Signup To Receive CCH Tax News Headlines Via Email

October 9,  2008

Federal Headlines

IRS Issues Proposed Regulations Implementing Pension Protection Act Changes Regarding Notices and Election Periods (NPRM REG-107318-08)

 

The IRS has issued proposed regulations reflecting certain changes mandated by the Pension Protection Act of 2006 (PPA '06), P.L. 109-280) with respect to: (1) the requirement that notice under Code Sec. 411(a)(11) describe the consequences of failing to defer receipt of an immediately distributable benefit; (2) expansion of the applicable election period for waiving the qualified joint and survivor annuity form of benefit under Code Sec. 417 to from 90 to 180 days; and (3) timing rules under which notice required under Code Sec. 402(f), Code Sec. 411(a)(11), orCode Sec. 417 may be provided to a participant as much as 180 days before the annuity starting date (or, for a notice under Code Sec. 402(f), the distribution date).

Background

 

The notice and election period changes are mandated by the PPA '06 for years beginning after December 31, 2006. Under the changes, a plan will not be treated as failing to meet the new requirements if the plan administrator makes a reasonable attempt to comply with the new requirements during the period that is within 90 days of the issuance of regulations implementing the changes.

 

The IRS issued guidance in Notice 2007-7, I.R.B. 2007-5, 395, which provides a safe harbor for notice requirements with respect to the consequences of failing to defer receipt of an immediately distributable benefit. Under the guidance, in the case of a defined benefit plan, the notice must describe how much larger benefits will be if the commencement of distributions is deferred. In the case of a defined contribution plan, the description must indicate the investment options available under the plan (including fees) that will be available if distributions are deferred. The notice must contain the portion of the summary plan description that contains any special rules that might materially affect a participant's decision to defer.

 

CCH Comment. Plans will be able to continue to rely on this safe harbor until final regulations are issued, which is a good thing, because the proposed regulations require significantly more information. The IRS has specifically asked for comments on the practical utility of the required information. The IRS is clear that in no event will the regulations become effective for notices provided earlier than the first day of the first plan year beginning 90 days after publication of final regulations in the Federal Register.

Proposed Regulations

 

Under Proposed Reg.§1.411(a)-11(c)(2)(vi), the notice describing the consequences of failing to defer must provide participants with a description of specified federal tax implications of failing to defer. These implications include (1) the effect of differences in the timing of inclusion in taxable income, (2) application of the 10 percent additional tax; and (3) for a defined contribution plan, loss of the opportunity upon immediate commencement for future tax-favored treatment of earnings if the distribution is not rolled over to an eligible retirement plan.

 

A notice for a defined benefit plan must include a statement of the amount payable to the participant under the normal form of benefit both upon immediate commencement and when the benefit is no longer immediately distributable (that is, the later of age 62 or attainment of normal retirement age). A notice for a defined contribution plan must include a statement that some currently available investment options in the plan may not be generally available on similar terms outside the plan and contact information for obtaining additional information on the general availability outside the plan of currently available investment options in the plan. The notice must include a statement that fees and expenses (including administrative or investment-related fees) outside the plan may be different from fees and expenses that apply to the participant's account and contact information for obtaining information on such fees.

 

The notice must describe any provisions of the plan (and provisions of any accident or health plan maintained by the employer) that could reasonably be expected to materially affect a participant's decision whether to defer receipt of the distribution. For example, the notice would have to provide a description of the eligibility requirements for retiree health benefits if such benefits are limited to participants who have an undistributed benefit under the employer's retirement plan.

 

Although the proposed regulations generally require that information regarding the consequences of a participant's failing to defer receipt of a distribution must appear together within the notice text, a cross-reference is permitted to where the required information may be found in notices or other information provided or made available to the participant, as long as the notice of consequences of failing to defer includes a statement of how the referenced information may be obtained without charge and explains why the referenced information is relevant to a decision whether to defer.

Effective Dates

 

The regulations are proposed to become effective for notices provided (and election periods beginning) on or after the first day of the first plan year beginning on or after January 1, 2010. With respect to the requirements for notice of consequences of failure to defer receipt of distributions, pending final regulations, a plan can rely on the proposed regulations or Notice 2007-7, or make a reasonable attempt to comply with the requirement that the description of a participant's right, if any, to defer receipt of a distribution shall also describe the consequences of failing to defer such receipt.

 

With respect to the expanded applicable election period and the expanded period for notices, plans may rely on these proposed regulations for notices provided (and election periods beginning) during the period beginning on the first day of the first plan year beginning on or after January 1, 2007 and ending on the effective date of final regulations.

Comments and Public Hearing

 

Comment are sought, and a public hearing is scheduled for February 20, 2009.

Proposed Regulations, NPRM REG-107318-08, 2008FED ¶49,836

Other References:

 

Code Sec. 401

 

CCH Reference - 2008FED ¶17,729F

 

CCH Reference - 2008FED ¶17,732D

 

Code Sec. 402

 

CCH Reference - 2008FED ¶18,217I

 

Code Sec. 411

 

CCH Reference - 2008FED ¶19,064B

 

Code Sec. 417

 

CCH Reference - 2008FED ¶19,261F

 

Tax Research Consultant

 

CCH Reference - TRC RETIRE: 42,100

Filing and Payment Extensions For Storm and Flooding Victims in Illinois (Notice)

 

The IRS has extended tax return filing and payment deadlines until November 12 for victims of severe storms and flooding in Illinois on September 13. The relief was provided to taxpayers who reside or have a business in Cook, DeKalb, DuPage, Grundy, Kane, LaSalle or Will counties.

 

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits, due on or after September 13, 2008, and on or before September 29, 2008, provided the taxpayer made these deposits by September 29, 2008.

 

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, from September 13 to November 12. IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

Illinois Disaster Relief Notice, IL-2008-39, 2008FED ¶46,610

Other References:

 

Code Sec. 6081

 

CCH Reference - 2008FED ¶36,789.21

 

Code Sec. 7508A

 

CCH Reference - 2008FED ¶42,687C.22

 

Tax Research Consultant

 

CCH Reference - TRC FILEIND: 15,204.25

 

CCH Reference - TRC FILEBUS: 15,110

State Headlines

All States --Multiple Taxes: U.S. Senate Bill Would Impose Physical Presence Standard on E-Commerce Taxes

 

An entity without a physical presence in a state could not be required to collect or remit a state tax resulting from that entity's electronic commerce, under legislation introduced in the U.S. Senate on October 1, 2008, by Sen. Jim Bunning, R-Ky. A physical presence would include the following:

 

-- assigning an employee to the state,

 

-- using the services of an agent to establish or maintain the electronic commerce in the state, if the agent does not perform the same services for anyone else, or

 

-- leasing or owning real property or tangible personal property, other than computer software, in the state.

 

A physical presence would not include the following:

 

-- entering into an agreement to share revenue generated by an electronic commerce presence owned or maintained by someone physically present in a state,

 

-- being present in a state for less than 15 days, or

 

-- being present in a state to conduct limited or transient business activity.

 

Subscribers to CCH Tax Research NetWork can view the bill.

S. 3670, introduced in the U.S. Senate on October 1, 2008.

 

Kentucky --Corporate Income Tax: Consolidated Return Requirements Ruled Unconstitutional

 

A Kentucky Circuit Court has reversed a Board of Tax Appeals (BTA) decision and ruled that a New York telecommunications company that elected to file consolidated corporation income tax returns was entitled to a refund for overpaid tax because a statutory requirement that the company include all members of the affiliated group in the returns, including subsidiaries with no property or payroll in Kentucky, was ambiguous and violated both the Commerce and Due Process Clauses of the U.S. Constitution. The court also rejected the BTA's finding that the non-Kentucky subsidiaries were not exempt from the tax under a statutory exemption for corporations whose only property in the state was printed product.

 

The statute was ambiguous, the court concluded, because it both referenced and contradicted statutory provisions that establish the state's authority to impose the corporation income tax based on some form of nexus, property, or physical presence and that also lists exemptions from the tax. In addition, the court found Kentucky's consolidated return regulation inconsistent with the statute and, therefore, invalid because it did not contain all of the exemptions listed by the statute.

 

According to the court, the statute did not withstand Commerce Clause scrutiny under the first and second prongs of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), because it allowed the state to tax non-Kentucky subsidiaries without substantial nexus or physical presence in the state and established a discriminatory preference for in-state interests while burdening foreign commerce. Kentucky also violated the Due Process mandates of uniformity and equal protection because the statute singled out and compelled certain entities to bear a heavier tax burden than other similarly situated entities. In holding the statute unconstitutional, the court rejected the Kentucky Department of Revenue's argument that the company waived its constitutional rights because the election to file a consolidated return was voluntary.

AT&T Corporation v. Kentucky Department of Revenue, Jefferson County Circuit Court, Kentucky, No. 08-CI-01272, September 9, 2008, ¶202-850

 

Other References:

 

Explanations at ¶11-545

Copyright © 2008, CCH INCORPORATED. All rights reserved.