Tax Court Reverses Course: IRS May Assess Excise Tax for ESOP Violation The Tax Court has vacated its prior ruling in which it held that the IRS was precluded by the statute of limitations from assessing the excise tax under Code Sec. 4979A for prohibited allocations of qualified securities in connection with an Employee Stock Ownership Plan (ESOP) [Law Office of John H. Eggertsen P.C., 143 TC No. 13]. CCH Take Away. Under Code Sec. 4979A(e)(2)(D), there is a three year limitations period starting from the later of the allocation or ownership giving rise to the tax, or the date the IRS has notice of the allocation or ownership. The Code Sec. 6501 three-year limitations period begins running when the taxpayer files a return. Background In its prior ruling, the Tax Court had found that the taxpayer was technically liable for the excise tax, but that the assessment period under Code Sec. 4979A had expired. The filing of Form 1120S by the employer and Form 5500 by the plan was sufficient to provide notice to the IRS that excise tax was owed and to trigger the limitations period under Code Sec. 4979A. Initially, the IRS had expressly stated that the limitations period of Code Sec. 4979A, rather than the period under Code Sec. 6501 applied. After the Tax Court found the period had expired, the IRS filed a motion for reconsideration, arguing that Code Sec. 6501 did apply to this case. Court’s analysis The Tax Court found that it had committed substantial error since the limitations period under Code Sec. 4979A(e)(2)(D) took precedence over the period in Code Sec. 6501. The former is a specific statute applicable to the excise tax imposed by Code Sec. 4979A(a) and serves only to extend under the circumstances set forth therein the period of limitations prescribed by Code Sec. 6501. Under Code Sec. 6501 a return must be filed to start the running of the limitations period. The Tax Court therefore considered whether the Forms 1120S and 5500 submitted by the taxpayer and the plan could be treated as a return. The Tax Court ruled that these forms did not provide sufficient information to calculate the tax liability and therefore did not trigger the start of the limitations period. The plan should have filed Form 5330, Return of Excise Taxes Related to Employee Benefit Plans. Instead, the IRS filed a substitute form. Therefore, the IRS could assess the excise tax under Code Sec. 4979A owed for the 2005 tax year at any time.