IRS has revised the 12/27/01 Special Tax Notice

[Everett Moreland]

The revised Special Tax Notice was added this morning to the IRS "drop" directory. There are three changes in the notice for qualified plans and one change in the notice for 457 plans.

[david rigby]

A little help please. Where can we read this?

[Everett Moreland]

http://ftp.fedworld.gov/pub/irs-drop/n-02-3.pdf

[MGB]

Everett,

As long as you are being so helpful, what are the changes? (I've got it but I don't want to go word-for-word through it, which it sounds like you have already done.)

[david rigby]

Not sure if any readers will disagree with me, but I have added to the Model Notice in the past. I make two changes:

1. Change the paragraph heading from "Mandatory Withholding" to Mandatory Federal Tax Withholding." (page 11 on the above link)

2. Add the following paragraph immediately following:

"Mandatory State Tax Withholding. If any portion of your payment can be rolled over under Part I above and you do not elect to make a DIRECT ROLLOVER, many states have a mandatory withholding requirement. For example, North Carolina and Virginia require a withholding of 4% under these circumstances. If your payment is made in the form of a lump sum, then the trustee will withhold 20% for the federal requirement and whatever state withholding requirement applies for your state of residence."

(I include the references to NC and VA because that covers most of our clients.)

[Everett Moreland]

p 9 change "5% or more" to "more than 5%"

p11 change "10%" to "an amount"

p 13, paragraph starting "There are other limits", change "tax-sheltered annuity contract or from an IRA" to "tax-sheltered annuity contract, a governmental 457 plan, or an IRA"

p 20 change "10%" to "an amount"

[MGB]

Thanks Everett (and I agree with your list; we already went through it).

Pax,

I also suggested to our practitioners that they have their clients add a statement that everything in the notice is with regard only to Federal law and that state laws may not follow Federal law with regard to rollovers and they should consult their tax advisors. (This is the EGTRRA compliance issue and it is generalized because of many of our clients are multi-state organizations.)