Bankruptcy Liquidation Reversion Exemption

§ 4980. Tax on reversion of qualified plan assets to employer(a) Imposition of taxThere is hereby imposed a tax of 20 percent of the amount of any employer reversion from a qualified plan. (b) Liability for taxThe tax imposed by subsection (a) shall be paid by the employer maintaining the plan. (c) Definitions and special rulesFor purposes of this section—(1) Qualified planThe term “qualified plan” means any plan meeting the requirements of section 401(a) or 403(a), other than—(A) a plan maintained by an employer if such employer has, at all times, been exempt from tax under subtitle A, or (B) a governmental plan (within the meaning of section 414(d)). Such term shall include any plan which, at any time, has been determined by the Secretary to be a qualified plan. (2) Employer reversion(A) In generalThe term “employer reversion” means the amount of cash and the fair market value of other property received (directly or indirectly) by an employer from the qualified plan. (B) ExceptionsThe term “employer reversion” shall not include—(i) except as provided in regulations, any amount distributed to or on behalf of any employee (or his beneficiaries) if such amount could have been so distributed before termination of such plan without violating any provision of section 401, (ii) any distribution to the employer which is allowable under section 401(a)(2)—(I) in the case of a multiemployer plan, by reason of mistakes of law or fact or the return of any withdrawal liability payment, (II) in the case of a plan other than a multiemployer plan, by reason of mistake of fact, or (III) in the case of any plan, by reason of the failure of the plan to initially qualify or the failure of contributions to be deductible, or (iii) any transfer described in section 420(f)(2)(B)(ii)(II). (3) Exception for employee stock ownership plans(A) In generalIf, upon an employer reversion from a qualified plan, any applicable amount is transferred from such plan to an employee stock ownership plan described in section 4975(e)(7) or a tax credit employee stock ownership plan (as described in section 409), such amount shall not be treated as an employer reversion for purposes of this section (or includible in the gross income of the employer) if the requirements of subparagraphs (B), (C), and (D) are met. (B) Investment in employer securitiesThe requirements of this subparagraph are met if, within 90 days after the transfer (or such longer period as the Secretary may prescribe), the amount transferred is invested in employer securities (as defined in section 409(l)) or used to repay loans used to purchase such securities.