Relocation Sales • Standard Mileage Rates • Mortality Tables • Tax Freedom Day (Box) • 2006 Inflation Adjustments (Chart)
 

Lesli S. Laffie, J.D., LL.M.

From The IRS

Relocation Sales

In Rev. Rul. 2005-74, the IRS analyzed three transactions to determine whether each was (1) a sale of an employee’s home to his or her employer through a relocation management company, acting as the employer’s agent, followed by a separate sale of that home by the employer to a third-party buyer; or (2) one sale of the home from the employee to the third-party buyer, facilitated by the employer through the relocation management company.

Conclusions: Applying a benefits-and-burdens analysis to the transactions,  the Service determined that two of the transactions resulted in two separate sales of the home. However, in the third case, the IRS concluded that, for Federal tax purposes, there was one sale of the home from the employee to the third party, facilitated by the employer through its agent. As a result, the employee realized any gain on the sale under Secs. 1001 and 61(a)(3).

Any expenses paid by the employer, directly or through its agent (the relocation management company), including maintenance costs, taxes, insurance, losses and other costs associated with the home, were deemed paid on the employee’s behalf by virtue of his or her employment. Consequently, any such amounts paid by the employer were taxable compensation to the employee under Sec. 61(a)(1).

Standard Mileage Rates

Rev. Proc. 2005-78 sets forth the 2006 optional standard mileage rates that may be used by employees, self-employed individuals and other taxpayers when computing the deductible costs of operating an automobile (including cars, vans, pickups or panel trucks) for business, medical, moving or charitable purposes.

Business mileage: For 2006, the standard rate for business mileage is 44.5 per mile.

Medical and moving mileage: The standard mileage rate for medical or moving expenses has been increased to 18 per mile.

Charitable mileage: The mileage rate for charitable purposes, other than activities related to Hurricane Katrina relief, remains at 14 cents per mile.

Hurricane Katrina mileage: For 2006, the rate for miles driven for charities providing Hurricane Katrina relief will be 32 per mile for deduction purposes and 44.5 per mile for reimbursement purposes.

Deemed depreciation: When the 2006 business standard mileage rate of 44.5 is used, depreciation will be considered to have been allowed at a rate of 17 per mile. This depreciation rate will reduce the taxpayer’s basis in the automobile. The standard business mileage rate may not be used for automobiles used for hire (e.g., taxicabs), or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (e.g., fleet operations).

Business travel substantiation: Rev. Proc. 2005-78 also provides rules under which an employee’s ordinary and necessary expenses for local travel or transportation away from home will be treated as substantiated. These substantiation rules apply when an employee has received a reimbursement or other expense allowance from an employer, its agent or a third party (Rev. Proc. 2004-64, as modified by Ann. 2005-71, is superseded).

Regulation

Mortality Tables

Proposed regulations (REG-124988-05, 12/2/05) set out the methodology the IRS would use to establish mortality tables to be used under Sec. 412(l)(7)(C)(ii) (and parallel Employee Retirement Income Security Act of 1974 Section 302(d)(7)(C)(ii)) to determine current liability for participants and beneficiaries (other than disabled participants) of defined-benefit plans for plan years beginning in 2007.

Background: Sec. 412(l) establishes funding requirements for certain underfunded defined-benefit plans, generally based on a plan’s unfunded current liability. In determining current liability, plans must use the mortality table prescribed by the Service. The IRS must periodically (i.e., at least every five years) review any mortality tables in use under that provision, and update them to reflect the plans’ actual experience and the projected trends reflected therefrom. As part of that review, the Service has determined that updated mortality tables are needed.

New monthly tables: The proposed rules would provide new mortality tables based on the tables contained in the RP-2000 Mortality Tables Report, which the IRS has determined is the best available basis for predicting mortality of pension plan participants and beneficiaries (other than disabled participants), based on plan experience and expected trends. Accordingly, the proposed rules would change the mortality tables used to determine current liability from those based on the 1983 Group Annuity Mortality Table (as set out in Rev. Ruls. 92-19 and 95-28), to updated tables based on the RP-2000 mortality tables.

As in the currently used mortality tables, the new tables would be gender-distinct, because of significant differences between expected male and female mortality. The proposed regulations would also provide for separate sets of tables for annuitants and nonannuitants, because these two groups also have significantly different mortality experience (particularly true at typical ages for early retirees). The new mortality tables would be based on mortality improvements through the year of the actuarial valuation, and would reflect the effect of further expected improvements in mortality. For smaller plans (less than 500 total participants), there would be an option to use a single blended table for all healthy participants—instead of the separate tables for annuitants and nonannuitants—to simplify actuarial valuation for smaller plans.

Effective date: The new mortality tables would apply for the 2007 plan year. Mortality tables that would be used for later plan years would be published in the Internal Revenue Bulletin.