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P & T Hot Tip Emailees: The first, embodied in Notice 2009-82 explains that those who have received a 2009 required minimum distribution have until the later of Nov. 30 2009, or 60 days after the date the distribution was received to roll it over. The notice also provides guidance for retirement plan sponsors. As you may remember, the Required Minimum Distributions for 2009 were eliminated due to the disastrous financial markets of 2008. The thought was that it would be unfair to require people to liquidate securities in their retirement accounts to satisfy the required minimum distribution at lousy prices, so the RMD requirement was eliminated for 2009. A rollover or a direct trustee to trustee transfer of a distribution from an IRA or other qualified plan is not permitted with a payment that comprises the required minimum distribution. Some people may have already taken the required minimum distribution for 2009, and they are going to be allowed to roll over that distribution for 60 days from the date of the distribution or November 30, 2009, whichever is the later. Of course if they already liquidated the securities last March, this may not have done much good, since they already suffered the harm of selling in a bad market. This is in fact an advantage if the participant doesn't need the distribution to live on, because it extends the period of tax deferral. The text of the notice along with sample form for employers to use for their plans can be found at the following URL:
Notice 2009-82 In connection with other retirement planning options, you will want to also remember that in 2010, the income limitation will be taken off the Roth rollover provisions so this is an option that you may wish to consider, both personally, and for your clients. Proposed Regulations Concerning Supporting Organizations Full text available at the following URL: Proposed Regulations Concerning Supporting Organizations Charitable organizations under section 501(c)(3) of the Internal Revenue Code are broadly composed of public charities and private foundations. The public charities are those which qualify under section 509(a)(1),(2),(3), or (4). Those qualifying under section 509(a)(3) are called supporting organizations. Supporting organizations, because they have been categorized as public charities, enjoy significant advantages vis-a-vis a private foundation. They don't pay any taxes, whereas private foundations are subject to annual excise taxes of 1%, 2% or 3% depending on many technical factors. They don't have to file a form 990 PF which as many of you will know is one of the more burdensome of the IRS forms. And perhaps best of all, they do not find themselves subject to the 5% minimum distribution requirement imposed by section 4942 of the Internal Revenue Code. Taken together, these are strong advantages for the supporting organization if the organization or trust qualifies under the very technical rules applied to them. Supporting organizations, like Gaul, were divided into three parts: Type I Supporting Organization-- these are supporting organizations which are functionally controlled by the organizations they support. This might be looked at as a parent child sort of organizational relationship. Type II Supporting Organization -- these are supporting organizations which are supervised or controlled in connection with the supported organizations. This might be looked at as a brother and sister sort of organizational relationship. Type III Supporting Organization -- the supporting organizations which do not fall into the Type I or Type II categories but meet the "responsiveness" and "attentiveness" requirements under existing IRS regulations. The idea of all of this is that if the supporting organization is one that is sufficiently responsive to the needs of a qualified charity and if this charities are attentive to what the supporting organization is doing, there is a reduced need to place the relatively heavy burdens of reporting and accountability that are placed upon private foundations. You could maintain the responsiveness that the IRS wants by having essentially interlocking boards of directors or boards of trustees or in fact maintaining a close and continuous working relationship between the supporting organization and the supported organization. Under existing regulations, a charitable trust under applicable state law could also meet the responsiveness requirement by having the supported organizations specifically named in the governing instrument if each beneficiary organization has the power to enforce the trust and compel an accounting under state law. This special exception has been eliminated for charitable trusts, and will force many charitable trusts that are currently supporting organizations into the private foundation category. All Type III supporting organizations will be required to distribute information to the supported organizations each year: 1. A written notice to each supported organization identifying the supporting organization or end stating the amount of the support given to that organization in the past year. 2. Provide a copy of the supporting organization's most recently filed Form 990, and 3. Provide a copy of the supporting organizations governing document (only required once z) For Type III supporting organizations, there will be a minimum 5% payout requirement essentially equivalent to that for private foundations, except that the payout for a given year is based on the average monthly values for the prior year, and excess payouts will be used first in the carryover process which will give the supporting organization somewhat greater flexibility. These, by the way, would be good changes for the private foundation rules as well. The Proposed Regulation writers heard but did not heed the comments of those who commented that a minimum 5% payout requirement may be too high to allow a steady and dependable stream of income to be produced for the charitable organizations to be supported. Those commentators have a very good point. Over all the 30 year periods in history, such a private foundation paying out 5% and investing "conservatively" with 60% of its assets in large cap stocks and 40% in intermediate treasury securities would have preserved the real value of the trust in only 24% of the 30 year periods. And the average loss of inflation-adjusted value over those 30 year periods was 22%. Of course, if you raise the percentage of stocks in the portfolio, you would get better statistical results with approximately 50% of the periods preserving the real value, and the mean or average ending market values being slightly above the starting value, but many if not most of such charitable trusts may not invest aggressively enough to the able to afford to pay out the 5% required by a private foundation or now, a Type III non-functionally integrated supporting organization. This is an unfortunate development, particularly for trusts in Pennsylvania where section 8113 of the Probate Estates and Fiduciaries code gives charitable trusts the flexibility of payout between 2% and 7% of trust market value averaged over three or more years. Then too the results cited above are based on historical returns which many, if not most, financial experts think are likely to be more restrained in the future. If they are right, these mandatory minimum payout rules will gradually waste away the value of our charitable trusts and private foundations which are subject to the 5% payout rule promulgated in 1971. And it will be much more difficult for the Type III supporting organization which is not functionally integrated to qualify under the "attentiveness" test, by providing more than 10% of the supported charity's revenue in a given year, or for the revenue stream to be one without which a specific program of the supported charity would have to be discontinued. Because of these tightenings, additional burdens will be placed particularly on a charitable trust that is supposed to provide financial support for a limited number of charities, but where those charities are large relative to the size of the supporting organization. With these trusts, it is likely they will be re-categorized as private foundations with the additional administrative burdens, complexities and taxes. These proposed regulations are extremely complex and hard to follow so if you represent such a supporting organization, or if you can't tell whether you do or not, you may be doomed to read all of this more than once. In compliance with President Carter's Paperwork Reduction Act, they estimated that it would take an average of 2 hours per year to keep the records required under the Proposed Regulations. It took me about 4 hours to read them, but then, I guess I am a little slow. “Please read the important information relating to tax advice at the bottom of this e-mail message.” Best regards, |