March 2006

MEMBERS’ CORNER
BY STANLEY TEPPER, CPA, MBA

Management of Acting Practice (M.A.P.) – Our Nassau/Suffolk Chapter is fortunate to have two members who have brought to life our inactive MAP Committee, Eliot Lebenhart, CPA and Ken Hauptman, CPA. The MAP Group has been recently having breakfast meetings at the On Parade Diner in Woodbury. Two recent breakfasts were devoted to E-filing. The room was filled with few vacant seats remaining. Ken & Eliot certainly chose a topic our members wanted to learn and discuss. Thanks guys. (They welcome suggestions about future topics. Eliot can be reached at (516) 932-3055 and Ken at (516) 681-8181.)

Commerce Clearing House (CCH) NCCPAP Discounts – Our chapter has entered into an association arrangement with CCH, which affords 30% off discounts on the purchase of printed tax books. The orders are sent directly and billed to the individual firm. Order on line on the CCH Partner Page Address. http://tax.cchgroup.com/members/NS-NCCPAP. Member discount code Y3820. Our rep is Peter Caparelli (516) 365-5236.

Workers’ Compensation – The State of New York Workers’ Compensation Board Bureau of Compliance recently sent notices to employers that since September 23, 2003 Section 51 of the New York State Workers’ Compensation Law was amended to require the assessment of a new $250 penalty on any employer that fails to conspicuously post a C-105 or C-105.1 Form.

IRA Advisor – Due to space limitations in the February 2006 issue the balance of the excerpts from Ed Slott’s Newsletter could not be printed. Ed publishes a monthly IRA Publication. (516) 1-800-633-1340.

Income Not Subject to Self-Employment Tax –

Compensation for IRA eligibility includes income earned for personal services, but there is no requirement that the income be subject to self-employment tax. The incomes from the activities listed below are subject to income tax but are NOT subject to self-employment tax. This income is considered compensation for IRA eligibility:

  • Jury fees (You’d have to serve on a jury like O.J.’s to earn enough to qualify for anywhere near the maximum IRA contribution limit.) Election fees and notary public fees qualify as compensation, but they too are minor amounts.
  • Executor, administrator, or trustee fees (if you are not a professional fiduciary and the estate includes an active business, which you manage, otherwise the fees are subject to self-employment tax).
  • Certain members of the clergy can elect to be exempt from self-employment tax due to religious reasons, but their wages as reported on their W-2 form qualify as compensation.

Disaster-Proof Your IRA-

Instead of losing weight this year, how about a New Year’s resolution that you can actually keep. Make sure you your IRA is protected by having copies of your IRA beneficiary form in several locations.

The new IRA rules guarantee the stretch option for your beneficiaries, but only if they are named and the IRA beneficiary form can be found when it is needed. It’s time to address this. Don’t leave this for your IRA institution to take care of. IF beneficiary forms are lost or misplaced, your beneficiaries may lose the ability to maintain the inherited IRA over their lifetimes. You may also want to have your financial advisor and/or attorney keep copies of your IRA beneficiary forms on file for you.

IRA New Year’s Resolutions

This year……… 

  • I will obtain a copy of the IRA beneficiary form for each IRA I own.
  • I will make sure that I have named a primary beneficiary and a secondary (contingent) beneficiary for each IRA I own.
  • If there are multiple beneficiaries on one IRA, I will make sure that each beneficiary’s share is clearly identified with a fraction, a percentage or the word “equally” if that is applicable.
  • I will make sure that the financial institute has my beneficiary selections on file and that their records agree with my choices.
  • I will keep a copy of all my IRA beneficiary forms and give copies to my financial advisor and attorney.
  • I will let my beneficiaries know where to locate my IRA beneficiary forms.
  • I will review my IRA beneficiary forms at least once each year to make sure they are correct and reflect any changes during the year due to new tax laws or major life events such as a death, birth, adoption, marriage, divorce, or some beneficiary forgetting my birthday!

Child’s Earned Income - whether taxable or not is compensation. There is no minimum age for IRA eligibility. A child can contribute to an IRA as long as the child has the earned income. A parent (or anyone) can gift the money to the child to contribute to the child’s IRA. The income must be from legitimate work. Phantom income cannot be reported on a child’s tax return to qualify for an IRA contribution. The child must be capable of earning the income.

Estate & Tax Newsletter – These articles appeared in the Certilman Balin fax letter edited by Stephen Silverberg and Lisa Hunter (516) 296-7000.

Past Law – Not Current – Governs in Will Revocation. The Court of Appeals of the State of Kentucky recently ruled the law in effect at the time of execution of a will takes precedence over current law.

On October 30, 1990 James Riggins, a widower, drafted a hand-written will including instructions for the distribution of his assets to his children at the time – Dennis, Jane, and John. On October 31, 1990, James married Tita Alega, a woman from the Philippines who James married via a contractual arrangement. No provisions were made in the will for Tita nor for any children they might have.

In 1990 when James drafted his will, there was a law on the Kentucky books stating wills will be revoked by a marriage. There were three exceptions noted in the law, however, the court ruled the exceptions were not relevant to this case. This law was subsequently revised in 1998 to state, “a will shall not be revoked by the marriage” of the testator.

James died in 2002. Upon his death, his son John presented the will for probate, but the husband of James’ daughter, Jane filed to declare the will invalid. The court ruled the will had been revoked under the original law, i.e., the law in effect at the time the will was signed, would take precedence over the law in effect at the time of death of the testator. Because the will had been ruled revoked the day James married Tita, the day after it was signed, it was ruled James died intestate and his assets were to be distributed accordingly.

The decision was appealed, and the Kentucky Appeals Court affirmed the lower Court’s decision.
Source: Riggins v. Floyd (KY App.Ct.,
No. 2004-Ca-001486-MR, 9-0-9-05

Scrivener’s Error Grounds For Modifying Irrevocable Trust – The IRS ruled in PLR – 200535007 an irrevocable trust could be changed abinitio (from the beginning) due to an error on the part of the scrivener.

Two parties established a trust intending it qualify as a net income charitable remainder unitrust (NIMCRUT). The NIMCRUT was supposed to contain a provision directing realized post contribution capital gains be paid to the income of the trust.

The trustee of the trust administered it as though such a provision was included, but upon inspection the trust’s law firm discovered no such provision existed. Due to this inadvertent omission and because the trust was irrevocable, the trustee sought authorization from the court to modify the trust ab initio.

After reviewing sections related to split-interest trusts, self-dealing, and the actual requirements of a NIMCRUT, the IRS ruled, under §4947(a)(2)(A) and §53.4947-1(c)(2)(ii), Example (1), “a charitable remainder unitrust’s payments to its income beneficiary do not result in any tax on self-dealing under §4941. Under the circumstances described, a retroactive amendment in favor of the charitable remainder beneficiary does not constitute self-dealing under §4941.”

Based on the above determination combined with the fact the trust had, without fail, allocated realized post contribution capital gains to the income of the trust (thus supporting the position the NIMCRUT was intended to have such a provision upon creation,) the IRS ruled the trust would be recognized as a valid CRUT ab initio, and it could be revised to include a provision allocating realized post-contribution capital gains to trust income.
Source:PLR-200535007