Situation:

- son owns 100% of construction company

- parents used to own company, actual ownership now is 0%, but they still work there

In researching whether the parents own >5% via ownership attribution rules I found 2 different answers. There are some posts on this board indicating that attribution goes from kids to parents and vice versa, but I also found one that says ownership only attributes from kids to parents if the kids are under 21.

I have a page from an old Journal of Pension Benefits article which reads as follows:

- Description: children

- Actual owner: 1) child under age 21

- Constructive owner: each parent

- Description: children

- Actual owner: 1) child over age 21

- Constructive owner: a parent who owns (before application of thia paragraph) more than 50% (in value or voting power) of the corporate stock

It would be great to get the parents out of the HCE category on the ADP test (both made 11k and deferred 15%).

Sorry for the long post, I wanted to get all the facts out there.

Can someone enlighten me please?

Thanks. Maverick

i had a roth ira excess contribution for tax year 2000 that i corrected by having the trustee remove the excess along with any earnings and apply it towards a tax year 2001 roth contribution. this was all completed and included on my tax year 2000 filing. the trustee transfer was done in february of 2001. i received the 1099R that states the exact amount that was distributed for tax year 2001, however,it has a code J8 assigned to it so i'm a little confused as to what to do with the 1099R and it's filing. i thought that it was taxable in year 2000, even though the distribution was made in year 2001. i feel that the reasoning for the J8 distribution code is because the distribution was made in year 2001. since i already included the distribution in tax year 2000 filing ( which was the year that the excess contribution was made ), do i do nothing with the 1099R or do i need to include it also in tax year 2001 since that was the year that the distribution was made ? if anyone can help, i beg you to please o please help this tired and weary soul. thanks, bob edwards

Client's K plan allows client to make a matching contribution for NHCEs only equal to lesser 100% of deferral and 6% of pay. Client forgets about the 6% limit and matchs 100% of deferrals which results in "excess" matchs from $81 to $2,000 aggregating to about $9,000. Effectively, client contributed too much for NHCEs only but no other problems (e.g., no 415 issues). The accounts are self-directed and many of the participants have their accounts at different brokers so any correction which leaves the excess in the plan will be really messy to accomplish. Semi-seriously, is it worth correcting this error when it benefitted only the NHCEs and no other problems exist?

In early 2001 taxpayer makes 2000 contribution to a new roth.

When the time comes to file thier 2001 tax return, he discovers that his income is too high for a Roth. He does not want to recharacterize as a regular IRA. He must withdraw the $2000 & any earnings before the due date of the tax return. The earnings are taxable.

What is the tax impact if the $2000 had been invested & the investment had fallen in value to $700 at the time of withdrawal?

Can they take the $1300 loss?

If so, what kind of loss?

Thanks.

I have several mortgage investments in my Roth-IRA. Can I use my Roth-IRA for a loan to someone interested in buying a house from me?

I just got an email regarding the economic stimulus package that might contain some corrective legislation issues. I haven't seen it as I'm logging in remotely, but does anyone know if anything with respect to 403(B) or 457 was addressed?

Plan termed last year - approx. 15 people never cashed their distribution checks. We were thinking of just re-issuing them per original instructions. Let's say someone originally elected a rollover to another qualified plan & is no longer with that company. How do we handle issuance of a replacement check with different instructions? Becasue 1099-r's already went out for '01 how do we correct tax reporting?

Thanks,

Brian

One of our clients mainatins and ESOP & a 401k. A participant termed last year & was paid her balance in both plans, however 401k distribution was taken out of ESOP assets. What is the proper method to correct?

Thanks,

Brian

Here is the text of a recent release from the Arkansas tax authorities, about the EGTRRA mismatch between the Internal Revenue Code and Arkansas' tax code. Thanks to attorney Tom Overbey for the contribution! -- Dave Baker

-----------------

RECENT FEDERAL INCOME TAX LAW CHANGES AFFECTING ARKANSAS INCOME TAX LAW ON IRA'S, EDUCATION IRA'S, PENSION, AND DEFERRED COMPENSATION PLANS

Congress recently amended several provisions of federal income tax law creating new rules for IRA's, pension plans, and deferred compensation plans. These changes occurred following adjournment of the 2001 Arkansas General Assembly. Many of the federal code sections that were amended have previously been incorporated into Arkansas tax law. These changes have created differences between current federal and state law concerning IRA's, education IRA's, pension plans, and deferred compensation plans. Arkansas cannot automatically adopt these federal law changes without action by the General Assembly. The Department of Finance and Administration (DFA) anticipates that the General Assembly will retroactively adopt these provisions early during the 2003 legislative session. As a result, DFA has developed the following plan to address these recent federal tax law changes:

. Draft the 2002 state income tax forms and instructions to accommodate the retroactive adoption of these recent federal law changes affecting IRA's, education IRA's, pension plans, and deferred compensation plans, early in the 2003 legislative session;

. Institute an aggressive taxpayer education program explaining the differences between current federal and state law;

. Inform taxpayers and tax professionals that the 2003 General Assembly may adopt these federal law changes retroactively early in the 2003 legislative session;

. Encourage taxpayers and tax professionals to refrain from filing their 2002 tax returns until the General Assembly has addressed these federal law changes;

. DFA will prepare a bill that can be pre-filed and be ready for consideration early in the 2003 legislative session to adopt these federal IRA, education IRA, pension, and deferred compensation changes;

. If the General Assembly determines that certain provisions of the new federal law should not be adopted retroactively, DFA will abate interest and penalty assessed against taxpayers who followed the federal law changes when preparing their return.

------------------

Tom Overbey

Overbey, Graham & Strigel, PLC

Pavilion Centre, Suite 240

8315 Cantrell Road

Little Rock, Arkansas 72227-2423

Little Rock: 501-664-8105, Ext. 108

Fayetteville: 501-442-3554

Cell: 501-258-1610

Fax: 501-219-2993

Email: toverbey@ogslaw.com

Currently have a 5310 pending. agent wants amendments for:

-- exclusion of hardship withdrawals from definition of eligible rollover distribution

-- repeal of 415(e) combined plan limitation

-- comp reduction regarding qualified transportation fringes inclusion in def. of comp for 414(s) and 415

Anyone have any sample language re a plain vanilla profit sharing plan??

Thanks.

May I preface the conversation that we never terminated a plan.

I have a plan sponsor that would like to terminate his 401(k) plan because he wants to get at his money (100%) which is a substantial peice of cash. Regardless of the tax consequences he would like to move everything to a SEP and keep money flowing to the employees.

What flags should I raise before moving forward?

Thank you for any assistance you may provide.

An employer does not deposit a profit sharing contribution for 2 years. The participant statements have included the contribution as a receivable. Can the employer now make the deposit? What are the ramifications of this?

What happens if he deducted the contribution 2 years ago? What if he did not?

Any assistance is appreciated.

My understanding is that SIMPLE IRA funds can't be rolled into a 401k SH plan after SIMPLE is 2 yrs old.

Can a SH 401k plan be started mid year as a new plan and terminate SIMPLE IRA (contributions have been made to SIMPLE this year) or does 97-9 require that everything starts first day of the calendar year following amendment to terminate SIMPLE.

I appreciate all input.

Thanks

TAG

401(k) plan - implements 3% non-elective safe harbor plan - however, they do not make the 3% to all eligible employees - only to those who have a year of service.

The prototype sponsor/adminstrator (one that we all know) has taken the position that, because the safe harbor rules are not being met, they have to do testing, but they are only testing the group that should have been included under the safe harbor rules that have been excluded (ie, they are only testing the employees who are eligible employees, but do not have a year of service as these are the ones that are not receiving the 3% contribution that, under the safe harbor rules, should be receiving the contribution).

Is there authority for this? I would have thought that, by excluding the eligible employees with less than a year of service, the safe harbor rules were totally blown, and that 401(k) and 401(m) testing would have to be done as if there were no safe harbor plan. ??? In advance, thanks for any responses.

Company A owns 80% of Company B. Company A & Company B have separate 401(k) plans. Company A has 4 benefitting HCE's and 44 benefitting NHCE's. Company B has 5 benefitting HCE's and 6 benefitting NHCE's. It seems to me that Company B's plan can't pass 410(B) on its own and thus the plans must be aggregated for testing.

We have just taken over the administration of Company A's plan only; Company B remained with the prior administrator. I have nondiscrim. tests from the past 5 years. The plans have never been aggregated. I have a copy of Company B's test for 2001 and the administrator did not aggregate. (The other administrator involved is national investment firm. I know they are aware of both plans; the same people actually administered both plans until now.)

Am I missing something? Don't they have to be aggregated?

A plan fails the MUAT for 2001. The employer intends to make a QNEC to raise the NHCE ACP to remedy the situation. Can staturorily excludible employees be ignored in the QNEC calculation since they were excluded from the ADP and ACP tests?

We just terminated a 1 participant DB and received a favorable Determination Letter. Initially, the client approached us about a DB because she received a $2 million referral award from a law firm. She was age 63 and a sole proprietor. We set up the DB to have NRA of 65 and 3 years of participation. We also suggested she incorporate as an S-corp so she could carry back the losses created from the large pension contribution to the year she received the high income. This probably saved her $200,000 in income taxes.

Two years ago she needed some money to remodel her home and tapped $50K from her IRA. Of course, this had the effect of reducing the loss carried back to the high income year by $50K.

Now, after all is done, she wants to sue us for the $24K in income tax she paid in relation to the IRA distribution. Nobody in our office recalls talking to her about any IRA distribution. She claims we did not properly counsel her regarding the taxation of her IRA distribution.

Anyone have any experience with such a matter?

Thanks

We administer a 1 participant / 1 employee DB that was adopted and effective 1/1/00. The owner (100% shareholder) sold his old company to another firm that purchased the assets of the company. The 3 employees he had, terminated employment in 1999 before his new corporation adopted the DB plan. The income he is using to fund the plan is flowing into his corp from the sale of his old business. Payments stopped in 2001 so we amended his plan to reduce the benefit to prevent any funding requirement in 2002 (the year he will have less income). We changed the benefit from 60% of FAC to 10% of FAC.

He now wants to somehow provide a benefit to one of his former nhce/ non-key employees. I thought perhaps we could amend the plan to get rid of eligibility and change accrual to one hour of service. He could then hire his former employee for one day and provide the tax-deferred benefit he wants. We could acheive this by having a benefit formula for non-owner employees of say 50% of FAC. FAC is defined as the highest 3 consecutive years of all years including years with a predecessor employer. I dont see a problem passing 401(a)(4) in 2002 as we should pass using the annual method.

He will terminate the plan in early 2003.

Anyone see a problem with this?

Thanks

I have contributed to my IRA traditional 2001 in february 2002 and the fee for the transaction goes to my IRA in 2002 ($25), the problem is I can't have traditional IRA for 2002 since I am enroll in 401k since march 2002 and my income (filed married) overpass the limit for a traditional IRA how do I need to do with this $25in the IRA, maybe I can transfer for a Roth IRA and what do I need to do?

Thanks.

A client is safe harbor for testing

They have after tax.

Can we include the safe harbor match in the ACP test ? Or must we only include the after tax in the ACP test?