HCE Threshold - 2006 Publication 560

[Guest CharlieLaur]

Did anybody notice that our good friends at EP:EO seem so have won the day. Pub 560 for 2006 has language that is startlingly clear and completely consistent with the Kyle Brown letter, but totally inconsistent with prior years' Pub. 560's (and, of course, the law). Here is the language from 2006 (for preparing 2006 tax returns):

"For the preceding year, received compensation from you of more than $95,000 (if the preceding year is 2005, $100,000 if the preceding year is 2006 or 2007) and, if you so choose, was in the top 20% of employees when ranked by compensation."

To remind everybody, this is what the 2005 version stated (for preparing 2005 tax returns):

"For the preceding year, received compensation from you of more than $95,000 and, if you so choose, was in the top 20% of employees when ranked by compensation. This $95,000 amount increases to $100,000 in 2006."

Now isn't that just peachy?

Since I missed Mike Preston's message from March 26th concerning the wording change in the 2006 version of Publication 560 (probably due to the fact that it was buried at the bottom of eight pages of prior messages), I thought that I would reprint it in a new topic in order to make it a little more obvious. I was getting ready to post a similar message when I discovered that Mike had, of course, beat me to the punch by six weeks.

[Guest mjb]

I propose that we take a vote on which the correct IRS interpretation:

1. the 1999 info letter to Kyle Brown which ignores the changes made by the SBJPA section 1431(d) and cannot be cited as precedent

2. the explaination in the 2003 version of Pub 590 which defines an HCE as an individual who received for the prior year compensation of more than 90,000 and was in the top 20% of employees when ranked by compensation

3. the explaination in the 2004 and 2005 Pub 560 cited above which differs from the 2003 version

4. the explaination in the 2006 Pub 560 cited above which contradicts the explaination in the 2004 and 2005 versions of Pub 560 but is consistent with the 2003 Pub 560.

5. the application of the limits in the 2006 IRS cumulative bulletion of cola increases which lists the HCE limit for 1997 as 80,000 on a lookback yr basis (instead of $100,000 in effect in 1996 under prior law) enacted in Section 1431(d) of SBJPA which when carried forward each year to 2005 would be 100,000 which contradicts the explaination in the 2006 Pub 560 for 2005 tax years but is consistent with the 2004-5 Pub 560.

Bonus questions:

1. For those you you who like riddles what is the correct HCE limit for 2005- 95,000 or 100,000 since the IRS has listed both as correct in Pub 560?

2. What is the HCE limit in 2005 under the 2006 Pub 560 for fiscal yr plans -95,000 or 100,000?

[Bird]

I'm not going to bother voting but I'll predict the results at something like 99 to 1.

[JanetM]

I will play it safe and say lets just flip a coin to decide.