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Non-qualified plans' tax requirements from the current recordkeeper.


Guest WAT

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What is required from a recordkeeper of a non-qualified plan to supply the company on a tax basis? Would a by fund activity break-down (long term, short term) be appropiate? I need to know if our Trust reports and annual activity reports by fund activity will be appropiate? I've seen a 1099div form for a participant but I need to know what information the plan is required to submit to the IRS.

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What do you mean report to IRS for tax basis. Most non-qualified plans report payments to recipients on W-2s, some that distribute dividends on company stock are on 1099Div.

Most NonQuals are some form of Rabbi Trust and the Tax consequences are reflected on the Plan sponsor's business return.

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Guest wmacdonald
Originally posted by WAT

What is required from a recordkeeper of a non-qualified plan to supply the company on a tax basis?  Would a by fund activity break-down (long term, short term) be appropiate?  I need to know if our Trust reports and annual activity reports by fund activity will be appropiate?  I've seen a 1099div form for a participant but I need to know what information the plan is required to submit to the IRS.

You have to think of a non-qualified plan in two parts, the company and the participant. If the plan is properly designed, you don't report (on behalf of the participant) any of the earnings, including investment income and dividends, until there is a distribution to the participant. The plan, from the participant's standpoint, is "unfunded", even though the company may have set assets aside in a Rabbi Trust. The funds are technically hypothetical investments, even though you may purchase similar investments.

Now from the company's standpoint, the asset is treated and taxed like any other corporate asset. If you're using mutual funds, the company reports the gains on the funds, and pays it's corporate tax accordingly. This is one reason over 60% of the Fortune 1000 who fund their deferred compensation plans (see survey at http://www.crgworld.com) "wrap" the funds in life insurance. By wrapping the funds in life insurance (which is owned by the Rabbi Trust or corporation)you do not report the gains from the funds, unless you surrender the policies.

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Guest EAKarno

If your nonqualified plan participants are receiving 1099div returns you have a serious tax problem. A 1099 div would only be issued with respect to the owner of the investment. Under a nonqualified plan the owner must remain the employer until the benefit is distributed either in cash or in kind. If the participant owns the investment he is in receipt of its full value and should be taxed accordingly as having received ordinary income for such value from the employer. This obviously defeats the entire purpose of a nonqualified plan. Or am I missing something?

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