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Rollover.

453. What is a rollover, or rollover contribution? What are its tax effects?

A rollover or rollover contribution is the transfer of a distribution from a qualified plan, an IRC Section 403(b) tax sheltered annuity, an individual retirement plan, or an eligible Section 457 governmental plan, following the rules set out in the Code and Regulations. Distributions that are rolled over according to these rules are not included in gross income until receipt at some time in the future. A rollover to a Roth IRA is generally a taxable event (see Q 223). For the definition of "eligible rollover distribution," see Q 455; for the definition of "eligible retirement plan," see Q 456.

Once funds or properties are rolled over to an "eligible retirement plan," they are generally subject to the tax treatment given that plan. (1) But different rules apply to distributions made from a traditional IRA to an eligible retirement plan other than an IRA. Generally, the portion of the distribution that is rolled over to such an eligible retirement plan will be treated as coming first from non-after-tax contributions and earnings in all of the IRAs of the owner. (2) This rule effectively allows the owner to roll over the maximum amount permitted. See Q 228.

A direct rollover from a traditional IRA or a Roth IRA to a charity will be tax-free if it meets the requirements of a qualified charitable distribution. See Q 454.

Generally, it is the responsibility of the plan administrator to determine whether a rollover it accepts is an eligible rollover distribution (see Q 455), and plans that accept invalid rollovers can face disqualification. But regulations state that a receiving plan will not be disqualified for accepting a rollover that fails to meet the requirements for an eligible rollover distribution, if (a) the plan administrator reasonably concluded such requirements would be met, and (b) certain corrective measures are taken once the error is discovered. It is not necessary that the distributing plan have a determination letter with respect to its status as a qualified plan for the administrator of the receiving plan to reasonably conclude that the contribution is a valid rollover contribution. (3)

Although the Service generally takes the position that the right to a rollover is personal to the employee and cannot be exercised by anyone else - except in the case of a spousal rollover (see Q 463) - at least one court has held that where an employee received a qualifying rollover distribution but died before making the rollover, his executor could complete the rollover (as long as the 60-day period had not expired). (4)

For an explanation of the requirement of a direct rollover option, see Q 457. For rules regarding the application of a mandatory income tax withholding rate of 20% on rollovers not made through a direct rollover, see Q 458. In some cases, a non-participant in a qualified plan may roll over amounts received from the plan by reason of a divorce or separation agreement. See Q 459.

454. What is a charitable IRA rollover or qualified charitable distribution?

For tax years 2006 through 2009, a taxpayer age 70/ or older could make a qualified charitable distribution from a traditional IRA or Roth IRA that was not includable in the gross income of the taxpayer. (5)

A qualified charitable distribution was any distribution

1. not exceeding $100,000 in the aggregate during the taxable year;

2. made directly, in a trustee-to-charity transfer (including a check from an IRA made payable to a charity and delivered by the IRA owner to the charity); (1)

3. from a traditional or Roth IRA (distributions from SEPs and SIMPLE IRAs did not qualify);

4. to a public charity (but not a donor-advised fund or supporting organization);

5. that would otherwise qualify as a deductible charitable contribution--not including the percentage of income limits in IRC Section 170(b) (see Q 824);

6. to the extent the distribution would otherwise be includable in gross income. (2)

No charitable income tax deduction was allowed for a qualified charitable distribution. (3)

Planning Points: Only distributions from a taxpayer's own IRA are includable in determining that a taxpayer has met the $100,000 limit. Therefore, while married taxpayers may make qualified distributions totaling $200,000, each spouse may only make distributions of up to

$100,000 from their own IRA.

A participant in a qualified plan, an IRC Section 403(b) tax sheltered annuity, or an eligible IRC Section 457 governmental plan must first perform a rollover to a traditional IRA before taking advantage of a charitable IRA rollover.

Rollovers to donor-advised funds, supporting organizations, private foundations, charitable remainder trusts, charitable gift annuities, and pooled income funds are not qualified charitable distributions.

Rollovers to charities by taxpayers who reside in states that tax IRA distributions and do not have a charitable deduction may not escape tax at the state level. Ted R. Batson, Jr., MBA, CPA, and Gregory W. Baker, JD, CFP>>, CAP, Renaissance Administration, LLC.

If a qualified charitable distribution was made from any IRA funded with nondeductible contributions, the distribution was treated as coming first from deductible contributions and earnings. (4) This is contrary to the general rule that distributions from a traditional IRA with both deductible and nondeductible contributions are deemed made on a pro-rata basis. (5)

Qualified charitable distributions counted toward a taxpayer's required minimum distributions.6

See Q 234.

The prohibition on making a qualified charitable distribution from a SEP IRA or a SIMPLE IRA only applied to "ongoing" SEP IRAs or SIMPLE IRAs. Such an IRA was "ongoing" if a contribution was made to it for the taxable year of the charitable distribution. (7)

455. What is required to roll over a distribution received from a qualified retirement plan or an eligible Section 457 governmental plan?

Generally, if any portion of the balance to the credit of an employee in a qualified retirement plan is paid to the employee in an eligible rollover distribution, and the distributee transfers any portion of the property received to an eligible retirement plan (see Q 456),then the amount of the distribution so transferred will not be includable in income. (1) Unless otherwise indicated, the rules that apply to qualified plans are incorporated by reference into the requirements for eligible Section 457 governmental plans.

An eligible rollover distribution is defined as any distribution made to an employee of all or any portion of the balance to the credit of the employee in a qualified trust, except that the term does not include (1) any distribution that is part of a series of substantially equal payments (at least annually) made over the life expectancy of the employee or the joint life expectancies of the employee and his designated beneficiary, (2) any distribution made for a specified period of 10 years or more, (3) any distribution that is a required minimum distribution under IRC Section 401(a)(9), and (4) any hardship distribution. (2)

Regulations specify other items that are not considered eligible rollover distributions, including any portion of a distribution excludable from gross income (other than net unrealized appreciation), the Table 2001 (or P.S. 58) cost of life insurance (see Q 431), corrective distributions of excess contributions and excess aggregate contributions (see Q 413), excess deferrals (see Q 399), and dividends paid on employer securities under IRC Section 404(k) (see Q 422).3 (See Treasury Regulations [subsection]1.402(c)-2, A-9, 1.401(a)(31)-1 for guidance on the treatment of plan loans for purposes of the rollover and withholding rules.)

If a qualified retirement plan distributes an annuity contract to a participant, amounts paid under that contract are considered to be payments of the balance of the participant's credit and may be treated as eligible rollover distributions to the extent they would otherwise qualify. Therefore, the participant may surrender the annuity contract and treat the sum received as an eligible rollover distribution to the extent that it is includable in income and is not a required distribution under IRC Section 401(a)(9). (4) The IRS determined that a separate lump-sum settlement payment to the widow of a plan participant who was already receiving monthly payments under the plan was eligible for rollover treatment under IRC Section 402(c)(4). (5)

A distribution of property other than money is treated in the same manner. The amount transferred equals the property distributed. (6) A taxpayer may not retain the property received in the distribution and simply roll over a cash amount representing the fair market value of the property.7 Conversely, the taxpayer may not take the cash received in a distribution, convert it into stock (or any other type of investment) and then contribute the converted cash investment into an IRA as a rollover. (8) This rule applies to IRA and qualified retirement plan rollovers, including rollovers into Roth IRAs.

Where a distribution includes property and exceeds the rollover contribution, the participant, following a sale, may designate (irrevocably) which portion of the money received, and which portion of the proceeds of the sale, are to be treated as included in the rollover and which portions are to be deemed attributable to nondeductible employee contributions, if any. If he fails to make a designation, allocations will be made on a ratable basis. (1) Under the basis recovery rules of IRC Section 72(e), the nondeductible employee contributions are recovered first from the amounts not rolled over. (2)

The IRS determined that the mistaken transfer by a broker of an otherwise eligible rollover distribution from a qualified plan into a brokerage account and then into an IRA failed to qualify as an eligible rollover and was includable in the taxpayer's gross income. (3) Taxpayers who were defrauded by their investment advisor of IRA distributions intended to be rollovers were not permitted to replace the stolen assets from other funds and treat the replacement assets as rollover contributions. (4)

Generally, the maximum amount that may be rolled over is the amount that would be includable in income if not rolled over. (5) But after-tax contributions can be (1) rolled over from a qualified plan to a traditional IRA or (2) transferred in a direct trustee-to-trustee transfer to a defined contribution plan, provided the plan separately accounts for after-tax contributions. After-tax contributions (including nondeductible contributions to a traditional IRA) may not be rolled over from a traditional IRA into a qualified plan, Section 403(b) tax sheltered annuity, or eligible Section 457 governmental plan. (6) Rollover amounts will be treated as first consisting of taxable amounts. (7)

A rollover must generally be completed within 60 days after receipt of the distribution. (8) See Q 464 regarding the application of the 60-day rule. But the IRS has the authority to waive the 60-day requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement. (9) Guidance on the requirements for a hardship waiver of the 60-day requirement was provided by the IRS in early 2003. (10)

Unless a rollover is carried out by means of a "direct rollover," the distribution amount will be subject to a mandatory income tax withholding rate of 20%.11 See Q 457, Q 458.

Rollover contributions may be divided among several traditional IRAs.12 These may be either existing plans or plans newly created to receive the rollover. See Q 462. But a traditional IRA inherited from someone who died after 1983 (other than a deceased spouse) is ineligible to receive a rollover. If an individual retirement annuity is used, it may not be an endowment contract. Although property may normally be rolled over, a rollover to a traditional individual retirement account may not include a retirement income, endowment, or other life insurance contract, because IRC Section 408(a)(3) prohibits investment of individual retirement account funds in life insurance contracts .13A rollover may be made from a qualified plan even though the participant is an active participant in another plan.

456. What is an eligible retirement plan?

The definition of "eligible retirement plan" depends on the plan from which the rollover is made. The availability of rollovers between various types of plans was considerably expanded by EGTRRA 2001.

Qualified plan. An eligible retirement plan with respect to a qualified plan means an IRA, another qualified plan, a Section 403(a) annuity, a Section 403(b) tax sheltered annuity, and an eligible Section 457 governmental plan (provided it agrees to separately account for funds received from any eligible retirement plan except another eligible Section 457 governmental plan). (1) For taxpayers wishing to preserve any capital gains or special averaging treatment (see Q 439), a distribution can be made to a "conduit IRA" and rolled back over to another qualified plan. For this purpose, money from a qualified plan may not be commingled with other money. See Q 462.

NonRoth IRAs (traditional, SEP, and SIMPLE). An eligible retirement plan with respect to a nonRoth IRA (individual retirement account or individual retirement annuity) means an IRA, a qualified plan, a Section 403(a) annuity, an eligible Section 457 governmental plan (provided it agrees to separately account for funds received from any eligible retirement plan except another eligible Section 457 governmental plan), and a Section 403(b) tax sheltered annuity. (2) See Q 462. Amounts paid or distributed out of a SIMPLE IRA during the ffirst two years of participation may be rolled over only to another SIMPLE IRA. (3) The only rollover permitted to a SIMPLE IRA is from

another SIMPLE IRA.

Roth IRAs. Roth IRAs can generally be rolled over only to another Roth IRA. A rollover (or conversion) from a nonRoth IRA or other retirement plan into a Roth IRA is generally a taxable event (see Q 223). (4)

Section 403(b) annuity. An eligible retirement plan with respect to a Section 403(b) tax sheltered annuity includes a nonRoth IRA, a qualified plan, a Section 403(a) annuity, an eligible Section 457 governmental plan (provided it agrees to separately account for funds received from any eligible retirement plan except another eligible Section 457 governmental plan), and another Section 403(b) annuity. (5)

457. Must a participant receiving an eligible rollover distribution have the option of making the rollover by means of a "direct rollover"?

Yes. A qualified plan, a Section 403(b) tax sheltered annuity, and an eligible Section 457 governmental plan must provide a participant receiving an eligible rollover distribution the option to have the distribution transferred in the form of a direct rollover to another eligible retirement plan. (6) Generally, this direct rollover option must be provided to any participant receiving a distribution. (7)

A direct rollover is defined as an eligible rollover distribution (see Q 455) that is paid directly to an eligible retirement plan (see Q 456) for the benefit of the distributee. Such a rollover may be accomplished by any reasonable means of direct payment including the use of a wire transfer or a check that is negotiable only by the trustee of the eligible retirement plan. (8) Giving the check to the distributee for delivery to the eligible retirement plan is considered reasonable provided that the check is made payable to the trustee of the eligible retirement plan for the benefit of the distributee. (9) But certain amounts may be rolled over only in the form of a trustee-to-trustee transfer. (10) Qualified plans and tax sheltered annuities are not required to accept rollovers, direct or otherwise.

If a participant's total distribution is expected to be less than $200, the participant need not be offered the option of a direct rollover. While a participant must be permitted to elect a direct rollover of only a portion of the distribution, the plan administrator may require that this direct rollover portion equal at least $500. (In the case of Section 403(b) tax sheltered annuities, the payor of the eligible rollover distribution is treated as the plan administrator.) Further, the plan administrator is not required to permit the participant to make a direct rollover of only a portion of the distribution at all if the full amount of the distribution totals less than $500. A plan administrator may permit a participant to divide his distribution into separate distributions to be paid to two or more eligible retirement plans in direct rollovers but is not required to do so. (1)

If an eligible rollover distribution from a qualified retirement plan or a tax sheltered annuity is not handled by means of a direct rollover, the distribution will be subject to a mandatory income tax withholding rate of 20%. (2) See Q 458.

Automatic Rollovers. Under Department of Labor regulations, plans subject to the direct rollover rules are required to provide that a cash-out distribution (see Q 336) in excess of $1,000, and less than $5,000, will automatically be transferred to an individual retirement plan unless the distributee affirmatively elects to have it transferred to another eligible retirement plan, or elects to receive it directly. The regulations provide a safe harbor for plan iduciaries who comply with the requirements. (3)

To qualify for the safe harbor, a plan ffiduciary must generally meet six conditions:

1. The distribution must not exceed $5,000, not including balances rolled into the plan from another qualified plan or an IRA. The safe harbor applies to balances of $1,000 or less, even though those balances are not subject to the automatic rollover rules.

2. The distribution must be to an individual retirement account or annuity pursuant to a written agreement with the individual retirement plan provider that addresses the default investments and related fees and expenses.

3. The distribution must be invested in a manner designed "to preserve principal and provide a reasonable rate of return, whether or not such returned is guaranteed, consistent with liquidity." The investment must be offered by a state or federally regulated financial institution and must seek to maintain a stable dollar value (e.g., money market funds, interest-bearing savings accounts, certificates of deposit, and stable value products).

4. The fees and expenses charged to the IRA may not be higher than fees charged by the IRA custodian for other rollover IRAs.

5. The summary plan description provided to plan participants must provide an explanation of the plan's automatic rollover provisions, including an explanation of the expenses and default investments in the rollover IRA and a plan contact for further information.

6. The selection of the IRA custodian and investment options must not result in a prohibited transaction under ERISA Section 406. But the DOL has finalized a class exemption that will allow inancial institutions to establish IRAs for their own employees.

Notice Requirements

Under IRC Section 402(f), a plan administrator, within a reasonable time before a distribution is made, must provide the recipient of the distribution with a written explanation of the options available for transferring the funds. The explanation must include the provisions under which the recipient may have the funds transferred by means of a direct rollover and under which circumstances the income tax withholding requirements will apply. Where applicable, the notice must explain that the automatic rollover rules apply to certain distributions. (1)

With respect to qualified plans and eligible Section 457 governmental plans, the notice generally must be given no less than 30 days and no more than 90 days before the date of distribution. But if the recipient elects a distribution, the plan will not fail to comply with these notice requirements merely because the distribution is made less than 30 days after the notice is given if the plan administrator provides information to the recipient that clearly indicates that he has the opportunity to consider the direct rollover decision for at least 30 days after receiving notice. (2) With respect to Section 403(b) annuities, Treasury Regulation [section]1.402(f), A-2, is not applicable in determining what is considered to be a "reasonable time" for providing the notice. But the payor of a Section 403(b) annuity will be deemed to have provided the explanation within a reasonable time if he complies with the time period in this section of the regulations. (3)

The IRS has issued a "safe harbor explanation" that plan administrators may use to satisfy the notice requirements of IRC Section 402(f) and that incorporates the amendments of EGTRRA 2001. (4)

The IRS has issued final regulations that permit the use of electronic media to satisfy the IRC Section 402(f) notice requirements. Under the regulations, the notice may be provided either in written form on paper or through an electronic medium. Any electronic notice issued must utilize a medium that is reasonably accessible to the participant such as e-mail or a plan website. The participant may request the notice on a written paper document that must be provided free of charge. (5)

458. If a rollover is not made through a direct rollover, must income tax be withheld from the distribution?

Distributions from qualified retirement plans, tax sheltered annuities, and eligible Section 457 governmental plans are subject to a mandatory income tax withholding rate of 20% unless the transfer is handled by means of a direct rollover. (6) The employee receiving the distribution may not elect out of the withholding requirement. Distributions from traditional IRAs are not subject to mandatory 20% withholding. See Q 231.

Note that if a participant's total distribution is expected to be less than $200, the participant need not be offered the option of a direct rollover. (7)

If a participant receives an eligible rollover distribution that is subject to the 20% withholding rate, the 20% withheld will be includable in income--to the extent required by IRC Section 402(a), IRC Section 403(b)(1), or IRC Section 457(a)(1)(A)--even if the participant rolls over the remaining 80% of the distribution within the 60-day period (see Q 464). Because the amount withheld is considered to be an amount distributed under such sections, the participant may add an amount equal to the 20% withheld to the 80% he has received, resulting in a rollover of the full distribution amount. The 10% early (premature) distribution penalty (see Q 232, Q 495) may apply to the amount withheld where only the remaining 80% of the distribution is rolled over from a qualified plan or a

Section 403(b) plan. (1)

A distribution from an eligible Section 457 governmental plan is treated as an early distribution from a qualified plan to the extent that it represents funds rolled over from a qualified plan, a Section 403(b) plan, or a traditional IRA. (2)

Where a distributes elects to transfer a portion of the distribution by a direct rollover and receive the remainder, the 20% withholding requirement applies only to the portion of the distribution that the distributes actually receives. It does not apply to the portion of the distribution that is transferred directly to another eligible retirement plan. (3)

459. May an individual who is not a participant in a qualified plan roll over amounts received from the plan by reason of a divorce or separation agreement?

Yes, if the agreement is a "qualified domestic relations order" (QDRO) and certain requirements are met.4 A QDRO is, generally, a decree or judgment under state domestic relations law that recognizes or creates the right of another individual (spouse or child) to receive, or have set aside, a portion of a participant's interest in a qualified plan or an eligible Section 457 governmental plan. (5)

See Q 352, Q 125.

If an alternate payee who is the spouse or former spouse of the participant receives a distribution by reason of a QDRO, the rollover rules apply to the alternate payee as if the alternate payee were the participant.6 Thus the alternate payee can avoid the requirement of including the distribution in income to the extent any portion of an eligible rollover distribution is rolled over to an eligible retirement plan within 60 days. (7)

It appears that a qualified retirement plan may be an eligible retirement plan for an alternate payee who is a spouse or former spouse of the participant and who receives the distribution by reason of a QDRO.8 (For the rules applicable to surviving spouses, see Q 463.) Generally, such a rollover must be handled through a "direct rollover" to avoid a mandatory income tax withholding rate of 20%. (9) See Q 457, Q 458.

460. May a participant who receives a distribution of an annuity from a qualified pension or profit sharing plan surrender the annuity and roll over the proceeds?

Where a qualified pension or profit sharing plan distributes an ordinary annuity contract (deferred or otherwise) to a participant, the annuity contract or cash amount received on surrender of the contract may be rolled over if the distribution is an eligible rollover distribution and meets the requirements necessary for rollover of such a distribution. (10) See Q 455. For purposes of the 60-day rule, the distribution takes place upon distribution of the annuity contract from the plan, not on its surrender or transfer to the receiving plan. (11) See Q 464.

461. Under what circumstances may a participant roll over permitted distributions from a Section 403(b) tax sheltered annuity?

For distributions received from tax sheltered annuities, any portion of the balance to the credit of an employee that is paid to the employee in the form of an eligible rollover distribution (see Q 455) and transferred to an eligible retirement plan (see Q 456) is not includable in income by the employee. Rollover distributions from tax sheltered annuities may be made to another tax sheltered annuity, an IRA, a qualified plan, a Section 403(a) plan, and an eligible Section 457 governmental plan (provided the IRC Section 457 plan agrees to separately account for such funds).1 A rollover to a Roth IRA is generally a taxable event (see Q 223).

A trustee-to-trustee transfer from a Section 403(b) plan to a defined benefit governmental plan that is used to purchase permissive service credits will be excluded from income. (2) Under a 1991 ruling, rollover treatment was disallowed for such a transfer. (3) A proper rollover was not achieved where a taxpayer invested a tax sheltered annuity distribution in a certificate of deposit. (4)

Distributions excepted from the term "eligible rollover distribution" include (1) any distribution that is part of a series of substantially equal payments made over the life expectancy of the employee or the joint life expectancies of the employee and his designated beneficiary, (2) any distribution made for a specified period of 10 years or more, (3) any distribution that is a required minimum distribution under IRC Section 401(a)(9), and (4) any hardship distribution. (5)

Regulations specify other items not considered to be eligible rollover distributions, including any portion of a distribution excludable from gross income, the Table 2001 or P.S. 58 cost of life insurance (see Q 491), and corrective distributions of excess deferrals (see Q 482) and excess employer matching contributions (see Q 478).6 (See Treas. Regs. [subsection]1.402(c)-2, A-9, 1.401(a)(31)-1 for guidance on the treatment of plan loans for purposes of the rollover and withholding rules.)

A distribution of property other than money is treated in the same manner. The amount transferred equals the property distributed. (7)

Generally, the maximum amount that may be rolled over is the amount that would be includable in income if not rolled over. (8) But after-tax contributions can be (1) rolled over to a traditional IRA or (2) transferred in a direct trustee-to-trustee transfer to a defined contribution plan, provided the plan separately accounts for after-tax contributions. After-tax contributions (including nondeductible contributions to a traditional IRA) may not be rolled over from a traditional IRA into a qualified plan, Section 403(b) tax sheltered annuity, or eligible Section 457 governmental plan. Rollover amounts will be treated as first consisting of taxable amounts. (9)

The Service has indicated that a direct rollover may not be made of amounts that are not eligible for distribution from a Section 403(b) annuity due to the distribution restrictions of IRC Section 403(b)(11). Such amounts may be transferred between tax sheltered annuities if the requirements of Revenue Ruling 90-24,10 can be met. (11) Reaching a similar conclusion, a federal district court held that funds in a tax sheltered annuity attributable to a salary reduction agreement were not eligible for rollover treatment unless the requirements of IRC Section 403(b)(11) were satisfied. (1) See Q 476. But funds subject to such distribution requirements may be transferable to another tax sheltered annuity in a "direct transfer," see Q 488. A deemed distribution under IRC Section 72(p) is not eligible to be rolled over to an eligible retirement plan. (2)

A rollover generally must be completed within 60 days after the distribution is received. See Q 464. (3) But the IRS has the authority to waive the 60-day requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement. (4) Guidance on the requirements for this hardship waiver was issued in early 2003. (5)

Unless a rollover is done by means of a direct rollover, the distribution amount will be subject to a mandatory income tax withholding rate of 20%.6 See Q 457, Q 458.

462. Under what circumstances may rollover contributions be made from an IRA by the owner of the plan?

This is entirely dependent on the type of individual retirement plan owned and the source from which the funds in the plan originated.

No rollover from a traditional or Roth IRA is permitted if the individual for whose benefit the plan is maintained acquired such plan by reason of the death of another individual (i.e., in the case of an inherited plan) who died after 1983. But this does not apply where the plan is maintained for the benefit of the surviving spouse of the deceased individual. This rule also does not prohibit a trustee-to-trustee transfer to an identically-titled beneficiary IRA. (7)

A "qualified rollover contribution" may be made from a Roth IRA to another Roth IRA or from a traditional IRA to a Roth IRA. A "qualified rollover contribution" means a rollover contribution to a Roth IRA from another Roth IRA or from a traditional IRA but only if the rollover contribution meets the requirements discussed below under "Rollover to Another IRA." (8) For special rules applicable to rollovers of traditional IRAs to Roth IRAs, see Q 223.

For tax years prior to 2008, no rollover contribution from a tax sheltered annuity or a qualified plan--other than a designated Roth account in a Section 401(k) plan (see Q 405)--could be made to a Roth IRA, and, thus, no rollover contribution could be made from a Roth IRA to a tax sheltered annuity or to a qualified plan (other than to a designated Roth account). (9) A distribution from a designated Roth account may be rolled over to (a) another designated Roth account of the individual from whose account the payment or distribution was made or to (b) a Roth IRA of the individual. (10) Beginning in 2008, a direct rollover (conversion) may be made from a qualified plan, a tax sheltered annuity, or a Section 457 eligible governmental plan to a Roth IRA. See Q 223.

A rollover may be made from one SIMPLE IRA (see Q 243) to another SIMPLE IRA, but a rollover from a SIMPLE IRA to a traditional IRA or to a Roth IRA is permitted only in the case of distributions to which the 25% early distribution penalty does not apply (generally the penalty applies during the first two years of participation, but see Q 437).1To the extent that an employee is no longer participating in a SIMPLE IRA plan and two years have expired since the employee first participated in the plan, the employee may treat the SIMPLE IRA account as a traditional IRA. (2)

Once in a lifetime, a taxpayer may make a qualified HSA funding distribution. (3) See Q 204.

A required minimum distribution from an IRA is not eligible for rollover. If a minimum distribution is required for a calendar year, any amounts distributed during a calendar year from an IRA are ffirst treated as the required minimum distribution for the year. (4)

Rollover to a Qualified Retirement Plan

Generally, an individual may receive a distribution from his traditional IRA and, to the extent that the distribution would be includable in income if not rolled over, he may roll it over within 60 days into a qualified pension, profit sharing, or stock bonus plan. (5) After-tax contributions (including nondeductible contributions to a traditional IRA) may not be rolled over from a traditional IRA into a qualified plan. (6)

The Secretary of the Treasury may waive the 60-day rollover requirement if failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement (see Q 464). (7)

An IRA owner who mixes a rollover contribution from a qualified plan with funds from other sources will forfeit any capital gain or special averaging treatment that might otherwise have been available for the qualified plan money. (8)

A terminated vested employee who rolled over her account balance to an IRA and began receiving substantially equal periodic payments from the IRA was permitted to roll over the remaining IRA account balance back into her employer's plan when she returned to her former job. (9)

A surviving spouse who receives a distribution from a qualified plan and rolls it over into a traditional IRA is subject to the same treatment as would be applied to the employee. (10) See Q 463.

Rollover to a Tax Sheltered Annuity

An individual may receive a distribution from his traditional IRA and within 60 days roll it over into a tax sheltered annuity to the extent that the distribution would be includable in income if not rolled over.11 After-tax contributions (including nondeductible contributions to a traditional IRA) may not be rolled over from a traditional IRA into a Section 403(b) tax sheltered annuity. (12)

The Secretary of the Treasury may waive the 60-day rollover requirement if failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement (see Q 464). (13)

Rollover to an IRC Section 457 Plan

An individual may receive a distribution from his traditional IRA and within 60 days roll it over into an eligible Section 457 governmental plan to the extent that the distribution would be includable in income if not rolled over. (1) But the Section 457 plan must agree to separately account for the funds. (2) After-tax contributions (including nondeductible contributions to a traditional IRA) may not be rolled over from a traditional IRA into an eligible Section 457 governmental plan. (3)

The IRS may waive the 60-day rollover requirement if failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement (see Q 464). (4)

Rollover to Another IRA

An owner of a traditional IRA (other than a SIMPLE IRA during the first two years of participation--see Q 244) may receive a distribution of any amount from it and within 60 days roll that amount, or any part of that amount, over into any other traditional IRA (i.e., a receiving plan). (5) Likewise, an owner of a Roth IRA may receive such a distribution from it and within 60 days roll that amount, or any part of that amount, over into any other Roth IRA. (6) The only rollover permitted to a SIMPLE IRA is from another SIMPLE IRA. A Roth IRA generally can be rolled over only to another Roth IRA.

The IRS is authorized to waive the 60-day rollover requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement (see Q 464). (7)

The "owner," for purposes of these rules, includes a spouse who has made a rollover (see Q 463). The receiving plan may be an existing plan or one newly created (but an endowment contract or an individual retirement plan inherited from a decedent who died after 1983, other than a deceased spouse, may not be used as a receiving individual retirement plan).

The distributing plan or any other eligible retirement plan (see Q 456) may receive any or all of the distribution as a rollover amount. (8) Mixing of funds from different sources in a single traditional IRA will not prevent further rollover to another eligible retirement plan; but it will prevent the owner from preserving any capital gains or special averaging treatment (see Q 439) available on a plan distribution. (9)

Only one rollover from a particular traditional IRA to any other traditional IRA (or from a particular Roth IRA to any other Roth IRA) may be made in any one-year period. (10) (Trustee-to-trustee transfers are not considered rollovers for this purpose.) This limitation is applied separately to each IRA. Thus, an individual who owns more than one IRA may roll over funds from IRA #1 to IRA #3 and from IRA #2 to any other IRA, including to IRA #3, within a single 12-month period. (11) But where a taxpayer made a rollover from one IRA (IRA #1) to another (IRA #2), then within the same year made a withdrawal from IRA #2 and replaced most of the funds within 60 days, the Tax Court ruled that rollover treatment was unavailable for the second transaction on the grounds that the second rollover violated the one-year lookback limitation. (1) In other words, where amounts are rolled over from one IRA to a second IRA, a rollover may not be made within a one-year period from the second IRA. (2) The one-year lookback limitation of IRC Section 408(d)(3)(B) applies only to distributions from an individual retirement plan; a rollover from a qualified plan to an IRA is not counted. (3) Also, a rollover from a traditional IRA to a Roth IRA does not count towards this limit. (4)

Payment of an arbitration award, designed to replace wasted IRA assets, into a new individual retirement account was a valid rollover.5 Likewise, a court-ordered payment of the diminished value of an IRA resulting from the investment company's error was eligible for rollover treatment. (6)

463. May a surviving spouse or other beneficiary make a rollover contribution?

Surviving Spouse

Yes. Where any portion of an eligible distribution from a qualified plan is paid to the spouse of a participant after that participant's death, the spouse may make a rollover contribution of all or any part of that portion within 60 days of receipt. (7) (The Secretary of the Treasury is authorized to waive the 60-day rule under certain circumstances; see Q 464.)

A qualified plan, a traditional IRA, a Roth IRA (see Q 223), a tax sheltered annuity, or an eligible Section 457 governmental plan (provided it agrees to separately account for funds received from any eligible retirement plan except another eligible Section 457 governmental plan) is treated as an eligible retirement plan with respect to a surviving spouse. (8) In other words, the surviving spouse may roll over an eligible distribution into his or her own plan account, provided the plan accepts rollover contributions. (9)

The other rules applicable to rollovers in general apply to rollovers by a deceased participant's spouse.10 See Q 456, Q 457, Q 458, Q 461, Q 464. Thus, unless the spouse elects the direct rollover option, the distribution will be subject to mandatory withholding at 20%. See Q 458.

Planning Point: An IRA beneficiary who is a surviving spouse has the option of rolling over a distribution to his own IRA. If he exercises his rollover option and he is under age 59V-, then future distributions from his IRA before he reaches age 59V2 will be subject to the 10% tax, whereas distributions directly from the deceased spouse's IRA would not. The surviving spouse's need for distributions before age 59V2 is one factor in his rollover decision. Martin Silfen, J.D., Brown Brothers, Harriman Trust Co., LLC.

Since the surviving spouse of an owner of a traditional IRA is not subject to the inherited account rules, the surviving spouse may make rollovers to and from the plan. (11) Generally, this has held true whether the spouse was the beneficiary designated under the plan or inherited the account as sole beneficiary of the owner's estate. (1) Furthermore, a proper rollover was considered made by a surviving spouse who, as her deceased husband's executrix, transferred the right to receive the benefits due her husband from his profit sharing plan to herself under the residuary bequest in the husband's will and then transferred this amount into an IRA already established on her behalf. (2)

In a number of private rulings during the 1990s, the IRS stated that if a decedent's IRA or tax sheltered annuity passed through a third party, such as a trust, and then was distributed to the decedent's surviving spouse, the spouse was treated as acquiring the IRA or tax sheltered annuity from the trust rather than from the decedent; thus, no rollover was possible. (3) But the Service also determined on several occasions that if the trustee had no discretion as to the allocation of IRA proceeds to a trust or the payment of the proceeds directly to the surviving spouse, the surviving spouse would be treated as having acquired the IRA proceeds from the decedent rather than from the trust. In other words, a rollover was possible. (4) In numerous rulings, the Service has treated a surviving spouse as having acquired the IRA from the decedent and not the trust where the surviving spouse had the power to revoke the trust. (5)

The Preamble to the 2002 final regulations under IRC Section 401(a)(9) (see Q 342) clarifies that if a surviving spouse receives a distribution from a deceased spouse's IRA, "the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouse's own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneiciary of the IRA owner." (6) In other words, it appears that for rollover purposes, the inal regulations were intended to put to rest the distinction between trusts that provide discretion to the surviving spouse and those that do not.

The surviving spouse does not receive a stepped up basis with respect to the decedent's plan interest or tax sheltered annuity. See Q 827.

Nonspouse Beneficiary

Beginning for distributions in 2007, a nonspouse designated beneficiary of a qualified plan, a tax sheltered annuity, or an eligible Section 457 governmental plan may make a direct rollover into an inherited IRA, including a Roth IRA (see Q 223). (7) The rollover must be made by means of a trustee-to-trustee transfer. The transfer will be treated as an eligible rollover distribution. (8) Distributions to nonspouse beneficiaries prior to 2007 were not eligible rollover distributions.

An inherited IRA created under this provision must remain in the name of the owner of the original retirement account payable to the designated beneficiary. The IRA is subject to required minimum distributions as for any IRA payable to a designated beneficiary. See Q 236.

464. How is the 60-day time limitation on rollovers applied?

Once a distribution eligible for rollover treatment is received by a participant, he must make the rollover contribution within 60 days. (9) If more than one distribution is received by an employee from a qualified plan during a taxable year, the 60-day rule applies separately to each distribution. (10)

Planning Point: Required minimum distributions were waived for IRAs and defined contribution plans for 2009. If a person received a RMD for 2009, the person has until the later of the normal 60-day rollover period or November 30, 2009 to complete a rollover of the RMD. (1)

The IRS has the authority to waive the 60-day requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement. (2)

The IRS has issued guidelines for requesting a waiver of the 60-day requirement. (3) Under the guidelines, a taxpayer may request a private letter ruling from the IRS waiving a failure to meet the 60-day requirement. The Service will consider "all relevant facts and circumstances," such as whether financial institutions committed any errors; whether an incomplete rollover was due to death, disability, hospitalization, incarceration, or postal error; how an amount distributed was used by the taxpayer, including whether a check was cashed; and how much time has elapsed since the distribution. The guidelines grant automatic waivers in cases where the failure to timely complete a rollover is "solely due to an error on the part of the financial institution." If the taxpayer followed the institution's required procedures within the 60-day rollover period, and the error is ultimately corrected within one year of the distribution, no waiver request is necessary.

The IRS has liberally applied the new guidelines, granting waivers for alcohol and drug treatment, blizzards, bank errors, dementia, health problems, hurricanes, mistakes of fact--confusing an IRA distribution for a life insurance or annuity payment--and mistakes of law--not understanding the tax consequences of the distribution. (4) The IRS has denied waivers where a taxpayer used a distribution as a short-term loan and made no actual attempt to rollover the distribution within the 60-day limit. (5)

The 60-day rollover time limit does not apply to qualified Hurricane Katrina distributions. Qualified Hurricane Katrina distributions are distributions not exceeding $100,000 in the aggregate from qualified retirement plans, individual retirement plans, Section 403(b) tax sheltered annuities, or eligible Section 457 governmental plans made at any time on or after August 25, 2005 and before January 1, 2007 by an individual whose principal place of abode on August 28, 2005 was located in the Hurricane Katrina disaster area and who sustained an economic loss by reason of Hurricane Katrina. Taxpayers may complete a rollover of a qualified Hurricane Katrina distribution that was an eligible rollover distribution no later than 3 years from the day after such distribution was received. (6)

Prior to EGTRRA 2001, no waivers of the 60-day time limitation were permitted, even where the failure to meet it was the result of mistake, erroneous advice, the inaction of third parties, or reliance on prior rulings by the Service itself. (7)

Where a stock certificate representing the participant's distribution was sent by registered mail but the participant was away from home, the 60-day period did not begin until the taxpayer signed the registered mail claim check at the post office and took physical receipt of the stock distribution. (8) Likewise, the 60-day period began upon the taxpayer's receipt of a distribution check even though the check had been issued 10 months earlier but delivery was delayed because of an incorrect address. (9)

The 60-day period does not include any period during which the amount transferred to the individual is a "frozen deposit" (i.e., cannot be withdrawn because of the bankruptcy or insolvency of the inancial institution or any state-imposed requirement based on the bankruptcy or insolvency (or threat thereof) of institutions in the state). Also, the 60-day period will not be considered to expire any earlier than 10 days after the account ceases to be "frozen." (1)

The inclusion of a distribution as income is not deferred into another calendar year merely because the 60-day rollover period extends into the succeeding year. (2)

A timely rollover occurred where a corrective bookkeeping entry was made after the 60-day period but, based upon the facts of the case, the Tax Court concluded that the transfer itself had actually occurred within the required period. (3)

A letter ruling waived the 60-day rollover period for transfers between IRAs where a financial institution was closed on the 60th day (a Sunday) and the rollover was completed on the 61st day. (4)

465. May an individual who has attained age 701/2 make a rollover?

Although there was considerable confusion on this issue at one time, it now seems clear that such rollovers may be made to traditional IRAs as long as the minimum distribution requirements are met. See Q 234 to Q 238. (5) (Rollovers, as well as contributions in general, may be made to Roth IRAs by individuals who have attained age 70/.6) It appears that the same rationale also permits rollovers to qualified plans and Section 403(b) tax sheltered annuities after age 70/ if the minimum distribution requirements are met. See Q 342 to Q 348 and Q 496 to Q 499.

466. May the recipient of a distribution roll the amount over into another person's individual retirement plan?

No. 7Where a plan participant received a distribution from a qualified retirement plan and, within 60 days, the funds were placed in a traditional IRA held in his wife's name only - but not pursuant to a valid QDRO (see Q 459)--the Tax Court found that a valid rollover had not occurred. (8)

SPLIT DOLLAR PLAN

467. Starting Point--What is a split dollar plan?

Split dollar insurance is an arrangement generally between an employer and an employee under which the policy benefits are split, and the costs (premiums) may be split. Split dollar plans can also be set up between corporations and shareholders ("shareholder split dollar") or between parents and their children ("private split dollar"). Under the traditional plan, the employer pays part of the annual premium equal to the current year's increase in the cash surrender value of the policy and the employee pays the balance, if any, of the premium. From this basic concept, hybrid plans have evolved; for example, "employer pay all" plans under which the employer pays the entire premium, and level contribution plans under which the employee pays a level amount each year. (See Q 471 for a discussion of reverse split dollar plans.) If the employee dies while the split dollar plan is in effect, the employer receives from the proceeds an amount equal to the cash value of the policy or at least its premium payments (under a basic plan), and the employee's beneficiary receives the balance of the proceeds.

After passage of the Sarbanes-Oxley Act of 2002 (P.L. 107-204), there is now a question of whether it is legal for a publicly traded company to set up a split dollar plan, or continue paying premiums on an already existing plan. Many publicly traded companies have stopped paying premiums on split dollar plans. Some of these companies are instead paying bonuses to employees covered by split dollar plans so that the employees can pay the premiums. For more information on the SarbanesOxley Act, see Q 805.

The split dollar arrangement may be in the form of an endorsement plan where the employer owns the policy and the benefit-split is provided by endorsement, or a collateral assignment plan under which the employee owns the policy and the employer's interest is secured by collateral assignment of the policy.

Plans Entered Into After September 17, 2003

Treasury regulations issued in 2003 define a split dollar life insurance arrangement as any arrangement between an owner and a non-owner of a life insurance contract satisfying the following criteria:

(1) either party to the arrangement pays all or a portion of the premiums on the life insurance contract, including payment by means of a loan to the other party that is secured by the life insurance contract;

(2) at least one of the parties to the arrangement that is paying premiums is entitled to recover all or a portion of the premiums and the recovery is to be made from or secured by the proceeds of the life insurance contract; and (3) the arrangement is not part of a group-term life insurance plan unless the plan provides permanent benefits. (1)

Certain "compensatory arrangements" and "shareholder arrangements" are treated as split dollar arrangements even if they do not meet the general definition of a split dollar arrangement. A compensatory arrangement is one where: (1) the arrangement is entered into in connection with the performance of services and is not part of a group-term life insurance plan; (2) the employer pays all or a portion of the premiums; and (3) either (a) the beneficiary of any portion of the death benefit is designated by the employee or is a person the employee would reasonably be expected to designate as a beneficiary, or (b) the employee has any interest in the cash value of the policy. The definition of a shareholder agreement is similar, but with "corporation" substituted for "employer" and "shareholder" for "employee." (2)

These definitions are effective for split dollar arrangements entered into after September 17, 2003, or split dollar arrangements entered into before September 18, 2003, that are materially modified after September 17, 2003. (3) For when a split dollar plan is considered entered into, see Q 468.

Plans Entered into Before September 18, 2003

The following discussion applies to split dollar plans that were entered into before September 18, 2003.

If a transaction is cast in a form that results in similar benefits to an employee as in a traditional split dollar plan, it will be treated as a split dollar plan.4 Thus, an arrangement dividing interests in the policy on an employee between the employer and the insured employee's wife was ruled a split dollar plan providing an taxable economic benefit to the employee (see Q 469; see Q 700 for gift tax consequences). Similarly, where the insured was the employee's father, the plan was held to provide a benefit to the employee taxable as a split dollar plan. (1) A split dollar plan between a corporation and an insured non-employee shareholder was ruled to provide a taxable dividend to the shareholder. (2)

Other Considerations

A split dollar arrangement offered as a fringe benefit to employees of an S corporation in which the employer agreed to pay the total premium less the term insurance cost did not violate the one class of stock restriction applicable to S corporations under IRC Section 1361(b)(1)(D). (3) Similarly, a split dollar arrangement for shareholders in which the employer agreed to pay the full premium and the shareholders agreed to reimburse the employer for the economic benefit amount did not violate the one class of stock restriction. (4) See Q 839.

The cash values of policies in an endorsement-type split dollar plan that made use of an independent ffiduciary to select the policies were not considered "plan assets" for purposes of ERISA. (5)

The Service has issued guidance regarding the application of IRC Section 409A to split dollar life insurance arrangements. The notice also provides that certain modifications of split dollar life insurance arrangements necessary to comply with, or avoid application of, IRC Section 409A will not be treated as a material modification. (6)

For information on charitable split dollar, see Q 285.

468. What are the income tax results of a split dollar plan entered into, or materially modified, after September 17, 2003?

The tax treatment of a split dollar arrangement depends on when the arrangement is ffirst entered into. Generally, for split dollar arrangements entered into after September 17, 2003, the taxation of the arrangement is governed by regulations that were issued in 2003. Split dollar arrangements entered into before September 18, 2003, are generally governed by revenue rulings and other guidance issued by the IRS between 1964 and the issuance of the final regulations. For a discussion of the tax treatment of split dollar arrangements not subject to the split dollar regulations, see Q 469.

For split dollar arrangements entered into after September 17, 2003, the tax treatment will be under one of two mutually exclusive regimes; the arrangement will be treated either as the life insurance policy owner providing economic benefits (see "Economic Benefit Treatment," below) to the non-owner, or as the non-owner making loans (see "Loan Treatment," below) to the owner. (7) The person named on the policy as the owner is generally considered the owner of the policy. A non-owner is any person (other than the owner) having an interest in the policy (except for a life insurance company acting only as the issuer of the policy). (8) A split dollar arrangement will be treated as a loan if: (1) payment is made by the non-owner to the owner; (2) the payment is a loan under general principles of federal tax law or a reasonable person would expect the payment to be repaid to the non-owner; and (3) the repayment is made from, or secured by, either the policy's death benefit, cash value, or both. (9) Loan treatment will generally occur in a collateral assignment arrangement.

Economic Benefit Treatment

If the split dollar arrangement is not treated as a loan, the contract's owner is treated as providing economic benefits to the non-owner. Economic benefit treatment will generally occur in an endorsement arrangement. The non-owner (and the owner for gift and employment tax purposes) must take into account the full value of the economic benefits provided to the non-owner by the owner, reduced by any consideration paid by the non-owner. Depending on the relationship between the owner and the non-owner, the economic benefits may consist of compensation income, a dividend, a gift, or some other transfer under the tax code.1 The value of the economic benefits is equal to: (1) the cost of life insurance protection provided to the non-owner; (2) the amount of cash value the non-owner has current access to (to the extent that amounts were not taken into account in previous years); and (3) the value of other benefits provided to the non-owner. The cost of life insurance protection will be determined by a life insurance premium factor put out by the IRS.2 Presumably, Table 2001 will be used until the IRS issues another table. (3)

Under the economic benefit regime, the non-owner will not receive any investment in the contract with respect to a life insurance policy subject to a split dollar arrangement. Premiums paid by the owner will be included in the owner's investment in the contract. Also, any amount the non-owner pays toward a policy will be included in the income of the owner and increase the owner's investment in the contract. (4)

Death benefits paid to a beneficiary (other than the owner of the policy) by reason of the death of an insured will be excluded from income to the extent that the amount of the death benefit is allocable to current life insurance protection provided to the non-owner, the cost of which was paid by the non-owner or the benefit of which the non-owner took into account for income tax purposes. (5)

Upon the transfer of the policy to a non-owner, the non-owner is considered to receive generally the cash value of the policy and the value of all other rights in the policy, minus any amounts paid for the policy and any benefits that were previously included in the non-owner's income. However, amounts that were previously included in income due to the value of current life insurance protection that was provided to the non-owner may not be used to reduce the amount the non-owner is considered to receive upon roll-out. Thus, the taxation on the value of current life insurance protection will not provide the non-owner with any basis in the policy, while taxation for a previous increase in cash value will add basis for the non-owner. (6)

Loan Treatment

If the split dollar arrangement is treated as a loan, the owner is considered the borrower, and the non-owner is considered the lender. (7) If the split dollar loan is a below market loan, then interest will be imputed at the applicable federal rate (AFR), with the owner and the non-owner of the policy considered to transfer imputed amounts to each other. (8) In a split dollar arrangement between an employer and employee, the lender would be employer and the borrower the employee. Each payment under the split dollar arrangement will be treated as a separate loan. The employer is considered to transfer the imputed interest to the employee. This amount is considered taxable compensation, and generally will be deductible to the employer (however, no deduction will be allowed in a corporation-shareholder arrangement). The employee is then treated as paying the imputed interest back to the employer, which will be taxable income to the employer. This imputed interest payment by the employee will generally be considered personal interest and therefore not deductible.

The calculation of the amount of imputed interest differs depending on the type of below market loan involved. A below market loan is either a "demand loan" or a "term loan." A demand loan is a loan that is payable in full upon the demand of the lender. (1) All other below market loans are term loans. (2) Generally, a split dollar term loan will cause more interest to be imputed in the early years of the arrangement, with the amount of imputed interest decreasing each year. In a split dollar demand loan, the imputed interest will be smaller in the early years of the arrangement, but will increase each year the arrangement is in place.

For more information on below market loans, see Q 805.

Effective Date of Regulations

These regulations apply to split dollar arrangements entered into after September 17, 2003, and arrangements entered into on or before September 17, 2003, that are materially modified after September 17, 2003. (3) The final regulations provide a "non-exclusive list" of changes that will not be considered material modifications. This list includes: (1) a change solely in premium payment method (for example, from monthly to quarterly); (2) a change solely of beneficiary, unless the beneficiary is a party to the arrangement; (3) a change solely in the interest rate payable on a policy loan; (4) a change solely necessary to preserve the status of the life insurance contract under IRC section 7702; (5) a change solely to the ministerial provisions of the life insurance contract (such as a change in the address to send premiums); and (6) a change made solely under the terms of the split dollar agreement (other than the life insurance contract) if the change is dictated by the arrangement, is non-discretionary to the parties, and was made under a binding commitment in effect on or before September 17, 2003. (4) An exchange of policies under IRC section 1035 is not on the list of non-material modifications. Note that the Service will not issue rulings or determination letters on whether a modification is material.5

The Service has released guidance regarding the application of IRC Section 101(j) and Section 264(f) to life insurance contracts that are subject to split dollar life insurance arrangements. According to the notice, if the parties to a split dollar life insurance arrangement modify the terms of the arrangement, but do not modify the terms of the life insurance contract underlying the arrangement, the modification will not be treated as a material change in the life insurance contract for purposes of IRC Section 101(j) and Section 264(f), even if the modification is treated as a material modification of the split dollar arrangement for purposes of Treasury Regulation [section]1.61-22(j). In other words, the contract will not lose its grandfathered status. (6)

The inal regulations also contain rules on when a split dollar arrangement is considered to be entered into. A split dollar arrangement is entered into on the latest of the following dates: (1) the date the life insurance contract is issued; (2) the effective date of the life insurance contract under the arrangement; (3) the date the first premium on the life insurance contract is paid; (4) the date the parties to the arrangement enter into an agreement with regard to the policy; or (5) the date on which the arrangement satisfies the definition of a split-dollar life insurance arrangement. (7)

469. What are the income tax results of a split dollar plan entered into before

September 18, 2003?

Split dollar arrangements that were entered into before September 18, 2003, are governed by various rulings and other guidance that have been issued by the IRS between 1964 and the issuance of inal regulations on split dollar arrangements in 2003. This guidance includes Notice 2002-8,1 which provides transition rules for arrangements not subject to the split dollar regulations. However, no inference is to be drawn from Notice 2002-8, or the proposed or final regulations regarding the appropriate tax treatment of split dollar arrangements entered into before September 18, 2003.

For the treatment of split dollar arrangements entered into after September 17, 2003, see Q 468.

Notice 2002-8

For split dollar arrangements entered into before September 18, 2003:

(1) The IRS will not treat an employer as having made a transfer of a portion of the cash value of a life policy to an employee for purposes of Section 83 solely because the interest or other earnings credited to the cash value of the policy cause the cash value to exceed the portion payable to the employer.

(2) Where the value of current life insurance protection is treated as an economic benefit provided by an employer to an employee, the IRS will not treat the arrangement as having been terminated (and thus will not assert that there has been a transfer of property to the employee by reason of termination of the arrangement) as long as the parties to the arrangement continue to treat and report the value of the life insurance protection as an economic benefit provided to the employee. This treatment will be accepted without regard to the level of the remaining economic interest that the employer has in the life insurance contract.

(3) The parties to the arrangement may treat premium or other payments by the employer as loans. The IRS will not challenge reasonable efforts to comply with the rules regarding original issue discount and below-market loans. (See Q 805 for more information on below-market loans.) All payments by the employer from the beginning of the arrangement (reduced by any repayments to the employer) before the first taxable year in which payments are treated as loans for tax purposes must be treated as loans entered into at the beginning of the first year in which payments are treated as loans.

For split dollar arrangements entered into before January 28,2002, under which an employer has made premium or other payments under the arrangement and has received or is entitled to receive full repayment, the IRS will not assert that there has been a taxable transfer of property to an employee upon termination of the arrangement if: (1) the arrangement is terminated before January 1, 2004; or (2) for all periods beginning on or after January 1, 2004, all payments by the employer from beginning of the arrangement (reduced by any repayments to the employer) are treated as loans for tax purposes, and the parties to the arrangement report the tax treatment in a manner consistent with this loan treatment, including the rules for original issue discount and below-market loans. Any payments by the employer before the first taxable year in which payments are treated as loans for tax purposes must be treated as loans entered into at the beginning of the first year in which payments are treated as loans.

Notice 2001-10

Notice 2001-10 was revoked by Notice 2002-8. However, for split dollar arrangements entered into before September 18, 2003, taxpayers may rely on the guidance contained in Notice 2001-10.

1. 2002-1 CB 398.

Under Notice 2001-10, the IRS will generally accept the parties' characterization of the employer's payments under a split dollar plan, provided that: (1) the characterization is not clearly inconsistent with the substance of the arrangement; (2) the characterization has been consistently followed by the parties from the inception of the agreement; and (3) the parties fully account for all economic benefits conferred on the employee in a manner consistent with that characterization. (1)

Under Notice 2001-10, there are three different ways that a split dollar plan may be characterized. First, the plan can be characterized as a loan, subject to the below market loan rules. Second, the plan could be characterized so as to be governed under the "traditional" split dollar rules of Revenue Ruling 64-328. (2) Finally, the plan could be characterized in such a way so that the employer's payments are treated as compensation.

Value of Economic Benefit

The employee is taxed on the value of the economic benefit he receives from his employer's participation in the split dollar arrangement. (3) One of the benefits the employee receives is current life insurance protection under the basic policy. The value of this benefit to the employee may be calculated by using government premium rates. For many years, "P.S. 58" rates were used to calculate the value of the protection. (4) However, the IRS revoked Rev. Rul. 55-747 and provided new "Table 2001" rates. P.S. 58 rates may generally be used prior to 2002; Table 2001 rates may generally be used starting in 2001. (5) Notice 2002-8 does provide for some "grandfathering" of P.S. 58 rates. For split dollar arrangements entered into before January 28, 2002, in which a contractual agreement between an employer and employee provides that P.S. 58 rates will be used to determine the value of current life insurance protection provided to the employee (or the employee and one or more additional persons), the employer and employee may continue to use P.S. 58 rates. (6)

If the insurer publishes rates for individual, initial issue, one-year term policies (available to all standard risks), and these rates are lower than the P.S. 58 or Table 2001 rates (as applicable), these insurer rates may be substituted. (7) Only standard rates may be substituted, not preferred rates (e.g., those offered to non-smoking individuals). (8) The substituted rate must be a rate charged for initial issue insurance and must be available to all standard risks. (9)

For arrangements entered into before September 18, 2003, taxpayers may use the insurer's lower published premium rates that are available to all standard risks for initial issue one-year term insurance. However, for arrangements entered into after January 28, 2002, and before September 18, 2003, for periods after December 31, 2003, an insurer's rates may not be used unless: (1) the insurer generally makes the availability of the rates known to those who apply for term insurance coverage from the insurer; and (2) the insurer regularly sells term insurance at those rates to individuals who apply for term insurance coverage through the insurer's normal distribution channels. (10)

The IRS has said that taxpayers should make appropriate adjustments to premium rates if life insurance protection covers more than one life. (11) Where the policy death benefit is payable at the second death, it is generally believed that following the first death, the Table 2001 or P.S. 58 rates for single lives should be used to measure the survivor's economic benefit. See Appendix C.

Employer's Premiums Nondeductible

The employer cannot take a business expense deduction for its share of the annual premium because the employer is a beneficiary under the policy, within the meaning of IRC Section 264(a)(1). (1) Moreover, it appears that the employer cannot deduct the value of the economic benefit (Table 2001 or P.S. 58 cost) that is taxable to the employee because the employer has not "paid or incurred" any expense other than nondeductible premium expense. (2)

Death Proceeds

Upon death of the employee, both the portion of the proceeds received by the employer and the portion of the proceeds received by the employee's beneficiary are exempt from federal income tax under IRC Section 101(a) as life insurance proceeds received by reason of the insured's death. (3) However, death proceeds of split dollar life insurance payable to a corporation may affect the calculation of the alternative minimum tax (see Q 96).

Stockholder-Employees

Although the issue was not litigated, the IRS treated the (P. S. 58) benefit of a substantial stockholder-employee as a dividend in Johnson v. Comm. (4) The IRS had already ruled that in the case of a split dollar arrangement between a non-employee stockholder and the corporation, the economic benefit flowing from the corporation to the insured stockholder is taxed as a corporate distribution (dividend). (5)

470. What are the income tax consequences of the transfer or "rollout" of a policy subject to a split dollar arrangement?

Under the split dollar regulations, upon the transfer of the policy to a non-owner, the non-owner is considered to receive generally the cash value of the policy and the value of all other rights in the policy, minus any amounts paid for the policy and any benefits that were previously included in the non-owner's income. However, amounts that were previously included in income due to the value of current life insurance protection that was provided to the non-owner may not be used to reduce the amount the non-owner is considered to receive upon roll-out. Thus, the taxation on the value of current life insurance protection will not provide the non-owner with any basis in the policy, while taxation for a previous increase in cash value will add basis for the non-owner. (6)

No inference is to be drawn regarding the tax treatment of split dollar arrangements entered into before September 18, 2003 (see Q 469). (7)

Arrangements Entered before September 18, 2003

The following discusses rollout from a split dollar arrangement entered into before September 18, 2003.

The IRS considered this issue in two private letter rulings. In the first, the split dollar plan provided that the insured employee would be entitled to a portion of the life insurance policy's cash surrender value annual increase equal to his share of the annual premium. His portion of the annual premium was determined by a payment schedule which entitled him to a portion of the cash surrender value of the policy. The plan's rollout provision stated that if the employee remained employed for a specified time, the policy would then be transferred to him without cost. The net cash value of the policy transferred to him at that time would equal the employee's cumulative premium, or, if greater, the cash surrender value less the employer's cumulative premiums.

The IRS concluded that when the policy is transferred to the employee, he would have taxable income to the extent the cash value in the policy exceeded the amounts he contributed. The IRS reasoned that the cash surrender value would be property transferred in connection with the performance of services and therefore the amount exceeding the employee's basis (his contributions) would be immediately taxable under IRC Section 83. Under IRC Section 83(h), the employer would be entitled to a deduction equal to the amount included in the employee's income. However, this deduction would be offset by the employer's recognition of a gain equivalent to the amount received in excess of its basis. Further, the insured employee must include in his income each year the annual P.S. 58 cost of life insurance protection he received, to the extent paid for by the employer. (1)

The employee was not entitled to use his contributions to offset the employer-provided insurance protection. The ruling does not indicate how the amount of protection provided by the employer is calculated, but it has been suggested that the calculation should be made in a manner consistent with Revenue Ruling 64-328. (2)

The second private letter ruling involved an "endorsement" arrangement, in which the employer owned all the cash values, but was to receive death benefits limited to its premium contributions. At the eighth policy year, the employer borrowed an amount equal to its premium contribution from the policy, leaving some amount of cash value in the policy, which was then rolled out to the employee. The IRS, once again, applied IRC Section 83, and found that in the year of the rollout the employer recognized gain in the policy to the extent the cash value exceeded its cumulative premium basis. (3) The employer was entitled to an IRC Section 162 business deduction equal to the total cash value less the employee's premium contributions. The employee must likewise include under IRC Section 83 the full amount of the policy cash value less the premiums he paid over the first seven years. (4)

The IRS has not ruled on the more customary split dollar plan in which the employer's interest is limited to its aggregate premium outlay both during lifetime and at death. Under these circumstances the employer's contractual rights to cash values are limited to the premiums it has paid, which is exactly the amount borrowed from or withdrawn out of the policy in the year of rollout. Typically, the employee pays premiums to offset the economic benefit, and contractually owns cash values in excess of the employer's aggregate premium outlay. The 1979 ruling suggested the employee's premium outlay could not be used to offset both the economic benefits and serve as his basis in mitigating the tax on the cash values. The 1983 ruling does not clearly respond to this issue. Neither ruling considered the policy loan in measuring the value transferred to the employee.

Although there are no IRS rulings on point, whether the policy has failed the seven pay test of IRC Section 7702A(b) and is therefore classified as a modified endowment contract should be considered in determining the income tax consequences of a split dollar rollout. Generally, any policy distributions, including policy loans, may be taxed less favorably if the policy is a modified endowment contract than if it is not. See Q 252 for a more detailed discussion.

Where a split dollar arrangement provides a "permanent benefit" (discussed in Q 148) to a member of a group covered by group term life insurance issued by the same insurer (or an affiliate), the arrangement may be considered part of "a policy" providing group term life insurance and its taxation subject to rules discussed in Q 147.

471. What is reverse split dollar and how is it taxed?

Reverse split dollar is a variation on the traditional split dollar arrangement discussed in Q 467 in which the ownership of the policy cash value and death proceeds is split between the corporation and the insured employee, but the traditional roles of the two parties to the arrangement are reversed. In the typical reverse split dollar plan, the employer pays a portion of the policy premium equal to the annual P.S. 58 cost (or Table 2001 cost) each year while the difference between this cost and the full premium is contributed by the employee. Notice 2002-59 (1) is believed to have ended the viability of reverse split dollar.

In Notice 2002-59, the IRS stated that a party to a split dollar arrangement may use Table 2001 or the insurer's rates only for the purpose of valuing current life insurance protection when the protection is conferred as an economic benefit by one party on another party, determined without regard to consideration or premiums paid by the other party. Thus, if one party has the right to current life insurance protection, neither Table 2001 not the insurer's rates can be used to value that party's insurance protection for purposes of establishing the value of policy benefits to which another party may be entitled.

Notice 2002-59 provides one example where the premium rates are properly used and one where they are not properly used. In the first example, a donor is assumed to pay the premiums on a life insurance policy that is part of a split dollar arrangement between the donor and a trust, with the trust having the right to the current life insurance protection. The current life insurance protection has been conferred as an economic benefit by the donor on the trust and the donor is permitted to value the life insurance protection using either Table 2001 or the insurer's lower term rates.

However in the second example, if the donor or the donor's estate has the right to the current life insurance protection, neither Table 2001 nor the insurer's lower term rates may be used to value the donor's current life insurance protection to establish the value of economic benefits conferred upon the trust. Results will be similar if the trust pays for all or a portion of its share of benefits provided under the life insurance arrangement.

Notice 2002-59 does not contain an effective date, which indicates that the IRS does not consider it "new" guidance, but a restatement by the IRS of current law. If that is the case, it will affect reverse split dollar arrangements that were in place before the notice was issued.

472. What is private split dollar and how is it taxed?

"Private" split dollar is yet another variation on the traditional split dollar arrangement (see Q 467). The label of "private" comes from the fact that this type of split dollar arrangement does not include the participation of an employer. Rather, a private split dollar arrangement is typically between two family members or one family member and a trust. When two family members are involved the label "family" split dollar is often used. A common example of family split dollar involves a father assisting his son in setting up a policy insuring the son's life.

The IRS has said that the same principles that govern the tax treatment of employer-employee split dollar plans (see Q 468 and Q 469) should also govern arrangements that provide benefits in gift contexts, which presumably would include private split dollar plans. (1)

The regulations regarding split dollar also apply to private split dollar arrangements (see Q 468). For the estate tax consequences of private split dollar, see Q 615 (under "Non-Employer-Employee Relationship"). For gift tax implications, see Q 700.

(1.) See Notice 2002-8, 2002-1 CB 398.

(1.) See IRC Sec. 408(d).

(2.) IRC Sec. 408(d)(3).

(3.) Treas. Reg. [section]1.401(a)(31)-1, A-14.

(4.) Gunther v. U.S., 82-2 USTC 113,498 (W.D. Mich. 1982).

(5.) IRC Sec. 408(d)(8), as amended by TEAMTRA 2008 .

(1.) Notice 2007-7, 2007-5 IRB 395.

(2.) IRC Sec. 408(d)(8).

(3.) IRC Sec. 408(d)(8)(E).

(4.) IRC Sec. 408(d)(8)(D).

(5.) IRC Secs. 72, 408(d)(1).

(6.) IRC Sec. 408(d)(8), as amended by TEAMTRA 2008.

(7.) Notice 2007-7, 2007-5 IRB 395.

(1.) IRC Sec. 402(c)(1).

(2.) IRC Secs. 402(c)(4), 457(e)(16).

(3.) Treas. Regs. [subsection]1.402(c)-2, A-3, 1.402(c)-2, A-4.

(4.) Treas. Reg. [section]1.402(c)-2, A-10; Let. Rul. 9338041.

(5.) Let. Rul. 9718037.

(6.) IRC Sec. 402(c)(1)(C).

(7.) Rev. Rul. 87-77, 1987-2 CB 115.

(8.) Lemishow v. Comm., 110 TC 11 (1998).

(1.) IRC Secs. 402(c)(6), 457(e)(16)(B).

(2.) Notice 87-13, 1987-1 CB 432, A-18; Let. Rul. 9043056.

(3.) Let. Rul. 9847031.

(4.) FSA 199933038.

(5.) IRC Secs. 402(c)(2), 457(e)(16)(B).

(6.) IRC Secs. 402(c)(2), 457(e)(16)(B).

(7.) See IRC Sec. 402(c)(2).

(8.) IRC Sec. 402(c)(3)(A), 457(e)(16)(B).

(9.) IRC Sec. 402(c)(3)(B).

(10.) See Rev. Proc. 2003-16, 2003-1 CB 359.

(11.) IRC Sec. 3405(c)(1).

(12.) See Rev. Rul. 79-265, 1979-2 CB 186; Let. Rul. 9331055.

(13.) Rev. Rul. 81-275, 1981-2 CB 92.

(1.) IRC Secs. 402(c)(8), 402(c)(10).

(2.) IRC Secs. 408(d)(3)(A), 402(c)(10).

(3.) IRC Sec. 408(d)(3)(G).

(4.) IRC Secs. 408A(e), 402(c)(8)(B).

(5.) IRC Secs. 403(b)(8)(A)(ii), 402(c)(10).

(6.) IRC Secs. 401(a)(31), 403(b)(10), 457(d)(1)(C).

(7.) Treas. Reg. [section]1.402(c)-2, A-1.

(8.) Treas. Reg. [section]1.401(a)(31)-1, A-3.

(9.) Treas. Reg. [section]1.401(a)(31)-1, A-4.

(10.) See IRC Sec. 402(c)(2).

(1.) Treas. Reg. [section]1.401(a)(31)-1, A-2, A-9 to A-11.

(2.) IRC Sec. 3405(c)(1).

(3.) Labor Reg. [section]2550.404a-2; IRC Sec. 401(a)(31)(B); EGTRRA 2001, Sec. 657(a).

(1.) IRC Secs. 402(f), 457(e)(16)(B).

(2.) Treas. Reg. [section]1.402(f)-1, A-2.

(3.) Treas. Reg. [section]1.403(b)-2, A-3.

(4.) Notice 2002-3, 2002-2 IRB 289.

(5.) Treas. Reg. [section]1.402(f)-1, A-5.

(6.) IRC Secs. 3405(c)(1), 457(e)(16)(B).

(7.) Treas. Reg. [section]1.401(a)(31)-1, A-11.

(1.) Treas. Regs. [subsection]1.402(c)-2, A-11, 1.403(b)-2, A-1.

(2.) IRC Sec. 72(t)(9).

(3.) Treas. Reg. [section]31.3405(c)-1, A-6.

(4.) Let. Ruls. 9109052, 8744023, 8712066, 8608055.

(5.) IRC Secs. 414(p)(1)(A), 414(p)(12).

(6.) IRC Sec. 402(e)(1).

(7.) IRC Sec. 402(c)(1).

(8.) See IRC Sec. 402(e)(1)(B).

(9.) IRC Sec. 3405(c)(1).

(10.) IRC Sec. 402(c).

(11.) See Let. Ruls. 8014034, 8035054.

(1.) IRC Secs. 402(c)(1), 403(b)(8).

(2.) IRC Sec. 403(b)(13).

(3.) See Tolliver v. Comm.,TC Memo 1991-460.

(4.) Adamcewicz v. Comm.,TC Memo 1994-361.

(5.) IRC Secs. 402(c)(4), 408(b)(8)(B).

(6.) Treas. Regs. [subsection]1.402(c)-2, A-3 & A-4, 1.403(b)-2, A-1.

(7.) IRC Sec. 402(c)(1)(C).

(8.) IRC Sec. 402(c)(2).

(9.) IRC Secs. 402(c)(2), 403(b)(8)(B).

(10.) 1990-1 CB 97.

(11.) IRS Information Letter, May 19, 1995.

(1.) Frank v. Aaronson, 1996 U.S. Dist. LEXIS 15617.

(2.) Prop. Treas. Reg. [section]1.72(p)-1, A-12.

(3.) IRC Sec. 402(c)(3).

(4.) IRC Sec. 402(c)(3)(B).

(5.) See Rev. Proc. 2003-16, 2003-1 CB 359.

(6.) IRC Secs. 403(b)(10), 3405(c)(1).

(7.) IRC Secs. 408(d)(3)(C), 408A(a).

(8.) IRC Sec. 408A(e).

(9.) See IRC Sec. 408A(c)(6)(A).

(10.) IRC Sec. 402A(c)(3).

(1.) IRC Secs. 408(d)(3)(G), 408A(a); Temp. Treas. Reg. [section]1.408A-4, A-4.

(2.) General Explanation of Tax Legislation Enacted in the 104th Congress (JCT-12-96), p. 141 (the Blue Book).

(3.) IRC Sec. 408(d)(9).

(4.) Treas. Reg. [section]1.408-8, A-4.

(5.) IRC Sec. 408(d)(3)(A).

(6.) IRC Sec. 402(c)(2).

(7.) IRC Sec. 402(c)(3)(B); Rev. Proc. 2003-16, 2003-1 CB 359.

(8.) See EGTRRA 2001, Secs. 641(f)(3), 642(c)(2); see Let. Rul. 8433078.

(9.) Let. Rul. 9818055.

(10.) IRC Sec. 402(c)(9).

(11.) IRC Secs. 408(d)(3)(A), 402(c)(8)(B)(vi).

(12.) IRC Secs. 402(c)(2), 403(b)(8)(B).

(13.) IRC Sec. 402(c)(3); Rev. Proc. 2003-16, 2003-1 CB 359.

(1.) IRC Secs. 408(d)(3)(A), 402(c)(8)(B)(v).

(2.) IRC Sec. 402(c)(10).

(3.) IRC Secs. 402(c)(2), 457(e)(16).

(4.) IRC Sec. 402(c)(3); Rev. Proc. 2003-16, 2003-1 CB 359.

(5.) IRC Sec. 408(d)(3).

(6.) IRC Secs. 408(d)(3), 408A(a), 408A(e).

(7.) IRC Sec. 402(c)(3)(B); Rev. Proc. 2003-16, 2003-1 CB 359.

(8.) See IRC Sec. 402(c)(8)(B).

(9.) See EGTRRA 2001, Secs. 641(f)(3), 642(c)(2).

(10.) See IRC Secs. 408(d)(3)(B), 408A(a).

(11.) Prop. Treas. Reg. [section]1.408-4(b)(4)(ii); Let. Ruls. 9308050, 8731041.

(1.) Martin v. Comm., TC Memo 1992-331.

(2.) See IRS Pub. 590.

(3.) Let. Rul. 8745054.

(4.) See IRC Sec. 408A(e).

(5.) Let. Rul. 8739034.

(6.) Let. Rul. 8814063.

(7.) IRC Sec. 402(c)(9).

(8.) IRC Secs. 402(c)(9), 402(c)(10).

(9.) See Treas. Reg. [section]1.402(c)-2, A-11.

(10.) IRC Secs. 402(c)(9), 403(a)(4), 403(b)(8).

(11.) See IRC Sec. 408(d)(3)(C).

(1.) See e.g., Let. Ruls. 9820010, 9502042, 9402023, 8925048.

(2.) Let Rul. 9351041.

(3.) See e.g., Let. Ruls. 9515041, 9427035, 9416045.

(4.) See e.g., Let. Ruls. 200324059, 9813018, 9649045, 9533042, 9445029.

(5.) Let. Ruls. 199910067, 9815050, 9721028, 9427035.

(6.) See TD 8987, 67 Fed. Reg. 18988 (4-17-02).

(7.) Notice 2008-30, 2008-12 IRB 638, A-7.

(8.) IRC Sec. 402(c)(11).

(9.) IRC Sec. 402(c)(3).

(10.) Treas. Reg. [section]1.402(c)-2, A-11.

(1.) Notice 2009-82, 2009-41 IRB 491.

(2.) IRC Sec. 402(c)(3)(B).

(3.) See Rev. Proc. 2003-16, 2003-1 CB 359.

(4.) Let. Ruls. 200611038, 200610025, 200606053, 200606052.

(5.) Let. Ruls. 200544027, 200544030.

(6.) KETRA 2005 Sec. 101.

(7.) See e.g., Orgera v. Comm.,TC Memo 1995-575; Let. Ruls. 9826036, 9211035, 9145036.

(8.) Let. Rul. 8804014.

(9.) Let. Rul. 8833043.

(1.) IRC Secs. 402(c)(7)(A), 403(a)(4)(B), 403(b)(8)(B), 408(d)(3)(F), 457(e)(16)(B).

(2.) Robinson v. Comm.,TC Memo 1996-517.

(3.) Wood v. Comm., 93 TC 114 (1989).

(4.) Let. Rul. 200930052.

(5.) See Rev. Rul. 82-153, 1982-2 CB 86; Let. Rul. 9534027. But see Let. Rul. 8450068.

(6.) See IRC Sec. 408A(c)(4).

(7.) IR-1809, Q17, 5-9-77; IRC Sec. 408(d)(3)(A).

(8.) Rodoni v. Comm., 105 TC 29 (1995).

(1.) Treas. Reg. [section]1.61-22(b)(1).

(2.) Treas. Reg. [section]1.61-22(b)(2).

(3.) Treas. Reg. [section]1.61-22(j).

(4.) Rev. Rul. 64-328, 1964-2 CB 11.

(1.) Rev. Rul. 78-420, 1978-2 CB 67.

(2.) Rev. Rul. 79-50, 1979-1 CB 138.

(3.) Let. Rul. 9248019.

(4.) Let. Rul. 9318007, Let. Rul. 9331009.

(5.) DOL Adv. Op. 92-22A.

(6.) Notice 2007-34, 2007-17 IRB 996. See, also, T.D. 9321, 73 Fed. Reg. 19234, 19249 (4-17-2007) (IRC Sec. 409A final regulations).

(7.) Treas. Reg. [section]1.61-22(b)(3).

(8.) Treas. Reg. [section]1.61-22(c).

(9.) Treas. Reg. [section]1.7872-15(a)(2).

(1.) Treas. Reg. [section]1.61-22(d)(1).

(2.) Treas. Reg. [section]1.61-22(d)(2)-(3).

(3.) See Notice 2002-8, 2002-1 CB 398.

(4.) Treas. Reg. [section]1.61-22(f).

(5.) Treas. Reg. [section]1.61-22(f)(3).

(6.) Treas. Reg. [section]1.61-22(g).

(7.) Treas. Reg. [section]1.7872-15(a)(2).

(8.) See IRC Sec. 7872.

(1.) IRC Sec. 7872(f)(5).

(2.) IRC Sec. 7872(f)(6).

(3.) Treas. Regs. [subsection]1.61-22(j), 1.7872-15(n).

(4.) Treas. Reg. [section]1.61-22(j)(2).

(5.) Rev. Proc. 2007-3, Sec. 3.01(2), 2007-1 IRB 108.

(6.) Notice 2008-42, 2008-15 IRB 747.

(7.) Treas. Reg. [section]1.61-22(j)(1)(ii).

(1.) Notice 2001-10, 2001-1 CB 459.

(2.) 1964-2 CB 11.

(3.) See Rev. Rul. 64-328, 1964-2 CB 11.

(4.) See Rev. Rul. 55-747, 1955-2 CB 228.

(5.) Notice 2002-8, 2002-1 CB 398.

(6.) Notice 2002-8, 2002-1 CB 398.

(7.) See Rev. Rul. 66-110, 1966-1 CB 12.

(8.) Let. Rul. 8547006.

(9.) Rev. Rul. 67-154, 1967-1 CB 11.

(10.) Notice 2002-8, 2002-2 CB 398.

(1.) Let. Rul. 7916029.

(2.) 1964-2 CB 11.

(3.) Treas. Reg. [section] 1.83-6(b).

(4.) Let. Rul. 8310027.

(1.) 2002-2 CB 481.
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Title Annotation:FEDERAL INCOME TAX ON INSURANCE AND EMPLOYEE BENEFITS
Publication:Tax Facts on Insurance and Employee Benefits
Date:Jan 1, 2010
Words:15347
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