February, 2009
Good News for Minimum Required Distributions (“MRDs”)
The Worker, Retiree and Employer Recovery Act of 2008 (“WRERA”) provides that MRDs are waived for 2009. As you may know MRDs must be paid from retirement plans after a participant reaches age 70 ½ or to a beneficiary if the participant has died. If the MRDs are not made, then the participant or the beneficiary must pay a 50% penalty. MRDs are suspended for 2009. Please note however the distributions for 2008 have not been suspended. The provision applies to distributions from defined contribution plans, such as IRAs, 401(k)s, 403(b)s and 457s but does not apply to distributions from defined benefit plans.
WRERA also mandates that provisions for non-spouse beneficiary rollovers from an employer plan be included in the plan documents beginning in 2010. Thus, if you or your client is a beneficiary of a plan benefit after 2009, then you can roll the distribution into an inherited IRA.
Advice:
When advising your clients on these matters pay careful attention to MRDs and any rollover benefits that could be applicable and remember that the MRDs for 2008 must be made.
Standard Mileage Rate
Revenue Procedure 2008-72, 2008-50 IRB provides that the optional mileage rates have dropped from 58.5¢ to 55¢ a mile. The rate for using a car to receive a medical care or for moving expenses is 24¢ a mile, down from 27¢ a mile.
Advice:
When reimbursing employees for mileage use this new rate.
Further Help with Section 529 Plans
As many of you know many clients invest in Section 529 plans for their children’s or grandchildren’s education. These plans earn interest and future contributions grow tax-free and distributions from such plans are excludable to the extent used to pay for qualified higher education expenses. Under Section 529(b)(4) of the Internal Revenue Code (the “Code”) the contributor cannot directly or indirectly direct investments or earnings on the contributions. In Notice 2009-1, 2002-2 IRB the Internal Revenue Service provides that for the accounting year 2009 only, 529 plans may permit the account owner to change their investment strategy twice during year as well as upon the change of beneficiary designation. The same Notice also offers guidance as to investment strategies for years other than 2009.
Advice:
This provision will help give your clients the ability to change the 529 investments in light of this current market.
”Priority Guidance Plan”
The following is a list of projects for which the Treasury Department and Internal Revenue Service intend to apply their resources. This is a guideline as to what you can expect to see during the year and areas the Internal Revenue Service is targeting.
(1) Regulations under Section 67 regarding itemized deductions of a trust or estate.
(2) Guidance under Section 529 plans.
(3) Guidance under Section 642(c) regarding ordering rules for charitable payments made by a charitable lead trust.
(4) Guidance under Section 648 regarding uniform basis rules.
(5) Adjustments to sample charitable trust forms.
(6) Revenue ruling regarding the consequences when a family owned company is a trustee of a trust.
(7) Final regulations under Section 2032(a) regarding the imposition of restrictions on estate assets during six month alternate valuation period.
(8) Guidance under Section 2036 regarding graduated grantor retained annuity trusts.
(9) Guidance regarding procedures for protective claims for refunds.
(10) Guidance under Section 2053 regarding personal guarantees in determining the deductible amount of administration expenses.
(11) Final regulations under Section 2053 regarding the extent to which post-death events may be considered in determining the deductible amount of a claim.
(12) Final regulations regarding extensions of time to make allocations for GST exemptions.
(13) Guidance under Section 2704 regarding restrictions on liquidation of an interest in a corporation or partnership.
(14) Final regulations under Section 7477 regarding procedure for gift tax valuation.
(15) Guidance under Section 7520 updating mortality based actuarial tables.
Advice:
Keep a watch for announcements on the above projects.
New H. R. 436
H. R. 436 was introduced by Mr. Pomeroy in the House on January 9, 2009. This bill contains the following important provisions: (1) the repeal of the carryover basis, (2) the retention of estate tax with 3.5 million exemption and (3) the freeze of the maximum estate tax rate at 45%, all of which would be effective for estates of decedents dying and gifts made after December 31, 2009. Section 4 of the same bill also denies valuation discounts for transfers of “nonbusiness assets.” Further, no minority discount will be allowed if the transferee and members of the family have control of the entity. This law will apply to transfers after the date of the enactment.
Advice:
This House bill is an indication of how discounts are viewed. Further, as the provision is in the same bill with the estate tax rate exemption and basis rules, the discounting provisions could very well pass. In light of that IT IS CRUCIAL TO MAKE DISCOUNTED TRANSFERS ASAP. (It is also advantageous because of low interest rates.)
