NewsNotes

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

 Deemed IRAs in Qualified Plans • EFTPS Upgrade • Abusive SESOPs • Serving Elderly Clients (Box)

AICPA Activities

Deemed IRAs in Qualified Plans

The AICPA Tax Divisions Employee Benefits Taxation Technical Resource Panel submitted comments to the IRS on the proposed regulations on deemed IRAs in qualified plans (REG-157302-02). While the AICPA believes the regulations are clear, concise and logical and provide sufficient guidance for plan sponsors and their service providers to administer accounts, it had the following specific concerns.

The requirement to establish a separate trust for deemed-IRA contributions appears to exceed the Codes mandates and should be deleted. Qualified plans already are permitted to accept IRA rollovers without the need to establish a separate trust. The AICPA believes that this requirement will unduly complicate plan administration and lead to potentially higher costs for plan sponsors.

For example, the sponsor will need to generate separate trust statements for the plan audit; additional trustee fees will be incurred. This may deter some employers from adding deemed-IRA provisions to their qualified plans.

Alternatively, if the separate-trust requirement survives, the AICPA urges reconsideration of the rule that the failure to comply with Sec. 408(q) would adversely affect the overall qualification of a plan containing the deemed-IRA provision. The AICPA believes that the disqualification should be limited to the separate trust, not affect the plans status under Sec. 401(a). However, because an employer cannot offer a stand-alone IRA outside of the qualified plan context, the AICPA understands that plan disqualification would adversely affect the deemed-IRAs status under Sec. 408(q). 

The AICPAs comment letter is available at www.cpa2biz.com/ResourceCenters/Tax/Employee+Benefits/deemedIRAs.htm.

From the IRS

EFTPS Upgrade

IR 2003-90 announced that the web version of the Electronic Federal Tax Payment System (EFTPS), EFTPS-OnLine, has undergone major improvements. The changes will provide users with new features, ranging from more convenient payment scheduling to expanded ability to track payment history.

A free system, EFTPS-OnLine was introduced almost two years ago. Taxpayers can make Federal tax payments electronically using EFTPS-OnLine, EFTPS-Phone or EFTPS Batch Provider software (for professionals). The many upgrades allow taxpayers to:

• Schedule all four estimated tax payments in one session without logging out.

• Schedule payments in advance, up to 120 days (for businesses) or 365 days (for individuals).

• Access 16 months of payment history, online or by calling customer service.

•  Search, print or download payment history by date, tax type, amount, tax form and other factors.

• Change bank accounts by phone without completing a new enrollment.

• Select a personal identification number online when changing a bank account number, and begin making payments from that account immediately, if electing to bypass bank verification of bank account information.

• Access links to states with electronic tax payment systems, directly from the EFTPS Website.

• Use enhanced and updated glossary help and information.

• Take advantage of improved accessibility if visually impaired.

Taxpayers can make payments 24 hours a day, seven days a week, from home or office. In addition, they receive an EFT acknowledgement number for every EFTPS transaction, for easy recordkeeping and as proof of the transaction. Taxpayers can enroll in EFTPS by visiting EFTPS-OnLine at www.eftps.gov or by calling (800) 555-4477 or (800) 945-8400.

Regulations

Abusive SESOPs

Proposed and temporary regulations (REG-129709-03, TD 9081) under Sec. 409(p) shut down abusive arrangements involving employee stock ownership plans holding S corporation stock (SESOPs).

The regulations will generally affect SESOP sponsors and participants, and respond to arrangements that the IRS and Treasury believe are marketed to avoid Sec. 409(p), by giving former S shareholders deferred compensation from a related management company or special rights to acquire the corporations assets. (For background, see Adler, ESOP Ownership of S Corporations: Good Use or Bad Abuse?, TTA, April 2003.)

The regulations provide an anti-abuse provision, treating acquisition rights as synthetic equity in certain situations. Specifically, the treatment applies to options or rights to acquire assets of an S corporation or a related person that are part of a structure providing rights to the holder comparable to the rights provided by arrangements identified as synthetic equity under the regulations and in which the principal purpose of the structure is Sec. 409(p) avoidance or evasion.

In addition, the regulations delegate authority to the IRS to provide, through revenue rulings, notices and other guidance, that synthetic equity includes a right to acquire stock or other similar interests in a related entity when the S corporations interest in the related entity is not the only significant asset, or the S corporation is not the only significant owner of the related entity.

The regulations also provide guidance on identifying disqualified persons and determining whether a plan year is a nonallocation year under Sec. 409(p)(5)s definition of synthetic equity.

The regulations are generally effective for plan years ending after Oct. 20, 2003, except in the case of a SESOP eligible for a delayed effective date because it was established before March 15, 2001. In that case, the regulations would not apply until plan years beginning after 2004.