mbozek

V: I would be interested in the basis for your opinion that the form of organization and the plan are illegal for an entity existing under the bankruptcy code.

There is a simpler solution than getting an IRS private letter ruling. If you can document that you relied on your broker's advice that you were eligible to open a Roth IRA then the brokerage will be liable for your penalty taxes because the broker is a fiduciary. Reputable brokers will make customers whole for errors caused by their reps which result in adverse tax consequences. You will need to prove to the brokerage that your broker offered incorrect advice on opening a Roth IRA. Be prepared to answer the question of why you or your tax preparer did not catch the mistake when your tax return was filed. I doubt that the brokerage would pay for a private letter ruling from the IRS since it will be cheaper to reimburse you for the tax penalities described in a prior post.

A form 5307 that is filed by an employee of a plan sponsor will be able to receive IRS correspondence by checking box 2 without having to file a 2848 form.

Form 2848 is required whenever a taxapyer appoints an authorized representative to represent the taxpayer on a particular matter before the IRS. A form 2848 is not required when a taxpayer files a determinaton request on its own behalf. Box #2 indicates that a taxpayer who files a form 2848 does not complete box 2.

How is the client ging to fix the problem?

Since Employee is deemed to be in control of the 403(b) plan, contributions are not aggregated with employer contributions to a DC plan. See IRC 415(k)(4) and reg. 1.415-8(d). Only salary reducton contribions are aggregated under 402(g).

NO. But how does the broker think the deferrals can be made on a tax deferred basis if no plan has been adopted.

If thats the case why set up a 401(k) plan for the mgt co since the employee can make the same salary reduction contributions to the 403(b) plan? All he needs is a PS plan with discretionary contributions or a SEP.

Whether the IRS will require proof of timely adoption of plan amendments in future submissions will be subject to the amount of IRS resources allocated to the determinaton letter program which will be scaled back as IRS resources shift to tax collection.

According to the IRS audit guidelines, 403(b) annuity plans are not required to be administered in accordance with their terms. They are only required to be administered in accordance with the tax law and regs.

I dont think there is any such list because I dont think there is any state that permits domestic partners to file joint tax returns or be included as dependents.

Refund the deferrals to the participants and then have the deferrals commence as of the first day of the month after the plan has been adopted. Why hasnt the plan been adopted?

Not really. A 403(b) plan needs only to be operated in accordance with the final regs. However, it is a good idea to amend the plan to add the final regs.

See PLR 9608042 for answer.

What is the reason for the ASG analysis? If the principal owns more than 50% of the stock in the management co. then the contributions in the 403(b) annuity must be aggregated with the contributions to the 401(k) plan. IRC 415(k)(4),reg. 1.415-8(d). So the principal will have 1 40,000 limit under IRC 415© and a max salary deferral of 12/14k, or 17k if eligible under IRC 402(g)(8).

There are three ways to avoid lump sum payout. 1. Have son continue as the sucessor owner of the business. 2. purchase an immediate annuity for life of the son. 3. If deceased owner had an IRA account with son as beneficiary, son could make a trustee to trustee transfer of PS plan benefits to IRA.

The question is terminated for what purpose? Employer can terminate plan operation at any time by adopting board resolution. Plan is not terminated for IRS purposes until all assets have been distributed. See Rev. rul 69-157.

This is similar to a DC plan that receives shares of stock when insurance co demutualizes. Plan sells stock and then usually allocates proceeds among participants with account balances on date of sale since tracing the shares to persons who actually invested in annuity contract would be too difficult /expensive. Perhaps you should treat 10,000 as a forfeiture and allocate according to plan terms.

There are few buyers who will buy a minority interest in RE controlled by a pension plan. Anyway there would be a steep discount on the sale price because of the limited interest being sold. Why not just sell the RE and then roll the proceeds to an IRA?

The Swanson opinion contains a detailed factual analysis of the IRS PT claims as well as the courts conclusion that the IRS position was unreasonable as a matter of both fact and law which was the basis for awarding legal fees. See B 1 A of the opinion. The court held that under IRS regs. the acquisition of newly issued stock by an IRA could not be the sale or exchange of property between the IRA and a disqualfied person and the payment of dividends by the corporation to the IRA did not constitute an act of self dealing by the IRA owner to benefit his personal account since the only direct or indirect benefit the IRA owner received from the payment of dividends related to his status as a participant of the IRA. Finally the IRS has published FSA 1999-524 which provides that the ownership by an IRA of an initial subscription of stock in a corporation that pays dividends to the IRA is not a violation of the PT rules. As for the attribution of the family ownership interests, the Dol opinion notes that since the transaction is between the FLP and the IRA and not with the IRA owner and his family, except as fellow investors in the FLP, the FLP is not a disqualfied person under the PT rules.

Govt entities are not allowed to establish 401(k) plans after June 1986. Are the administrative staff employees of the pension plan? If so the question is whether a a tax exempt qualified plan can establish a 401(k) plan. If the staff members are paid from a municipal govt payroll then I dont think they can particpate in a 401(k) plan. If the client does not file 5500s then it is because they are a govt entity which will not be eligible for a 401(k) plan.

Under applicable IRS rules all assets of the plan must be distributed before the plan is deemed terminated. Rev rul 69-157.

The problem with applying the PT rules to IRAs is that not all transactions that appear to be PTs are PTs. While having your IRA purchase the house that you live in, having your IRA loan money to your childern, or buying stock directly from your IRA are pts, the following transactions are not PTs: 1. Having the IRA subscribe to an initial offering of stock in which the IRA owner is the incorporator (Swanson) 2. Having the IRA purchase stock or options directly from the issuer who is the employer of the IRA owner who owns less than 50% of the issuer. PLR 8717079 3. Having the IRA custodian issue a check to a corporation at the direction of the IRA owner for the purchase of the corporation's stock which will be owned by the IRA. Ancira, 119 TC 6. The check will not be considered a taxable distribution from the IRA. 4. Having the IRA invest in a family limited partnership which manages the investments of other family members related to the IRA owner where the IRA owner is a general partner of the FLP. DOL opinion 2000-10A. Under the above rulings it would be perfectly legal for an individual's Roth IRA to purchase stock options from the IRA owners employer and any appreciation in the value of the stock or dividends would be exempt from income tax.

What I find amusing about all of these complicated schemes to set up rabbi and springing trust that will be funded before a coc is that they will be revealed to the prospective buyer of the business during negotiations and the purchase price will be adjusted for such obligations. Because the buyer does not want to be responsible for such payments the amounts will be paid before the closing. Also all of the informal funding devices must be subject to the claims of the employer's creditors and funds transferred before bankruptcy can be recovered as a voidable preference or a fraud on the company's creditors.

Self direction of accounts is a benefits rights and features issue which must be applied on a non discriminatory basis. If the only persons who will not be able to self direct investments are nhces then I think the plan flunks the brf test regardless of the $ dollar amount