an employee stock option plan (ESOP). Since the plan made a very large profit on this transaction, the Eighth Circuit held that the transactions had been corrected. Sec. 4975 imposed no literal requirement that a disqualified person had to take affirmative action before a transaction would be considered "corrected." The extent to which a disqualified person must "undo" a prohibited transaction depended on whether "undoing" it was possible, and what effect this would have on the plan's financial position. The only requirement was that, after "correction," the plan had to be in a financial position "not worse than that in which it would be if the disqualified person were acting under the highest fiduciary standards."(16) Because the plan was in an exceptional financial condition, it met this basic requirement for "correction"; in addition, to have unraveled the prohibited transaction would have put the plan in a worse condition.

When an affirmative act is required, the types of acts that qualify depend on the nature of the prohibited transaction. A prohibited transaction is generally corrected by reversing the effect of the transaction so that the plan and the disqualified party are in the same position they were in before the prohibited transaction occurred. Note that for sales of property to a plan, if the plan resells the property in an arm's-length transaction to a nondisqualified party, no correction is necessary. However, if the plan sells the property for less than it paid for it, the disqualified party will be required to make sure that the plan is in no worse financial condition than it would have been in. In the case of a sale of real estate by a disqualified party to a qualified plan, the sale must be reversed and the property's FMV must be repaid to the plan for a correction to be accomplished.(17) In the case of a loan from a plan to a disqualified party, correction occurs when the loans are repaid, with reasonable interest, and terminated.(18)

* Special exemptions

For individuals who are uncertain whether a potential transaction may be prohibited, or who believe that the transaction is prohibited but would like relief from the Sec. 4975 excise taxes, Sec. 4975(c)(2) prescribes a procedure for requesting an exemption. The Treasury can grant a conditional or unconditional exemption after consultation with the DOL, provided that the exemption is - administratively feasible; - in the interests of the plan and the plan's participants and beneficiaries; and - protective of the rights of the participants and beneficiaries of the plan.

For transactions that are ambiguous as to whether they are prohibited, taxpayers should consider requesting an exemption. In general, the application for exemption is usually filed with the DOL. Either a disqualified person or the plan may apply for the exemption. However, the DOL will not consider an application if the party in interest in the application is under investigation by the IRS to enforce ERISA's fiduciary provisions.(19)

* Specific planning for sales, exchanges, leases

and loans

Sales and exchanges: The Supreme Court's opinion in Keystone sends some very clear signals to individuals who are involved with qualified plans. It appears that the Court is willing to strictly interpret the statutes even if this results in placing severe limitations on employers' flexibility in dealing with qualified plans. It is especially disturbing that such a strict interpretation was made in Keystone, because the interpretation does not have strong grounding. As noted, the Supreme Court referred to the legislative history to justify its decision, even though the ERISA Conference Report provided no guidance on Congress's specific intent for Sec. 4975(f)(3). The Court then provided a "mandatory versus voluntary" distinction that had no basis in the law or the Conference Report. The Supreme Court also did not address several cases that have provided strong support for the general rule that specific statutory definitions should override more general definitions.(20)

However, the Supreme Court's decision will now restrict employers from funding qualified plans with unencumbered property. If an employer needs to make mandatory contributions to qualified plans from noncash property, its tax adviser should advise that the property must first be converted to cash, which will probably trigger the recognition of gain or loss. If a gain is generated, the tax paid on the gain will place the employer in a worse position than if it had been able to contribute the property directly to the plan. Employers in this situation should choose to sell, when possible, assets that are not appreciated in order to avoid these accelerated tax payments.

The Supreme Court also ruled that voluntary contributions of unencumbered property to a qualified plan by a disqualified party will not qualify as prohibited transactions. Therefore, if employers anticipate that they may need to fund plans with unencumbered property in future years, to avoid the result in Keystone they should consider voluntarily contributing the property to the plan in a prior year. Since the contribution is voluntary, the prohibited transaction rules should not apply.(21) Additionally, the voluntary contribution will reduce the amount of mandatory contributions that will be necessary in future years.

Leases: Tax advisers should ensure that those clients who are disqualified persons avoid engaging in leasing transactions with qualified plans, because the excise taxes grow rapidly in a pyramiding effect (as shown in Example 2).

Loans: If it is advantageous for a disqualified person and a qualified plan to engage in a lending transaction, the loan should be entered into only if it can be structured to meet a statutory exemption from the prohibited transaction rules that is provided for certain loans. A loan between a plan and a disqualified person who is a plan participant or beneficiary is not a prohibited transaction if the loan (1) is available to all plan participants or beneficiaries (but distinctions can be made based on creditworthiness), (2) does not favor highly compensated employees, (3) is made in accordance with the provisions of the plan, (4) contains a reasonable rate of interest and (5) is adequately secured.(22) Note that this exemption does not apply to owner-employees.(23)

Conclusion

Given the severity of the excise taxes under Sec. 4975, tax professionals should encourage employers and other disqualified persons to proceed very cautiously when dealing with qualified plans. Practitioners who do not adequately detect prohibited transactions in which their clients engage, or even worse, who actually advise their clients to engage in such transactions, may incur significant liability as a result of their advice. Clients, in turn, should know to consult with their professional adviser before engaging in any unique or unusual plan transactions. The Sec. 4975 excise taxes are strictly enforced. Therefore, any planning to avoid them should he done before a transaction is consummated, if possible. Additionally, if the potential excise taxes are very large, an administrative exemption should be requested.

(1) H. Rep. No. 93-1280, 93d Cong., 2d Sess. 321 (1974) (hereinafter, the "ERISA Conference Report"). (2) Hulan E. Rutland, 89 TC 1137 (1987). (3) Regs. Sec. 54.6011-1(b). (4) Regs. Sec. 54.4975-1 and Sec. 4975(f)(2). (5) See, e.g., the Tax Court decision in Anton Zabolotny, 97 TC 385 (1991), aff'd in part and rev'd in part, 7 F3d 774 (8th Cir. 1993)(72 AFTR2d 93-6314, 93-2 USTC [paragraph] 50,567). (6) Sec. 4975(e)(2) and (e)(9)(B). (7) ERISA Conference Report, note 1, at 308. (8) Dallas Wood, 995 F2d 908 (4th Cir. 1992)(69 AFTR2d 92-649, 92-1 USTC [paragraph] 50,073), rev'g 95 TC 364 (1990), cert. dismissed. (9) Keystone Consolidated Industries, Inc., 113 Sup. Ct. 2006 (1993) (71 AFTR2d 93-1809, 93-1 USTC [paragraph] 50,298), rev'g 951 F2d 76 (5th Cir. 1992) (69 AFTR2d 92-517, 92-1 USTC [paragraph] 50,045), aff'g TC Memo 1990-628. (10) Energy Resources, Ltd., 91 TC 913, 916-917 (1988), quoting from Liberty Finance Service, Inc., 34 TC 682, 687 (1960). See also, Marian Essenfeld, 37 TC 117 (1961). (11) Wood, note 8, TC, at 371. (12) Anton Lambos, 88 TC 1440 (1987). (13) RRA Conference Report No. 103-213, 103d Cong., 1st Sess. 43 (1993). (14) ERISA Conference Report, note 1, at 308. (15) Zabolotny, note 5. (16) Sec. 4975(f)(5). (17) Rutland, note 2. (18) Esfandiar Kadivar, TC Memo 1989-404. (19) DOL Regs. Section 2570.32(a) and 2570.33(a)(2). (2O) Energy Resources, Ltd., note 10; Essenfeld, note 10; Chase, 135 US 255 (1890). (21) Keystone, note 9, 5th Cir, at 92-1 USTC 83,188. See also Sec. 412. (22) Sec. 4975(d)(1). (23) Sec. 4975(d), flush language.