RayJJohnsonJr

I formally apologize for reposting it. I am sorry I had not previously seen it. I guess my question is, if it's true, can enough people read it? Is anyone taking action? People are being steamnrolled. Is he wrong or is this not an outrage?

I'm sorry, I'm not seeing the coincidence. Where is it?

By refusing to recognize the DC to DB conversion, it makes the contributions excessive, the benefits distributed exceed 415, and the life insurance fails the 74-307 test causing a listed transaction.

A CPA emailed the article to me this morning. I've never heard of the author. This is happening to one of my clients right now. Rene

What did you mean by that, Lippy?

This articlele may explain it all. A MUST READ! Rene Article___Accountants__Ins._Agents__Business_Owners_Fined__200_000_by_IRS.pdf

Thank you. Counsel has been retained and participated in the a 1.5 hour conference call with the IRS agent and IRS actuary. Counsel (who wrote the part of the adoption agreement permitting the "DB UP" conversion) was blown away by the IRS actuaries determination to disqualify The Plan. No matter what we we said, no matter what we proved, the actuary continued to assert her intention to disqualify the "412(i) funding technique" she calls it. The IRS actuary wants the entire plan recalculated as regular DB and the DC to DB cvonversion treated as a plain old rollover and accounted for seperately. Rene

I think I found it. Attached is 1.415-7 Limitation in case of defined benefit and defined contribution plan for same employee, Example 4 is highlighted. Example 4 is an exact description of the participants circumstances and what The Plan did. Anybody see anything wrong with this? Thank you, Rene 1.415_7___Limitation_in_case_of_defined_benefit_and_defined_contribution_plan_for_same_employee.pdf

The IRS actuary is not accepting it because she's never heard of it. I cited the regs, but she would not even look them up. So now I guess I have to prove it to her. I can tell by her questions and statements that she is not well trained or experienced. She has it in for this Plan, and probably a lot of other 412(i)'s. Her assertions suggest that she is going to disqualify the Plan no mater what we say or prove. Thank you, Rene

Thank you again mbozek, the Plan's limitation year was the same as the plan year and corporations physcal year 3/1 to 2/28. Rene If the converson was adopted before the end of the 1999 limitation year (2/28) then it should be ok but you need to check both the old and new regs to confirm what the IRS issue is because I dont do 412i/412(e)(3). Thank you, I will do that. What is the easiest way to look at what the regs were in 1999/2000. I had a copy but I threw it away, wish I hadn't. Rene

Thank you again mbozek, the Plan's limitation year was the same as the plan year and corporations physcal year 3/1 to 2/28. Rene

Have you considered that guidance that is cited in the 1999 ASPA meeting may not be a governing rule because IRC 415(e) was repealed effective Jan 1, 2000. (Reg. 1.415-7 carrys a legend in CCH reg book (2007) that the reg. does not reflect the amendments made to IRC 415 after 12/30/80.) Reg 1.415-7 is titled "limitation in case of of defined benefit and defined contribution plan for same employee." Since the combined limits for DB and DC plans under IRC 415(e) was repealed for years after 1999, was not example 4 of Reg 1.415-7(e), conversion of a DC plan to a DB plan, cited in the paper, no longer authority for contributions made in 2000 because IRC 415(e) had been repealed? Hi mbozek (mjb), I'm not sure I'm posting this reply in the right place, please let me know if I'm doing this wrong. Thank you for your very thorough reply. Would it make a difference if the 1st Plan Year, that is the year the conversion took place was 3/1/99 to 2/28/00 ? Rene

We got past PROBLEM 1, thanks to this forum, which was the IRS denying the 1st year plan contribution in year 2000. They have withdrawn that from their list of problems with The Plan. NOW, the argument is over The Plan's use of a DC to DB converssion in the Plan's 1st year. A major national actuarial firm presentd this technique at the ASPA meeting in about 1999. (copy attached) It worked like this: At participant age 56 $519,689 was transfered into the 412(i) DB from a terminating DC Plan. At 8.5% projected growth, at NRA age 62 the $519,689 would grow to $844,670. Using the 1971 GAM Male mortality and 8.5% interest, the $844,670 would result in a monthly benefit of $7,484. The life insurance and annuity funding contracts guarantee $5.34 per $1,000 at NRA 62. To pay the $7,484 monthly benefit the insurance contracts must generate Guaranteed Cash Value of $1,401,455. The level premium required by the life and annuity guaranteed cash value was $149,500.04. (Rev.Rul. 74-307 was used to calculate life insurance inclusion) When the IRS takes this technique away, we have a "listed transaction" problem with the life insurance. ANYBODY GOT ANY IDEAS? ALL HELP APPRECIATED! 2_Pages_ASPA_handouts_regarding_DC_to_DB_conversions.pdf

JAY21. That makes sense. I'm curious, in a non-trusteed 412(i), who is the owner and who is the beneficiary of an annuity in the plan?

Which brings up an interesting question: Does a non-trusteed 412(i) enjoy the same creditor protection as a trusteed 412(i)?

JAY21, the adoption agreement and trust we use is definitely a trust whether 412(i) provisions are elected or not. There is not a place to mark "trust" or "not a trust." Everything in the adoption agreement refers to language in the trust document. Trustees are named and must execute with signatures. Seperately, a Corporate Resolution is executed resolving to establish a trust, giving the trust a name, and naming the trustees.

Thanks, JAY21. I honestly didn't know it was common to do 412(i)'s without a Trust. What document would take the place of a trust if there was none? We have always used a trust, it's actually a Defined Benefit Trust with optional 412(i) provisions which can be elected in the adoption agreement.

Thank you, PensionPro. Your citations are very comprehensive and greatly appreciated. I'm beginning to think the IRS has misplaced the original Adoption Agreement and Trust and may think there was not one. They have used 2 different IRS agents and 2 different actuaries in 2 different cities over a period of 16 months. My next step is to confirm that they actually have the original Adoption Agreement and Trust. Thanks again

Hi JAY21, Yes, the plan did include a "trust component." The adoption agreement which adopted the trust document was executed on 2/25/00. I think what the IRS is saying is that since there wasn't money in the trust, and there was no money in the insurance or annuities until Novemeber of 2000, the plan did not exist for the 3/1/99 to 2/28/2000 year. Thank you, again, all help is appreciated.

Hi vebaguru, Yes, the taxpayer signed a consent to extend the statute of limitations for tax years ending 3/1/2005 through 2/28/06. The taxpayer filled his 2/28/00 FYE tax return on or before 12/15/2000. Has the statute of limitations run out on that? I would like to get your recommendations for a good attorney, or a CPA. We have about 6 more issues the IRS has cited (most of them inaccurate) to overcome, as the IRS has concluded, "The Plan fails to be IRC 412(i) plan with disqualification defects." Thank you for your input.

Hi AndyH, The fiscal year and plan year are 3/1 to 2/28. The 412(i) adoption agreement was executed 2/25/2000 and described the 1st plan year as 3/1/99 to 2/28/00. Neither the adoption agreement nor the the plan and trust document specify when premiums are due, except to say "determined by accepted actuarial cost methods" and "premiums have to paid by the "lapse date" or by the end of the plan year in which the lapse date falls. So nothing here really applies does it? The rule, as I have always understood it, is that the contribution must be made by the tax return due date including extensions(12/15/00), to get an income tax deductiion for fye 2/28/00, but in any event the contribution must be made within 12 months following the last day of the plan year. Thank you for any input you can provide.

IRS ISSUE 1: Disallowance of first year’s premium. The IRS actuary says "In general, a qualified plan does not exist unless a corresponding trust also exists. When a qualified plan is first established, the trust must be in existence no later than thel ast day of the initial plan year for the plan to be in existence with respect to that plan year. Within the context of a plan described under IRC section 412(i), the insurance policies and annuity contracts that are used to fund the retirement benefits function in the same manner as a trust functions with regard to a traditionally funded defined benefit plan. Therefore, if the policies are not in effect and if no premiums were actually paid until after February 28, 2000, not only does the plan fail to be a plan described under IRC section 412(i) in 1999, but also the plan itself does not exist in 1999. Therefore, the deduction for 1999 (or 2000 depending on how the tax year correlates to the plan year) should be disallowed." The client made the 1st year contribution within 8 1/2 months of the plan anniversary. How do you argue with the IRS actuaries assertion? Funding the 1st year contribution after the 1st plan year end in a 412(i) is a very common practice. Anyway, how can they take away an eight year old deduction? What happened to the statute of limitations. Thanks, much help needed on this one.

My client has an IRA and owns 100% of a company with a DB in which he is a participnat. May he take 1 RMD from the IRA which covers the RMD amount he must take from both the IRA and the DB Plan? Or, does it depend on what kind of IRA money it is? For example, IRA money that came from a retirement plan? All help appreciated!!

Thank you, Lori, your a Godsend!

I knew that, or I thought I knew that, but I could not find any authority on that fact. Can you point me to any authority confirming the summary plan description is not required iin this instance?