Ron Snyder

It's not the IRC but ERISA that mandates fidelity bonds. VEBAs are trusts (or associations) qualified under IRC § 501©(9). Yes, VEBAs are required to carry fidelity bonds.

Yes, I agree that exempt function income is not taxable. That was the exact issue in the Sherwin Williams, where IRS won, was reversed on appeal and has announced their intention not to accept the Court of Appeals decision as binding on them in the other 10 circuits.

An EBAR can be used to order an EDRINK over the internet.

The deductible limit is defined in 419. 419A defines qualified additions to a qualified asset account. Deductibility under 419 in no way assures that growth on medical set asides are tax-free. In fact a simple review of form 1041 and the instructions thereunder shows that the trust is taxed on realized income. Amounts remaining on the death of a participant may be used by the participant's dependents during their lifetimes but will be forfeited if not utilized before the death of the last of the participant's dependents. Other than those differences, I agree with Don Levit's assertions. Sometimes I wonder if Don posts outrageous stuff just to get a reaction from me.

I missed this earlier: I hadn't noticed it before, but GBurns must be a genius. He is in Pembroke Pines, FL. I am in UT and have never heard of Pembroke Pines, FL.

QDRO: If your Delaware Statory Trust is not a rabbi trust, the deferred compensation will be taxable. The trust is taxable, but to the owner/grantor, not to the participant who has no vested rights to the deferred compensation. What is the benefit of a Delaware Statutory Trust over a grantor trust (rabbi or not) ? What about a Nevada Statutory Trust or the trust of some other trust/corporation etc friendly state? A Delaware Statutory Trust is a form of business entity that uses a Delaware resident trustee. Nevada doesn't have a similar provision in its laws. 1. What is the difference between a Del. stautory trust and and a RabbiTrust. Delaware law provides protections for the employer/sponsor and its creditors. Rabbi Trusts provide protections for participants. 2. How does a Del statutory trust qualfiy as a Rabbi Trust under Rev. Rul 92-64 since IRS will no longer issue PLRs on trust arrangements for NQDC that do not use the model Rabbi Trust in rev Rul 92-64? It does not, and no PLR will be sought.

Or as Geo W Bush would say it, the "amount of excessivicity".

Skipping over the banter and back to the original issue. I work with a trust company that is the trustee of a Rabbi Trust. While they offer good trustee and investment services, they do not allow me to work with my broker of choice nor brokerage firm of choice. Like most corporate trustees, they make money from investment management. The model rabbi trust does not contain adequate protections for corporate trustees and they will not accept them. One of my reservations in working with a corporate trustee is that they might be out of the loop when a change of control or other material change takes effect, and therefore may not invoke their powers and perform their duties specified in the trust agreement. Our attorney has advised us that most purported Rabbi Trusts don't do everything they are legally required to do and are therefore ineffective as a Rabbi Trust. After consideration of the alternatives, we are in process of changing our model from using a Rabbi Trust to using a Delaware Statutory Trust.

They want to "sock away as much as possible" but not enough to type up a simple amendment to permit it?

Answered on the other thread.

Gary posted: "If anyone knows of some useful and practical resource for a basic understanding of H&W plans, please advise." I responded: "The Employee Benefits Answer Book (a sister to the Pension Answer Book and the 401(k) Answer Book) is a good reference work. I also like Tax Facts." No theory was referenced.

The Internal Revenue Code, like the Bible, is not of private interpretation. (2 Peter 1:20) The income of the VEBA you refer to means net recognized income, not gross unrealized income (or other personal definition you might have).

Cash value loans are not taxable any more than bank loans. However, withdrawals will be taxable to the extent that they exceed the taxpayer's (or trust's) basis in the contract. IRS has taken the position that such loans may be prohibited transactions, although the DoL (which has primary responsibility for enforcement of PT rules) has not concurred. IMHO, IRS is wrong. As I told you on Prior thread, the reference is IRC 512(a)(3)(E) et seq. You might also wish to review the Tax Court case, Sherwin Williams v. Commissioner, 115 TC 33 (2000).

The Employee Benefits Answer Book (a sister to the Pension Answer Book and the 401(k) Answer Book) is a good reference work. I also like Tax Facts.

That is one of the primary advantages of a Sec 115 trust over a VEBA. Of course the employees DON'T want the employer to be able to take money back that was set aside for them, and when they are represented will negotiate hard for the use of a VEBA to avoid such reversions.

Apply for a new EIN and check the box that states that a number was previously assigned. I prefer on-line filing to actual SS-4 filing, so I can print out the number immediately.

Insurance policies provide two types of tax-exempt income: tax-free inside buildup of cash value and death proceeds of life insurance. Inside buildup is never going to be taxable to the VEBA because it is unrealized. And if the insurance policy is surrendered the gain is realized and taxed. Death proceeds of life insurance is a different issue. If the death proceeds are paid to a named beneficiary, as contemplated under 501©(9), there is no income at all to the trust: the income is paid to the beneficiary tax-free. If the death benefits are paid to the VEBA as a "conduit" for passing through to the named beneficiary, the treatment is likely the same: tax-exempt to the beneficiary, no net income to the VEBA. If the VEBA owns a "key-person" policy and that person dies, the death proceeds are not excluded from the VEBA's income under IRC section 101(a). However, since the VEBA is a tax-exempt entity, the death proceeds would still only be taxed if the income was unrelated business taxable income. UBTI includes plan earnings on medical accounts. (Since medical amounts are tax deductible to the employer upon contribution and distributed tax-free to the participant, they are accorded a double tax benefit and are therefore not permitted to accumulate tax-free inside a VEBA.) So the determination of whether the income may be taxable is made based on what the accumulation is attributed to.

The deduction permitted is $0. The earnings are not taxable to the corporation, but to the trust that files form 1041.

Earnings inside a 115 trust are taxed to the grantor, a tax-exempt municipality. Your question seems to be whether excess earnings are still excess earnings if they are tax-exempt? The answer is yes they are still excess earnings and will reduce the tax deduction permitted under section 419. However, they are not taxable.

Since the employee is still treated as employed by the group for testing purposes, this is NOT a severance from employment under Code Section 401(k)(2)(B)(i)(I). That employee will remain in the current plan until a distributable event takes place, or until he is eligible for rollover to the new employer's plan. Whether or not he participates in the plan sponsored by the agency, he will be included in the testing group (at least after 12 months of leased employee service) along with the other leased employees. Whether or not he will continue to vest depends on the specific plan provision addressing that issue.

Why would an employer violate its own deferred compensation plan without amending it first? Whimsy? Since no deduction is permitted, and since the employee has no vested rights to the additional contribution, your question is not a question of tax law. However, I would ask who could be hurt by the action? Shareholders may have a cause of action against the employer. Creditors would definitely have a claim against the excess contribution amount is push comes to shove. The truth is that the only reason an employer would engage in such behavior is because it simply has no respect for laws and written agreements. That employer is not a good candidate for a deferred compensation plan in the first place.

Answered on other thread. Please don't post the same question on multiple threads, as it causes confusion and a waste of time.

Is the spouse a common-law employee or an owner by attribution? Certainly for nondiscrimination testing purposes, the spouse is an owner. And in a community property state the argument could be made that unless the ownership can be made to be separate property, there is no way to avoid owner treatment rather than employee for the spouse. However, I don't believe that IRS considers this to be a community property question and permits spouses to be employees. For nondiscrimination testing purposes they are considered owners, but not for pass-through treatment. I wouldn't want to recommend this strategy to a client (tax advice under Circular 230), since this is not a black and white issue and abuses are likely to be met with IRS deduction disallowances.

The limit is reduced by the fund's earnings, not the tax deduction. Under your assumptions, the deduction is $30,000 less $4,000 for a net available of $26,000. The other approach provide a deduction of $0 if they funded $4,000!

1. The owner of an LLC taxed as a partnership can only receive a deduction for current medical expenses on form 1040. 2. If the LLC is taxed as a "C" corporation, he could receive a deduction on his corporate return for contributions to a welfare benefit trust if those contributions are ordinary and necessary business expenses, to the extent that the deductions are permitted under sections 419 and 419A. 3. If the LLC is taxed as a "S" corporation, it is a more difficult question. IRS Publication 535 states: Welfare benefit funds. A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Your deduction for contributions to a welfare benefit fund is limited to the fund’s qualified cost for the tax year. If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Generally the fund’s qualified cost is the total of the following amounts, reduced by the after-tax income of the fund. The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits.