Archive for the ‘2006 Pension bill’ Category


Friday, August 11th, 2006 by Joe Kristan

fb.jpgIn one of the old M*A*S*H books – I’m not sure if it was the original hit book or one of the lame paperback sequels – Dr. Frank Burns would meticulously keep track of his charitable donations for the IRS. He was rather creative – he would buy a pack of cigarettes and write it down as a donation to “Little Sisters of the Poor” – but he had something to show the IRS when they came around.
This won’t work anymore. The new pension bill (H.R. 4) awaiting the President’s signature requires a cancelled check or a written receipt from the donee organization to support any cash contribution. Credit card receipts should also work. This takes effect for 2007.
These new requirements are in addition to the existing rule that gifts of $250 or more require a written receipt from the charity; for these gifts, a cancelled check alone isn’t enough.
So when you sit down with your preparer in April 2008, it’s not going to be enough to say, “oh, I’m very generous, I’m sure I put $5 cash in the collection plate each week.” No receipt or cancelled check, no deduction.



Thursday, August 10th, 2006 by Joe Kristan

The new pension bill (H.R. 4) strikes another blow against corporate-owned life insurance. The bill, which will apply to policies issued after the day the president signs it (expected to be August 17), will restrict the tax-free status of corporate or bank-owned life insurance to a narrowed class of employees, and then only if an elaborate set of notifications are made and documented.
This is a big deal in the insurance world because it fences in the sacred tax-free status of life insurance proceeds. Many tax shelters in the 1990s were set up to game this tax-free status, including the notorious “dead peasant” policies.
The bill will add new Sec. 101(j) to the Internal Revenue Code. This provision restricts tax-free life insurance proceeds to the amount paid for the policies unless the policy is on the life of:

– Somebody who was an employee within 12 months of death; or
– A highly-compensated employee (as of the date the policy is issued). This covers 5% owners, directors, employees with over $100,000 compensation, or anybody else in the top 35% of compensation at a company.

A policy can also still be tax-free to the extent the proceeds are paid to a family member of the insured, the insured’s estate, or trusts for the benefit of the insured or the beneficiary. Amounts used to fund a buy-sell agreement will also be tax-exempt, but only to the extent it’s actually used to fund the buy-sell.
Even if the policy meets these new requirements, it will be taxable unless the company meets the new “notice and consent” requirements. These require:

– A written notification to the insured employee, including the maximum amount of insurance the employer might buy;
– Written notification to the employee that the employer or other policyholder will be the beneficiary of death proceeds, and
– Written employee consent to the purchase.

These have to be received before the policy is issued. As they’re learning in the option world, backdating won’t cut it. You will have to have the consents before you buy the policy.
The new law also will require employers with insurance on employees issued covered by 101(j) to file a new tax form each year to report information on the policies.
If you are pondering buying life insurance for your business or bank, keep an eye on the White House website to make sure he hasn’t signed the bill yet. If he has, you’d better make sure your new policy qualifies, and that you have the notifications and consents in hand, before you pull the trigger on the new insurance contract.



Wednesday, August 9th, 2006 by Joe Kristan

frown.gifOne little-noticed provision in the new H.R. 4, the new pension bill awaiting the President’s signature, cracks down on the donation of used household goods to charity. The Joint Committee on Taxation’s report on the bill shows this isn’t a small issue:

As recently reported by the IRS, the amount claimed as deductions in tax year 2003 for clothing and household items was more than $9 billion.

I have always thought that Goodwill and the Salvation Army would be economic behemoths if the clothing donations they received wore really worth the amount clamed as deductions for them. $9 billion is about the annual revenue of CSX, the railroad holding company, for example.
To crack down, the new tax law will forbid deductions for household items not in “good” condition. Also, the IRS will be:

…authorized to deny by regulation a deduction for any contribution of clothing or a household item that has minimal monetary value, such as used socks and used undergarments.

At least now if former President Clinton gets audited for his $2 per-pair deduction of used underwear, it won’t matter whether it’s boxers or briefs. Under the new law, though, he can still get a deduction for them if they appraise out at over $500. The Red Cross may be able to use the fabric.