mbozek

Before asking these questions what are the powers of the Plan administrator to determine the amount of service to be credited to a participant under the plan? Most plans give broad powers to the PA to credit service to a participant. There are cases where employers have been required to credit benefits for service performed as a leased employee.

Under IRS reg, benefits can be forfeited if the plan is unable to "locate the participants" and the accounts used to pay for the cost of terminating the plan and filing the final 5500. The plan needs a provision permitting the forfeiture of benefits of missing participants subject to reinstatment if the participants later appear which will be unlikely if the plan has terminated and distributed all of its assets. The client may prefer to pay for a locator service that will let you know if these people cannot be located since the IRS will not tell you if the participants are located and you will have to delay termination of the plan for some indefinite period to see if they contact you.

Since a taxpayer can always withdraw a request for a ruling before an adverse ruling is issued you have to assume that the clever lawyer who obtained the ruling wanted it as confirmation that the CU could establish a NQ plan that was not subject to the 457 rules, e.g., plan could have vested deferrals in excess of 13k or provide for a db type benefit under IRC 451 (a SERP). No client would go through the expense of obtaining a ruling just so executives can defer 13k a year. Also only NP which are "governmental units" are not permitted to have 457 plans, not instrumentalities as defined in IRC 501©(1). A NP which is a govt unit has been understood to mean a 501©(3) entity e.g., a hospital, which is owned by a municipality.

Merlin I dont want to quibble but I am not sure that the constructive ownership interest of a minor child automatically creates a controlled group between both parents business interests. See Reg. 1.1563-3©(2) and 1.1563-3(b)(6)(iii) example ©. Such attribution creates an anomolous situtation for married couples with separate businesses who have minor children soley because of ownership of a business while the child is under 21 (or inheritance of a business interest).

The owner may want some assurance that the funds will be paid which is enforceable under law. Or the owner may not want to include the money in taxable income for this year. There is no tax advantage for a business that does not pay taxes.

For Whom? owners or non owners?

F: No tax advisor can make an incomprehensible law comprehensible. No advisor is going to guarantee a favorable result but will use caveats in rendering the opinion such as "while not entirely free from doubt" or "it is more likely than not" to alert the taxpayer to the uncertainty in the law. The purpose of providing the opinion is give the taxpayer substantial authority for claiming the tax benefit in the event of an audit by the IRS which will 1) provide a reasoned basis for the position taken and 2) prevent the imposition of penalities for substantial understatement of taxes so the worst case for the taxpayer is that taxes and interest will be owed but not the penalities of up to 75% of the taxes due. Of course the client is free not to obtain an opinion and aggregate the spouses interest for the purpose of IRC 414(b) or assume audit risk without an opinion.

There is no case or IRS ruling listed for attribution of spousal interest under 1563e5 in CCH or BNA tax manual 554 in the 40 years since enactment. So it solely a matter for counsel to opine on.

If the 403(b) annuity payments are going to be made to the employee there is no way to require the payments to be used to pay health ins.

A taxapyer reesiding in a CP state has substantial authority under the income tax law for claiming a tax benefit if the taxpayer meets the requirements of the code and the regulations. The IRS can only only administer the law, not interpret the law and cannot add any additional requirements not in the tax law or regulations unless Congress explicitly adds such a requirement as it did in DOMA when it defined spouse for all purposes under federal law, not just tax law (e.g., social security and veterans benefits). IRC 1563 was enacted 40 years ago and if Congress wanted to make a distinction between residents of CP and Non CP states it has had ample opportunity to do so. Finally Congress allowed filing of joint income tax returns by married couples in 1948 to provide the benefits of income splitting to married couples who lived in non CP states that was avialable to residents of CP states. All of this leads to two conclusions: 1. Congressional policy is to apply the income tax laws uniformly in all states. 2. If Congress wants to change any requirements for a tax benefit it will enact appropriate legislation. Until then a taxpayer can rely on existing law.

The J & S annuity is required in a custodial account if 1) the employer is a NP organization subject to ERISA, 2) contributions are made from the employer's own funds and 3) the plan requires that the employer make annual contributions, e.g., the contributions are fixed by the plan. If the employer contributions are discretionary, i.e., made pursuant to an annual appropriation of funds, the plan does not have to offer the J & S annuity. Note: An NP employer can elect to make a 403(b) plan subject to ERISA even if there are no employer contributions, or only discretionary payment are made.

How is the clients lawyer going to get paid? On a contingency fee? Is your attorney a litigator?

I dont understand what the school district is going to transfer /pay. Are the Health ins premiums going to be paid from the 403(b) annuity instead of the schools funds? also are there restrictions to doing this under state law or a labor agreement with the union? Contributions to a 403b plan can only be invested in annuities, mutual funds and LI.

There is case law denying retirement benefits to a benficiary who murders the participant under the common law theory that a wrong doer cannot profit from his or her wrong. However it is not up to the plan to deny the bene's claim. The plan must wait for a claim for the benefits from the estate or the children of the participant demanding that benefits be denied to the bene in which case the plan would file a complaint in interpleader in fed ct which will decide the case. You need to consult with counsel.

There is one case on the issue of spousal waiver validity- Butler v. Encyclopedia Brittanica, 41 F3d 285, which considered the validity of a waiver not signed in the presence of a notary. Also discussed the discretion of Plan admin to determine if a waiver is valid.

I think you have do a review of whether the owner's position as a director makes him a disqualified person within the meaning of IRC 4975(e)(2)(H) - will he own at least 50% of the stock of the bank?

Q; isnt the practical problem of collecting on defaulted loans who will pay for the cost of collection: the plan or the participant. I dont think the plan admin can decide not to collect on the defaulted loan because of the difficulty or cost of collection since this would invite other participants to take out loans and default. This is why the best policy is to enforce repayment of loans by salary withholding as agreed to under the loan agreement until the ee declares bankruptcy.

I dont agree. The tax code sections cited by Watson are designed to prevent married taxpayers who live in CP states from using CP laws to get tax benefits not available to married taxpayers living in non CP states, e.g., by assigning 1/2 of the interest in an IRA to the spouse for distribution purposes, not prevent them from taking a tax benefit available to married persons who live in non CP states. Without these provisions taxpayers in CP states could argue that CP law permits them to lower their taxation or obtain tax benefits not available to residents in non CP states. These 4 provisions are consistent with my theory that income tax laws are not supposed to differ in application depending on whether a married taxpayer lives in a CP or non CP state. Similarily a married taxpayer who lives in a CP state should not be denied the benefits of non attribution under IRC 1563(e)(5) merely because of the attribution of 50% of the corporate interest to the spouse under state CP law because this would prevent uniformity of treatment under the tax law of residents in CP and non CP states. Most tax advisors would agree that compliance with the literal requirements of the tax law is substantial authority for claiming an income tax benefit; the fact that some tax advisors would read in CP law attribution where none exists under IRC 1563(e)(5) so as to prevent such exclusion of interest is consistent with the principle that taxpayers are free to deny themselves a tax benefit if they choose to do so. [old story but relevant- when Gerald Ford became president after Richard Nixon resigned he ordered his tax preparers not to use tax shelter losses which would lower his taxes even though the losses were permitted under the tax law.] The answer to this question depends on the confidence that a tax advisor has in applying his or her advocacy skills to interpretation of inscrutible statutes.

Austin- isnt the risk of allowing defacto in service distributions the reason why employers take the position that employees cannot stop loan repayments because state labor/ wage withholding laws are preempted by ERISA. The employer has an obligation to the other participants to prevent disqualfication of the plan. The employer and plan administrator are not the employees debt consultant. If the employee cannot afford all of the payments that he or she is obligated for then declare bankruptcy and let the bankruptcy judge sort it out. Would the answer be any different if the employee asked to stop health insurance premium withholding under a 125 plan because he has other bills to pay ( bought a new car)?

The substantial authority comes from the literal reading of the statute. If a taxpayer meets the specific requirements for obtaining a benefit under the income tax law then the taxpayer has met the requirements for claiming the tax benefit. The fact there may be some uncertainity regarding a tax law does not prevent the rendering of an opinion based on substantial authority which is why taxpayers obtain tax opinions.

Why does cp residency require attribution of spousal interest which is exempt under IRC 1563(e)(5)? A plain reading of IRC 1663(e) (5) states that the spousal intrerest is exempt if it meets the requirements of A-D. Therfore compliance with those rules will exempt the spousal interest in a CP state. Interpretating an implied exception to the exclusion of the spousal interest under IRC 1563(e)(5) for spouses in a CP state is contradictory with congressional policy to have uniformity of taxation of taxpayers in all states. The intent of Congress to provide for uniformity of taxation of married taxpayers regardless of which state they reside is expressed in IRC 408(g) which prohibits the application of CP laws to ownership of the interest in an IRA. There is substantial authority for the position that there is no attribution of a spousal interest in a corp which is exempted under IRC 1563(e)(5) if the married couple resides in a CP state.

Blinky you should know better. Nobody uses cement shoes Look around you - its called sleeping with the fishes. On the Sopranos when some one disappears he is said to "enter the witness protection program".

As Jevd has noted the distribution of an annuity contract by qualified plan is reported as a non taxable distribution in box 8 of the 1099-R because the employee will be taxed under IRC 72 as the payments are made.

Why not make the employee an offer he cant refuse? The employer will drop the criminal and civil charges if the employee makes restitution by transferring his retirement benefits to the plan sponsor under the a13 regs.

The terms of the IRA is a legally binding contract which spells out the rights of the IRA owner and the custodian or ins co. Almost IRAs (and all the custodial IRAs sponsored by brokerages and mutual funds that I have reviewed) provide that at the death of the IRA owner, all rights of the owner under the IRA are transferred to the beneficiary, including the right to make investment decisions, distributions and beneficiary designations. There are no separate ownership or transfer rights to the IRA investments. IRA annuities may restrict changing a beneficiary designation because the contract approved by the state Ins. dept did not permit a subsquent change of beneficary after the death of the owner.