Promise to pay compensation secured by a letter of credit ruled currently taxable under sec. 83.In IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Letter Ruling 9331006, the Service ruled that benefits provided under an arrangement established as a supplemental retirement plan were currently taxable to the participants under Sec. 83 when the employer purchased an irrevocable Unable to cancel or recall; that which is unalterable or irreversible. IRREVOCABLE. That which cannot be revoked. 2. A will may at all times be revoked by the same person who made it, he having a disposing mind; but the moment the testator is standby letter of credit Standby Letter of Credit A stipulation that states a letter of credit will be called back if the payer defaults. Notes: A letter of credit is typically used in international transactions. to secure the payments. The proposed arrangement was established to pay benefits under a nonqualified supplemental retirement plan. It was to provide a target benefit to a select group of management employees on their retirement or death. The employer corporation planned to secure the benefits by transferring to the participants nonnegotiable non·ne·go·tia·ble adj. 1. Difficult or impossible to settle by arbitration, mediation, or mutual concession: a nonnegotiable demand. 2. Nonmarketable. , nontransferable participation certificates, which were to be secured by irrevocable standby standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. letters of credit. In general, Sec. 83(a) provides that if a taxpayer performs services in exchange for property, the property's fair market value (FMV FMV - full-motion video ) will be includible in the service provider's income in the year in which the property is substantially vested (or on transfer if a Sec. 83(b) election is made). The underlying regulations provide that the term "property" includes real and personal property other than money or an unfunded and unsecured promise to pay money or property in the future. The ruling concluded that, to the extent the certificates were secured by a standby letter of credit, they were "property" for Sec. 83 purposes. Thus, an amount equal to the certificate's FMV would be included in the participant's income when his interest became substantially vested. This ruling is significant because it sets forth, for the first time, the IRS's position on the treatment of letters of credit securing compensatory promises. Under the letter ruling's rationale, the same treatment should result whether or not a "certificate" representing the promise to pay compensation is actually issued to a participant and whether the compensation secured is to be paid at retirement or earlier (e.g., a deferral deferral - Waiting for quiet on the Ethernet. of compensation for months or a period of years). |
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