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A vow of poverty in a non-qualified DC plan???


Guest mam

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A nun began distributions from a non-qual'd DC plan in 1999. The payments were made to her religious order (because she has taken a vow of poverty).

How should W2 tax reporting be handled by the institution making the distribution?

Does her age, religious order, amount of distributions come into play at all?

Any information at all is greatly appreciated!

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Very good question! I'm told she is not an employee of the Catholic organization sponsoring the Plan, but rather an "Agent" of the religious order. She is the CEO of this organization, and her salary goes to the relgious order. Her distributions from the plan go to the religious order. How is it that she doesn't need a W2 issued for this amount?

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First, if the organization is getting the distributions directly, it may be that she (the nun, that is) has assigned her right to those payments from the NQDCP to the organization, which would cause the direct payment from the payor. The payor is generally required to issue its tax information report (W-2 or some version of 1099) to the payee (the organization).

The possibility of an assignment of income from the NQDCP raises another concern. Her ability or "right" to make such an assignment probably has tax implications for her which may not be desirable.

Get thee to a tax advisor! (pun also intended)

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Yes. I believe that may be the case. Unfortunately, their tax advisor is the entity claiming that a W2 ISN'T NECESSARY. I smell a rat.

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The paying entity isn't bound by the organization's tax advisor's advice. In fact, if it relied on that advice (which does, frankly, smell)it will not later be able to claim reliance as a defense in any IRS examination. The paying entity should seek independent tax advice, make a decision, and issue the tax info report to the nun or the entity which is actually receiving the taxable income from the NQDCP. The tax information report by law must ordinarily be prepared and issued by the end of the January.

Hope this helps.

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If she is an agent of the church/order, then the payments are not income to the nun and they are not subject to income tax withholding or FICA withholding. However, the payments are income to the church/order and may be taxable. That is what Rev.Ruls. 76-323, 77-290, and 80-332 say. I don't know if these have been updated or superseded since then.

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All good points, thank you. The battle I am fighting is that the organization won't provide the religious order's TIN to put on the W2. They don't think that this distribution even has to be reported. I concur that there may very well not be a TAXATION issue, but it must be REPORTED. They think not.

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