Lori Friedman

Brian? AndyH? PATA? Calling all Red Sox fans... I'd love to chat about this past weekend, including the lamest bench-clearing brawl in baseball history. I've put this message in the "Inspiration" forum because I think that the Red Sox are pretty darned inspiring.

How should money market earnings and balances be reported on Schedule H? This very simple question seems to have a complicated answer. A money market investment can be a money market account, which is interest-bearing cash, or a money market fund, which is a special type of mutual fund that invests in highly-liquid, low-risk, short-term investments (U.S. Treasury bills, bank notes, commercial paper, repurchase agreements, bankers' acceptances, etc.). The distinction seems to be relevant only for taxable investors; interest from a money market account and dividends from a money market fund are segregated and taxed under very different rules. In contrast, a tax-exempt organization is specifically instructed to report money market fund dividends as interest income and lump its money market fund balances with interest-bearing cash on Form 990. mpark2's question concerns money market funds (not money market accounts). The instructions for Form 5500 suggest that the two types of money market investments should be distinguished and reported separately. Schedule H, Line 1c(1) reports "all assets that earn interest in a financial institution...such as...money market accounts [emphasis added]. I've never found any language that suggests that money market funds should be treated as anything other than mutual funds. In practice, however, how many Form 5500's actually split hairs over a plan's money market investments? Most of Form 5500's that I've seen simply follow the audit report's lead and classify all money market assets as cash equivalents.

The instructions to Form 1099-MISC answer our question about NDCA payments to a nonemployee director: Directors' fees. You must report directors' fees and other renumeration, including payments made after retirement, on Form 1099-MISC in the year paid. Report them in Box 7.

The Department of Labor has a publication called "Multiple Employer Welfare Arrangements Under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation". You can view the publication at www.dol.gov/ebsa/pdf/mwguide.pdf I don't know if the (rather lengthy) publication includes a state-by-state comparison, but it might be a good place for you to get started.

PATA, Over and over again, we're finding out just how much Orlando Cabrera contributes to the team. But, can you believe that Keith Foulke had 2 blown saves in 2 nights?!?! He's generally so reliable and has been a great acquisition for the Sox. So, Mr. Derek Lowe's back on the mound tonight, vs. the Orioles' very talented Daniel Cabrera. Let's hope we don't get a repeat of Lowe's performance from this past Saturday... (It was a very bad sign when his first 2 warmup pitches went flying all the way to the backstop.) The Evil Empire will soon arrive at Sacred Ground.

Is the paying entity a for-profit business? I believe that all of the distributions, including payments to former nonemployees, get reported on Form W-2. You report the amount in Box 1 and again in Box 11. As far as I know, Form 1099-R is used only to report distributions to decedents' beneficiaries. Does anybody out there have different information? Are you working with a tax-exempt organization? If yes, then you have some more complicated issues to consider long before you start to prepare any forms.

Ah, the 1970s...I remember them well... Long gas lines, double-digit inflation, and really ugly clothes and haircuts.

jved, I once handled a request for information about a Theo Plan. 30 years, huh? Please tell me something...were dinosaurs really gray?

If I'm reading your question correctly, I believe you're asking about tax regulations in general? Regulations are the Treasury Department's official interpretation and explanation of the Internal Revenue Code. A very short Code section might have many pages of interpretation and operational rules for applying the law. Regulations are substantial authority, incorporated into official administrative tax law. A regulation is issued as a Treasury Decision. Before a TD can be published in final form, however, it must be released in proposed form for a period of at least 30 days (usually much longer). During this period of time, the TD is referred to as a Proposed Regulation and, unlike a final regulation, does not have the force and effect of law. Interested parties have time to comment on the proposed regulation, and the IRS may make changes to the TD before it's published in final form.

"Defined benefit" and "defined contribution" are technical terms that describe characteristics of I.R.C. Sec. 401(a) qualified plans. The language doesn't apply to 403(b) law. A 403(b) plan uses Code 2L and/or 2M on Form 5500. You can find more information on page 9 of the instructions to the 2003 Form 5500.

PATA, Isn't it annoying to watch a pitcher blow a save and then get rewarded with a win? Curt Schilling pitched 8 brilliant shutout innings (3 hits, 14 Ks, and 1 BB) but got wiped off the record books. Foulke blows the save but then gets credited with a win. Hey, Brian Gallagher...Didn't you mention that you'd be going to the September 17th game? I hope you could stay through the rainouts and see that magnificant ending. This weekend, The Evil Empire will be in OUR HOUSE!

Every taxpayer, including an individual, is an accrual-basis taxpayer with respect to plan contributions. For practical reasons, most plans, regardless of the sponsor's overall method of accounting, report contributions on an accrual basis. This approach isn't required, but it makes things neater. It's convenient to be able to tie the Form 5500 contribution to the amount reported on Form 1120, Form 1040, etc.

I think that Bird might be confusing a deemed distribution with an offset.

The letter designations must have been something that the IRS and Social Security Administration did years ago, long before the days of form preparation software and computer scanning. Yes, I'm old enough to have prepared tax returns by hand...

Years ago, I worked with some very elderly women who didn't have their own Social Security numbers. Each woman simply used her husband's SSN, with a letter of the alphabet added to the 9-digit number (I think it might have been "A" or "D"). These ladies had never held paying jobs, and there was no need for them to obtain SSNs. What does this story have to do with your situation? Probably nothing. But, this approach to an ID number is very similar to and consistent with the instructions that you've been given.

Federal law requires every cafeteria plan to define its "period of coverage" -- a 12-month period for which participants make their benefit elections. Only the expenses incurred during this period can be reimbursed by the plan. The law also allows a plan to terminate the period of coverage of a person who separates from service with the company and stops contributing to the plan [see Reg. Sec. 1.125-2, Q&A 7(b)(3)]. But, this treatment is optional, not mandatory. Many plans do, indeed, cut off participation at the time of an employee's termination. Other plans, however, have a "grace" period after an employee's separation; coverage continues even though the individual isn't making any additional contributions to the plan. You need to look at the actual plan document. The law permits a plan to (1) cease coverage when an employee separates from service, or (2) continue coverage until the end of the plan's period of coverage, or (3) specify a time period in between termination and end of the plan's normal period of coverage (30 days, 60 days, etc.). Each plan is governed by its own document.

You can do the calculation in Microsoft Excel by using the NPER financial function.

This is refreshing. Usually, we have to deal with prohibited transactions from insufficient or late deposits, not with overpayments. Unless we're talking about some huge, exhorbitant amount, I'd simply apply the overpayment to future payroll deferrals.

Just Me, I'm a huge fan of the arrangement to pair a QP with a 403(b) plan and contribute the employer match, if any, to the QP. Now that I've said that, however, I'll be the first to agree that the whole matter is thorny. I've yet to find any guidance whatsoever about the mechanics of the ACP test, even the QP demographics could differ from those of the 403(b) plan.

I'm wondering if the amount of $$$ involved, absent a written contract, would violate the applicable state's Statute of Frauds.

Unfunded, "top hat" arrangements are excluded from ERISA's written plan requirement (see ERISA Sec. 401(a)). But, I wonder about the applicable state laws that would govern a contract between an employer and its key employees.

Yes. You might find it helpful to take a look at ERISA Secs. 205(a)(1) and (2) and 205(b). A non-ERISA plan, however, can omit both a QJSA and QPSA if the plan provides that, absent a qualified election, the benefit that remains after a participant's death belongs to his/her surviving spouse. There's an excellent article about this subject by Mervin M. Wilf: "When Do the REA Spousal Survivor Rules Apply to 403(b) Contracts?"

All of you professional TPA's out there probably have a quck answer for this one. Are you the payer, and do you use your own EIN, when you issue Form 1099-R/Form 1099-MISC? I'm looking at TD 9010, 07/26/02. It seems that if a TPA exercises any sort of managerial or oversight duties -- for example, determining the amounts of distributions rather than merely writing checks at the direction of the plan sponsor -- it's required to use its own EIN on Form 1099. And, do the same rules apply to both retirement and welfare benefit plans?

WDIK, Actually, the PPC 5500 Deskbook does say that a plan isn't required to provide an SAR to paid-out participants. In my previous message, I cut-and-pasted a rather long excerpt, to conserve space on this message board. Here's the full text of Item #11: You're right, of course, that a PPC Deskbook is a helpful guide but not substantial authority.

It sounds as if dmb's been given the unenviable task of mopping up after the fact. We all agree that the client's CPA has done something fishy (that's a nod to you, Blinky), but dmb now has to try to sort out the mess and calculate a retirement plan contribution. If I were in dmb's situation, I wouldn't make any leaps of faith such as plugging the Form W-2 numbers into Schedule K-1. I'd insist that the CPA amend the LLC's Form 1065 and provide the correct numbers to the members. Here's a thought -- Did the LLC withhold Social Security and Medicare tax from the erroneous salaries, and did it pay the employer's share? If yes, the client's CPA really needs to fix that problem immediately. This is just one example of why the Form 1065 should be amended before dmb proceeds. I'm guessing that the Form 1065 includes a tax deduction for invalid payroll tax expenses.