by Linda Suzzanne
Griffin
Family Lawyers – Watch Out For Those QDROs
Many times family lawyers draft Qualified Domestic Relation Orders (“QDROs”) anticipating that
it is just a “form” and nothing further needs to be done. The QDROs for a defined contribution
plan and a defined benefit plan have different requirements. Further certain plans require protection
for inflation, cost of living increases, death, survivorship, etc. While some forms will be adequate
there are many provisions that are left out of a company’s forms to make it easier for the plan administrator
to review the forms. Be very careful about drafting because issues relating to QDROs may arise several years down the road.
Advice:
Be sure that the property settlement agreement explicitly lists the plans subject to the QDRO and how the plans are to
be divided (together with earnings or not). Also be sure the QDRO is actually implemented by the plan sponsor after the QDRO is entered by the Judge.
Is Your Client Dealing With A Home Foreclosure?
As everyone knows foreclosures have increased tremendously because of the housing market and the inability
of the taxpayers to pay their mortgages. The Internal Revenue Service (the “Service”) issued a release,
IR 2007-159 (09/17/2007), which provides frequently asked questions devoted to taxpayers who lose their
home to foreclosure. Special relief provisions are in place to reduce or eliminate the tax for taxpayers that lose their home.
Section 61 of the Internal Revenue Code (the “Code”) provides that gross income includes all income including income from cancellation
of debt (“COD”). Thus, any debt amount forgiven should be includable in income. When a home is lost due to foreclosure and the mortgage is
recourse (the debtor is personally liable) the taxpayer has gain to the extent the home’s fair market value exceed the taxpayer’s adjusted
basis. Such gain, however can be excluded under the $250,000 home sale exclusion under Section 121 of the Code if the other provisions of
Section 121 are met. Further COD income may also be excluded under the insolvency provisions of the Code.
Advice:
If you have clients going through foreclosure then advise them, or their CPA, to review this release.
Applying For Employer Identification Number (“EIN”)
The Service in IR 2007-161 (09/25/2007) provides a new web-based system that instantly processes requests and provides EINs.
You can access the website on www.irs.gov. The application is interactive and asks questions tailored to the type of entity.
Advice:
This author has used this service and finds that the service is a very user friendly internet application.
IRA Beneficiary Alert
It has come to this author’s attention that in late July 2007 the Vanguard Group sent customers a form letter advising
their customers that they would have to use identical beneficiaries for all IRAs of the same type, unless the customer
notifies Vanguard to the contrary. Obviously, some clients have different beneficiaries for different IRAs depending on
the reasons for the beneficiary designation. Vanguard is now going to apply the newest beneficiary on all IRAs of the same
type unless you contact Vanguard and direct otherwise.
Advice:
Estate planning could be ruined because of the possible change of beneficiary. Many clients may ignore the form letter.
If your clients have accounts with Vanguard, then advise them to contact Vanguard to be certain that the beneficiaries of their IRAs are correct.
“What Happens In Las Vegas, Stays In Las Vegas” But Not In Respect To Poker Winnings
In Notice 2007-173 (10/19/2007), the Service has advised casinos and other entities sponsoring poker tournaments that such entities must report
most poker winnings to winners and the Service. Apparently some confusion existed about the reporting rules applying to poker tournaments.
The Service clarified that beginning March 4, 2008 the IRS will require all tournament sponsors to report tournament winnings of more than $5,000
on Form W2-G, Certain Gambling Winnings. Tournament sponsors who qualify will not have to withhold federal income tax.
Advice:
If you or your clients enjoy high stakes poker games, then know that the Service will now know what you won and can match the earnings
reported on your income tax return to the Form W2-G, so be sure and report those earnings!
Deferral of Estate Tax
In Notice 2007-90, 2007-46 IRB, the Service stated that it will determine on a case by case basis whether security
will be required when an estate elects Section 6166 of the Code to pay the estate tax in installments. This Notice is in
response to Estate of Roski, 128 TC 113 (2007). The Tax Court in Roski stated that the Service has no authority to require a
bond or a special lien in every case when the estate makes a Section 6166 election. The Notice provides that the Service will
consider certain factors to determine whether there exists a sufficient credit risk to the government to justify a bond or a
special lien. Factors the Service will consider are duration and stability of business, ability to timely pay installments of
tax and interest and compliance history.
Advice:
This Notice applies to estates making elections after November 13, 2007 or in audit at April, 12, 2007. Review the 6166
election to be certain in compliance with the Notice. As an aside, the author of the Notice is Laura Urich Daly, a former
clerk of this author of Tax Tips- a very proud moment!
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Contents © Copyright Linda Suzzanne Griffin,
P.A.
