mbozek

I dont know if a partner can also be paid as an independent contractor from the same employer. I know that the IRS doesnt like for employees to be paid as partners for the same period.

I am not sure what you are saying. A participant doesn't nominate a beneficiary - he designates the bene. If the bene is not a natural person the distribution will have to paid in 5 years after the death of the owner. Unless the particpant has failed to get spousal consent there is nothing illegal in designating an estate or charity as a beneficiary of a distribution.

You are exchanging an 04 tax deduction with 05 income, eg, 10k in taxable MRDs for 05 will be contributed top claim a deducton for 04 The transaction is a wash taxwise. How are you going to reduce your 05 taxable income for the MRDs excpt by repeating the procedure next year?

Have you tried to locate him through the IRS or a locater service?

A-it appears that you have two streams of income- profits from your investment in the p'ship which is reported on the K-1 and compensation for services which is reported on the 1099 (as managing partner) which is paid to independent contractors. The 1099 income is the amount which is used to determine the amount of the retirement contribution which can be contributed on your behalf by the p'ship. Instead of trying to get answers on this board you should download IRS publication 560 available at www.IRS.gov. or contact your pship's tax advisor who will be aware your specific employment situation.

Your client needs to hire a retirement plan specialist (Not just an attorney or CPA) to review the forensic evidence to determine the best course of action before going to the IRS. Since the mid 70s there have been several different required amendments including TEFRA/DEFRA/REA, TRA 86, Gust and EGTRRA. Failure to amend for any of those provisions would result in disqualification. In addition only assets which are accrued benefits are treated as employee benefits. Any excess assets are reverted to the employer and taxed as income. Finally the plan would be subject to MRD once the owner attains 70 1/2. If the plan was disqualified 20 or more years ago the s/l on taxing the benefits to the participants may have expired and the benefits will be treated as after tax income if they are distributed now.

Proposed regs are not enforceable under the tax law and cannot be use against a taxpayer because they are not law until adopted as final regs under the APA, 60 days after publication in the federal register. While the IRS can issue rulings based on proposed regs to taxpayers it cannot apply prposed regs to enforce the tax law. The proposed regs under 125 (some of which are 25 yers old and inconsistent with current law) arent enforeceable by the IRS against taxpayers.

I thought all prototype plans were required to have ERISA language in order to receive IRS approval so why would a Govt entity exempt from ERISA adopt such a plan? 414(h) pickups are only permitted for govt plans. Did a tax advisor review this document before it was adopted by the govt?

Check the rules in pub 575. NUA is available only if there is a LSD on account of death,disability age 59 1/2 or separation or if the employee withdraws stock which he purchased with after tax dollars. Temination of the plan is not a distribution event for NUA but is for rollovers.

Egelhoff involved pension benefits as well as LI and the state law was preempted because it interfered with nationally uniform plan administration, e.g. plans cant be subject to different state laws regarding payment of death benefits, which is no different than subjecting plans to different rules for st. income tax withholding. From the majority decison "Uniformity is impossible however, if plans are subject to different legal obligations in different states."

In most states only property acquired during the marriage is included as marital property subject to division in divorce. However, the parties can negotiate their own settlement of pension benefits. You need legal advice on this issue.

Stupid Q- how will the plan comply with its requirements for distribution after a participant requests a distribution if the PA refuses to make payment until the particpant opens a bank account? If benefits must be paid within a reasonable time after the request is filed how can the plan deny payment? Will the plan withhold mandatory distributions if a particpant does not have a bank account?

Contributions of property will be deductible at the FMV of the property at the time of the contribution. You should consult with a tax advisor regarding the tax consequences of contributing stock to the plan, e.g, capital gains may not be available. If the stock have a net loss it may be better to sell the stock, contribute the cash and use the loss against capital gains.

I am not saying that the state tax cannot be withheld but that a plan that distributes benefits to participants in another state that requires withholding does not have to go to the trouble of establishing withholding procedures to satisfy a state tax law. There are many small and mid sized plans whose payor systems do not have the capability to withhold state tax in multiple jurisdictions and should not be required to do so. If the plan wants to offer state tax withholding thats fine but some of the withholding rates are far in excess of the amount of state tax due on the distribution. E- Mackey is not precedent because it applied to welfare plans which are not subject to the non alienation requirement and cannot be disqualfied for paying over benefits to a state taxing authority. In Egeroff the Supreme Ct held that state laws affecting distributions of benefits under an ERISA plan are preempted. As far as the reach of a state to enforce withholding against a non resident plan, I have never heard of a state issuing an order to a non resident plan administrator to withhold state taxes since there is no way to enforce such an order. I dont see any risk in not complying. Participants can bring nusience claims against a plan, and then file nuisance suits. There are tax protestors like the employee in the Northwest case who relish defying the govt by objecting to taxes.

You are missing the point- both a levy for taxes and withholding of a portion of a distribution for state taxes by the plan are an alienation of a participant's benefits under state law which is prohibited by ERISA. I am not saying that plans cannot allow for voluntary withholding of state income tax by participants but that it cannot be mandated that a plan must withhold state income tax. ERISA was designed to prevent states from imposing administrative burdens on plans under conflicting state laws. A participant could bring a claim against a plan that reduces his benefit to comply with state law. The solution is for residents to pay estimated state taxes instead of witholding.

How about the contract for purchase for the house?

See Northwest airlines v. Roemer , 603 F Supp 7 (1984) where fed ct held that st tax levy on retirement benfits was preempted by ERISA.

Mandatory withholding of state taxes from distributions is an alienation of pension benefits which is permitted only for fed taxes because ERISA does not preempt other federal laws. There is no exemption from preemption for withholding of state taxes from distributions. It doesnt matter whether the employer conducts business in the state. The fact that some payors (Insurers) will process state tax withholding of pension distributions does not mean that the plan is required to allow such withholding.

There are a lot of unenforceable state and federal laws (e.g., gift tax which is dependent on the taxpayer voluntarily notifying the govt that an unreported gift has occurred. Also who pays state use tax on out of state purchases.) I dont think Hancock believes that state tax must be withheld from ERISA plans but will comply with the law because insurance co are regulated by 50 states for compliance with state laws and is set up to do state tax withholding. Many banks and other trustees do not have the systems capability to withhold state taxes from multiple states, just as many employers do not withhold state income taxes of employees who live in states where the employer does not have a business presence, e.g. NY employer with no presence in NJ wont withhold NJ income tax from employee's wages.

I dont see how this issue could ever wind up in ct since there is precedent in the 8th circuit that state tax levies cannot be enforced against an ERISA pension plan. Second I do not know how a state tax authority can enforce mandatory withholding provisions against a plan that has no presence in the state other than by suing the plan administrator in the state where the plan is administrated. Would MD go to the trouble of suing a NY pension plan in NY to enforce a MD tax law? The participant can avoid penalities for underwithholding by making a voluntary payment of estimated state taxes. Many plan administrators will not comply with state withholding rules because of the administrative burden of complying with different rules for each state and the charges that will be imposed by the trustee or other payors to make such payments. The preemption provision of ERISA was intended to prevent plans from having to comply with multiple inconsistent state laws affecting benefits.

Requiring mandatory withholding of state income tax is different for being able to enforce such a requirement against an ERISA plan, especially a plan that has no presence in the state. If Plan X is administered in NY and uses a NY bank as trustee, how would MD enforce its withholding requirement against plan X for a pension distributions sent to a MD resident? Anyway State witholding laws are preempted under ERISA.

for what purpose- employer deductions, 415 limits? Plan should contain provision stating when contributions must be made.

Under IRC 72(t)(6) the 25% penalty for withdrawals from a Simple IRA within the first 2yrs only applies to IRA distributions that would be subject to the 10% penalty tax under 72(t)(1). Since 72(t)(2) exempts IRA distributions paid on account of death from the penalty tax of 72(t)(1), withdrawals by the surviving spouse from a decedent's Simple IRA to the spouses's own IRA are not subject to the 25% penalty tax. Why put the funds into the Spouse's own SIMPLE when the funds could be withdrawn without penalty from the Decedent's SIMPLE IRA at any time as a distribution on account of death?

Why do you think the distributions are subject to mandatory state tax withholding since ERISA prempts all state laws. How can MD enforce mandatory w'holding against out of state plans or plans that use a non MD trustee? Ins co that do business in states that have withholding laws prefer to withhold state tax to keep the state ins. regulators happy but I dont think the plan has any obligation to withhold st. income tax from a qualified plan distribution any more than plan assets can be turned over under state escheat laws.

If the plan is exempt from ERISA there is no requirement that there be a written document. The plan could be limited to the salary reduction agreement and the annuity contract or custodial agreement. Plan could have an SPD which could double as the plan document.