Summary: Pursuant to a congressional request, GAO: (1) reviewed whether the 15-percent excise tax on pension plan asset reversions sufficiently recaptured corporations' financial gains resulting from the tax-free accumulation of pension fund earnings; and (2) calculated the excise tax rate that would offset the amount of the tax preference for a sample of recent reversions.
GAO found that the: (1) 15-percent excise tax did not fully offset the tax benefit portion of asset reversions for most of the 18 cases reviewed; and (2) excise tax rates necessary to fully recapture tax benefits varied widely. GAO found that: (1) under maximum statutory tax rates, the excise tax rate required to recapture tax benefits exceeded 15 percent in 17 of 18 cases, ranging from 14 to 84 percent; (2) under average effective tax rates, the rate needed to offset tax benefits exceeded 15 percent in 12 of 18 cases, ranging from -7 to 65 percent; and (3) under the current maximum corporate tax rate of 34 percent, the rate required to recapture tax benefits exceeded 15 percent in 14 of 18 cases, ranging from 7 to 72 percent. GAO also found that plans that primarily obtained their investment income from sources that normally were subject to the maximum statutory tax rate had the highest offsetting tax rates, whereas those with sources subject to the lower capital gains tax rate had the lowest offsetting tax rates.
