My dad was a CPA who specialized in tax work before he retired and continued to do a little tax work until he died this year at age 86. It is hard to believe that he screwed up the handling of my mother's traditional IRA when she died in 2007 at age 79. As surviving spouse and sole beneficiary he had the option of rolling her IRA into his own, or setting up an inherited IRA with himself as beneficiary. He chose the inherited IRA/beneficiary option. However, in 2008 and 2010 he made RMDs from that account calculated as if he were owner not beneficiary. I (as one of his beneficiaries) would like the maximum stretch and would like to have his inherited account treated as if he were owner rather than beneficiary.

I have reviewed the regs, and see in section 1.408-8 A.5(b) the statement: "a surviving spouse eligible to make the election [to treat the deceased spouse's IRA as his own] is deemed to have made the election if, at any time, either of the following occurs . . . (1) Any amount in the IRA that would be required to be distributed to the surviving spouse as beneficiary under section 401(a)(9)(B) is not distributed within the time period required under section 401(a)(9)(B)"

I read this to mean that by not making the proper beneficiary RMD in 2008, he is deemed to have elected to treat the IRA as his own. I have made this point to a guy in the Scottrade compliance dept, who believes that that rule does not apply where, as here, my father affirmatively elected to set up the inherited IRA as a beneficiary acct (it is titled "Scottrade, Inc. Custodian FBO [dad] Inherited IRA Bene of [mom] IRA"). Before making a more formal request to Scottrade, I am looking for additional authority to support my position.

A plan sponsor has a 401k plan. Note the plan does not have a profit sharing provision. Makes no sense to me.

The company only has two employees. Mother and daughter.

I received data from client where they state that a contribution for one participant (over age 50) received a plan contribution of $25,000 for 2009.

My assessment is that since 2009 is past we cannot amend the plan to provide a profit sharing feature for 2009. The restated plan effective 1/1/2010 does include a profit sharing feature.

Therefore, the participant can defer 22k 401k, but the additional amount cannot be a profit sharing contribution?

Is that correct? Am I overlooking somoething?

Thanks.

Some small plan clients just provide year-end asset values and dates of contribution and not brokerage statements. They report if they have non qualified investments (and its details), but otherwise they just report asset values.

Of course the 5500 and Sch B can be prepared with this limited info; just no real accounting done.

Is it required for the TPA preparing the return to have the brokerage statements on hand?

Thanks.

A practitioner is negotiating the closing of an IRS audit. The IRS describes the settlement range as based on the taxes that could be imposed if the plan is treated as not qualified. The IRS requests that the taxpayer's representative submit a worksheet showing those taxes.

Because the plan's only investment is rights under a group annuity contract, the representative intends to show the plan's investment income as zero for every year, taking the position that the annuity contract still gets the tax treatment of an annuity contract.

In your experience, do IRS people commonly accept or question such a position (in the context of Audit CAP)?

Has anyone dealt with the situation where a DB plan former participant is/has turned age 70-1/2 and needs to begin to receive an RMD, is not responsive to attempts to contact him by the Plan Administrator, and his/her marriage status is unknown? They are trying to avoid having to modify the annuity form after it has begun (i.e., initially provide a single life annuity, but find out a participant is married and then have to switch to a J&S; or vice-versa).

Should the Plan assume the participant is unmarried (even if records may say otherwise), provide a single-life annuity, then switch to a J&S if they find out the participant is married (kind of like deeming the modification to be on account of the participant's marriage under the 401(a)(9) regs).

Do the opposite?

Also thinking about providing a long-term period-certain, which could then be changed to an annuity under the regs, but what if the plan doesnt allow this?

Thanks.

Having a brain cramp, need help on how to handle past service grants in a new plan for testing purposes.

Looking at a proposal. New plan, two owners with 4 years of past service each, none for employees.

Simplified example of design:

Owners accrue 2% of pay x YOS = 8% of pay at end of Plan Year 1.

Employees accrue $100 per month per YOS = $100 at end of Plan Year 1. Assume this works out to 2.1% of pay.

1. It seems to me that this must be general tested because the formulas are not uniform, right?

2. If so, how is the past service handled for testing purposes in year 1?. Do I have a NAR of 2% for the owners, or a NAR of 8%?

Currently the plan document allocates PS salary proportionate. Eligibliity requirements are 21 and 1 year of service. Once eligibile, there are no conditions on getting the allocation. The client has come to us (at the end of May) and requested a change to the document to allocate PS class allocated by participant. They want the change for 2010. Do I have an issue with changing the PS allocation mid-year?

Thanks for any guidance you can provide.

While cleaning up and reviewing old benefit files, we ran across a Domestic Relations Order (signed and filed with the courts) which appears to have been never completed. There is no indication that we ever accepted or rejected it. The DRO is clearly NOT Qualified. It simply appears that the final steps of the QDRO procedures were not completed.

Fortunately, the Participant is still an employee and the benefit is not in "pay status" yet. We are confident the divorce was finalized.

Has anyone ever ran across this? Would you contact the employee and ask for any paperwork related to this? The year of divorce was 1996.

With respect to the diversification notice required by ERISA Section 101(m) (required to be distributed 30 days before a participant first acquires the rights described in IRC Section 401(a)(35)), does that requirement apply to a 401(k) plan that has just now been amended to add a company stock option (publicly traded), and that will freely allow participants to divest of the stock from the start (as described in the recently-issued IRS regulation)? If so, is it a recurring disclosure requirement, that must be given to every new participant 30 days before the date he or she begins to participate? Is it enough that similar diversification language is contained in the plan's benefit statement (under ERISA Section 105(a)(1)(A)(i)), to which participants have continuous access via a secure website (as described in DOL FAB 2006-03)?

Thanks.

being newer to the 457 world , is it possible in a 457b to have only employer contributions and if so can they be formula driven. If not possible do you then have to use a 457f plan?

Is a small plan holding an asset which is a DFE ineligible to file form 5500 SF because of that?

I think the answer is the sponsor is eligible to file SF, provided the DFE (and every other plan asset) has a readily determinable fair market value and the other non-asset conditions are met.

I went to http://www.regulations.gov/search/Regs/home.html#home, selected "Rules" and pasted "29 CFR 2520.103-1©(2)(ii)©" from EBSA's instructions into the keyword textbox and it immediately served up this Federal Register document! The reg is pretty clear (please see page 20 of the PDF).

EBSA_2007_0045_0001_1_.pdf

I have a cafeteria plan that is terminating.

The plan has been exempt from filing Form 5500 since it has less than 100 participants and does not maintain a Trust for the plan assets.

Since they have not had to file in several years, is a final Form 5500 required to be filed?

Just a quick comment before further analysis:

One of my beliefs to date is that a 412i plan can be funded where 50% of total premium is for annuity contract and 50% of total premium is for life insurance, thus not violating the exceeding 50% of total costs requirement of 74-307.

Is that one approach that is satisfactory?

Cost of life insurance. 412i plan is for the two owners (husband and wife) and only employees of company. Is it always required that a cost of life insurance protection be reported as taxable income per nitice 2002-8 currently or are there situations where cost of insurance is not required or reported as income to participant?

Thanks.

3% NESH for all eligible employees.

Non-Safe Harbor Allocation for Profit Sharring

2% Profit Sharing for all others

10% for HCEs.

They want the 3%NESH to also count towards the 5% minimum gateway.

Is this allowed?

There are multiple s corporations with one shareholder owning over 60% of each. They are trying to form a single parent S corp. to use as the vehicle to form an ESOP and own control of all corporations. Can 1 ESOP be formed at the parent company level and have it cover employees of the 60% subs? I would think this would be permissible - if it turns out to not be a controlled group, it would be treated as a multiple employer plan and subject to the rules under 413?

Any insight would be greatly appreciated.

Hello:

I have a client asking if they can assess an administrative fee only to terminated employees with account balances, but not applying any type of fee to active participants.

I can see that the DOL, in FAB 2003-3, establishes some guidelines but if my reading is correct, it appears to me that they really intended that an administrative fee that is assessed to everyone, can be passed through to terminated participants, but paid by the employer for actives, without a problem.

I do not read the FAB as saying you can assess a fee to terminated participants, but not assess it to active participants (though they may be paid by others), but maybe someone can correct me if I am reading this too conservatively.

Thank you,

Andmik

A participant terminated in 2009 with an outstanding loan balance.

They took a distributuion in 2009, less the outstanding loan amount. The loan was defaulted. A 1099 R was issued for the distribution and for the loan default

My question is where to report the default of the outstanding loan amount of the Schedule H.

Is it reported on line e(1) Benefit payment to participants or is is reported on line g Certain deemed distribribtions of participant loans?

Thank you for any help

I am one of the lucky ones whose Social Security Number ends in 0, 1, 2, or 3. So I must renew my ERPA enrollment by 6/30/2010.

I was enrolled 9/3/2009 and it expires 9/30/2010.

I have read the Circular 230 regarding CPE credits for those enrolled during an enrollment cycle and am confused.

For a regular 3 year cycle it is clear that one must have 72 CPE credit, and one must have at least 16 (including at least 2 ethics) each year.

When one was enrolled during a an enrollment cycle Circular 230 states (page 9 - section 10.6 (e)(2)(iii)):

(iii) Enrollment during enrollment cycle. —

(A) In general. Subject to paragraph (e)(2)(iii)

(B) of this section, an individual who receives initial

enrollment during an enrollment cycle must complete

2 hours of qualifying continuing education credit for

each month enrolled during the enrollment cycle.

Enrollment for any part of a month is considered enrollment

for the entire month.

(B) Ethics. An individual who receives initial

enrollment during an enrollment cycle must complete

2 hours of ethics or professional conduct for

each enrollment year during the enrollment cycle.

Enrollment for any part of an enrollment year is considered

enrollment for the entire year.

I wasn't exactly sure what an enrollment year was for me. For part A, "In general", I figured that I had 10 months from 9/2009 to 6/2010 so that was 20 CPE that I needed. What I could not figure out at all was how many ethics CPE I needed. If the enrollment year was a calendar year (as defined in section 10.6 (e)(1)(i)), and any part of a year was considered a whole year, then I would need 4 ethics CPE. This made no sense to me as I have been enrolled less than one year.

After a couple of attempts I got through to someone at the IRS, and I was not able to clear things up - it only made it worse as I don't think the person I talked to knows what she was talking about.

First of all she said that first paragraph above ("(A) In general . . .") required that someone enrolled during an enrollment cycle had to have 2 CPE IN each month. So even though I was enrolled on 9/3/2009 and received my certificate and card sometime later that month, I had to have 2 CPE in 9/09, and then 2 in Oct 09, 2 in Nov 09, etc. I expressed that this didn't make any sense at all, but she was animate and said we would agree to disagree. That if I was audited, I could be sanctioned if I did not have 2 CPE in each month rather than 20 in the period 9/09 to 6/10. When I asked what I was supposed to about it now as there is no way to go back and get 2 CPE in each month, she said "can't you get them now before you renew?" Which of completely contradicts what she previously said - when I pointed that out, she said that they would accept the renewal, but again if I was audited, I could be sanctioned. I pointed out that the regular 3 year cycle does not require anything similar, that one just had to have 16 per year and 72 total, she referred me back to how the circular is written. She is clearly wrong about this, but it went no where.

When it came to ethics CPE, she first told me I had to have 4 ethics CPE. I’ll spare trying to describe all of this part of the conversation as it was completely bizarre. I explained that I had 1.5 ethics CPE from a recent conference and didn’t know where I could get .5 more to get to 2 total, let alone 2.5 more to get to 4, by 6/30. I asked her if she could define what my “enrollment year” was (calendar or other wise) so I could figure out how many years were in my cycle and then determine how many ethics CPEs I needed. She said some things, but never was able to answer the question - I don’t think she understands it herself. She said “what would I like, would I like it to be 1.5?” I said “sure” and she said “OK”. After picking my jaw off the floor I still don’t know what that means or what I’m supposed to do.

Then she said, “do you want the extension or not?” I didn’t know what she was talking about. She then said something like “well we knew for this first renewal cycle people would have difficulty getting the CPE by 6/30, so we’ve extended until 9/30." I felt like screaming “why didn’t you say this in the beginning?” That also contradicts her contention that we must have 2 CPE in each month.

She then said she wanted to fax me an internal memo. The fax is a Policy and Procedures Memorandum dated 3/8/10 from the Chief of the Case Development & Licensure Branch. It states in part:

ERPA CPE hours for the first renewal cycle of SSN’s ending in 0, 1, 2, and 3, will run from the date the ERPA was enrolled through the end of June 30, 2010.

Renewal applicants will be allowed to earn CPE credits through June 30, 2010.

Although the renewal application window will end June 30, renewal applications will continue to be accepted and processed up to the card expiration date of September 30, 2010.

But I’m lost in figuring this out. She told me on the phone that we had an extension to apply for renewal and get the CPEs, but the memo seems to say that we have an extension to apply for renewal, but he CPEs must be completed by 6/30.

It appears that we have to certify what we have done and retain the records to prove it only if asked. Nothing needs to be submitted with the application to support that we have competed the requirements.

I’m not even sure if I’m posting this to ask a question or just to make others aware of the issue. If any one has anything that can enlighten the situation I would sure appreciate it.

FACTS:

Plan defines Compensation as:

Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 641(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

Plan states that Benefit Service ends on the date Employee severs employment with the Employer and defines service as elapsed time.

Company has a policy to pay for any unused vacation accumulated by the termination date (could equal the annual compensation if somebody worked over 25 years without taking any vacation) within couple weeks after the termination of employment.

QUESTIONS/CONCERNS:

1. Based on the Compensation definition above, it appears that the final year compensation will include severance pay and will also include the unused vacation pay. Correct?

2. So if somebody terminates the employment on 7/1 and week later receives his severance pay for another 6 months, I will have to use 6 month of service for the last year and full annual pay to calculate retirement benefits. And if this employee has 52 weeks of accumulated non-paid vacations, I would really use double annual salary for the final year. Correct?

3. If client wants to amend the compensation definition to exclude unused vacation pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing?

4. If client wants to amend the compensation definition to exclude severance pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing?

When correcting in a subsequent year an operational failure to make a distribution under Section VII.D of IRS Notice 2008-113, it appears there is a conflict in the reporting provisions of Section VII.D and Section IX.B. The company is required to provided an amended W-2/1099 as applicable to the individual to reflect payment of the amount for the year the missed distribution should have been paid. In addition, the individual is required to file an amended tax return to reflect the missed payment. However, In Section IX.B, the company is not required to provide the individual with the required statement until the due date for provided an information return for the calendar year in which it discovers the failure. Additionally, the individual is required to attach the statement to his or her tax return for the year the failure is discovered. The filing of the amended tax return for the year of the missed payment and notifying the IRS via the attached statement in a subsequent year don't seem to coordinate. Has anyone from the IRS informally commented on this apparent conflict?