1. IRS UPDATES TE/GE PROCEDURES FOR ISSUING RULINGS: Internal Revenue Service has updated its procedures for employee plans and exempt organizations to obtain guidance on issues under jurisdiction of the Commissioner, Tax Exempt and Government Entities Division. The new Revenue Procedure, which supersedes Rev. Proc. 2009-4, explains how IRS gives the foregoing guidance, and explains the kind of guidance and the manner in which guidance is requested by taxpayers as provided by IRS. The new Revenue Procedure is effective January 4, 2010. Some of the definitions in the Revenue Procedure may be of interest to our readers:
- Letter ruling -- a written statement issued to a taxpayer by IRS's Employee Plans Technical office or Exempt Organizations Technical office that interprets and applies tax laws or any nontax laws applicable to employee benefit plans and exempt organizations to the taxpayer's specific set of facts. Once issued, a letter ruling may be revoked or modified for any number of reasons, unless it is accompanied by a closing agreement. A sample format for requesting a letter ruling is provided in Appendix A.
- Closing agreement -- a final agreement between IRS and a taxpayer on a specific issue or liability.
- Determination letter -- a written statement issued to a taxpayer by IRS's EO Determinations or EP Determinations office that applies the principles and precedents previously announced to a specific set of facts. It is issued only when a determination can be made based on clearly established rules in the statute, a tax treaty or the regulations, or based on a conclusion in a revenue ruling, opinion or court decision published in the Internal Revenue Bulletin that specifically answers the questions presented.
- Opinion letter -- a written statement issued by Employee Plans Rulings and Agreements to a sponsor as to acceptability of the form of a master or prototype plan and any related trust or custodial agreement, or as to conformance of a prototype trust, custodial account or individual annuity.
- Information letter -- a statement issued either by the Director, Employee Plans Rulings and Agreements or the Director, Exempt Organizations Rulings and Agreements. It calls attention to a well-established interpretation or principle of tax law (including a tax treaty) without applying it to a specific set of facts.
- Revenue ruling -- an interpretation by IRS that has been published in the Internal Revenue Bulletin. It is the conclusion of IRS on how the law is applied to a specific set of facts.
- Oral guidance -- IRS does not orally issue letter rulings or determination letters, and does not issue letter rulings or determination letters in response to oral requests from taxpayers. However, IRS employees ordinarily will discuss with taxpayers or their representatives inquiries regarding whether IRS will rule on particular issues and questions relating to procedural matters about submitting requests for letter rulings, determination letters and requests for recognition of exempt status for a particular organization. At discretion of IRS, and as time permits, substantive issues may also be discussed. Nevertheless, such a discussion will not be binding on IRS, and cannot be relied on as a basis for obtaining retroactive relief.
Note: IRS does not issue letter rulings on whether or not a plan is a governmental plan under IRC § 414(b). IRS Rev. Proc. 2010-4, I.R.B. 2010-1, January 4, 2010.
2. FLORIDA RECOVERS $22 MILLION FROM INSURERS: The Florida Department of Financial Services helped recover more than $22 Million for Florida's insurance customers in 2009, up from $14 Million in 2008. As reported by South Florida Business Journal, state Chief Financial Officer Alex Sink announced the results in a news release, and praised department staff members for their work. These are some examples of recent recoveries:
- $516,000 for 998 customers of Household Finance Co., which the state investigated after receiving a tip from an Orlando resident who discovered monthly premiums of $4.93 being deducted from her account two years after her policy had expired.
- $60,000 from an unnamed company contacted for a consumer who complained he was sold an annuity that did not meet the requirements he had set.
- $12,160 recovered from an insurance company for a Temple Terrace resident who was frustrated because he could not get a call back regarding a claim. (Twelve grand for a call?)
The office’s Consumer Helpline takes complaints at 877.693.-5236.
3. OKLAHOMA PENSION SYSTEM MAXIMUM-AGE CEILING FOR POLICE OFFICERS NOT SUBTERFUGE: Kannady sought employment as a police officer in the Cities of Krebs and McAlester after he left his job as an officer for the City of Kiowa. Both cities refused to hire Kannady because of the statutory age limits governing the Oklahoma Police Pension and Retirement System. Kannady sued Krebs and McAlester, alleging violations of the Age Discrimination in Employment Act. After the federal district court entered summary judgment against him on his ADEA claim, Kannady appealed, arguing that the district court erred in concluding that the OPPRS was not a subterfuge to evade purposes of ADEA. The U.S. Court of Appeals affirmed. OPPRS is the state pension and retirement system for Oklahoma police officers, established by the legislature in 1977. Municipalities that choose to participate in OPPRS are subject to certain participation and age requirements. Notably, from its enactment, OPPRS has had a maximum-age ceiling for full-time police officers seeking to join the system, and that age ceiling has not exceeded forty-five. The legislature amended the maximum age from thirty-five to forty-five in 1989. In other words, by its terms, OPPRS has continuously barred full-time law enforcement officers who are over forty-five years of age from entering the system. The statute provided that all full-time police officers shall participate in OPPRS upon initial employment with a police department of a participating municipality. A police officer shall be not less than twenty-one or more than forty-five years of age when accepted for membership in OPPRS. While ADEA broadly prohibits arbitrary discrimination in the workplace based on age, Congress has carved out an exception for law enforcement personnel: it shall not be unlawful for a local government to refuse to hire a person for a law enforcement position on basis of age, if that person is over the maximum age of hire that the local government had in effect for that position as of March 3, 1983, and the refusal to hire was pursuant to a bona fide hiring or retirement plan that is not a subterfuge to evade ADEA’s purposes. (March 3, 1983 the day after the United States Supreme Court issued its landmark case holding that ADEA’s provisions could be constitutionally applied to states and local governments with regard to their employment decisions involving law enforcement officers.) In order to carry his burden of proving subterfuge, Kannady needed to prove that the two cities were using OPPRS to evade a non-hiring substantive provision of ADEA. Since Kannady could not identify such ADEA provision, he failed to demonstrate that OPPRS is a subterfuge to evade purposes of ADEA. Kannady v. City of Kiowa, Case No. 07-7002 (U.S. 10th Cir., January 6, 2010).
4. NURSE WHIPS IRS OVER M.B.A. TUITION: A Maryland nurse accomplished two rare feats in her battle with Internal Revenue Service: She defended herself against the agency's lawyers and won, and she got a ruling that could help tens of thousands of students deduct the cost of an M.B.A. degree on their taxes. The U.S. Tax Court, according to the Wall Street Journal, handed Lori Singleton-Clarke her victory, saying the woman had properly deducted nearly $15,000 in business school tuition. The Tax Court ruling should make it easier for many other professionals to deduct expenses of a Master in Business Administration degree. IRS's rules on deducting work-related tuition are complicated and onerous, ultimately preventing most students from deducting their tuition. But this case clarifies the rules, and will likely lead to more taxpayers taking the deduction.
5. BROKER-DEALERS AND OTHER NON-FIDUCIARIES AS FIDUCIARIES?: Author W. Scott Simon, an expert on the Uniform Prudent Investor
Act, has an interesting opinion-piece in MorningstarAdvisor. The author explores a proposal that is shaping up as a truly monumental wrestling match between the Executive Branch of the federal government and the mighty special interest groups whose members can be impacted heavily by it. The match commenced with the proposed Investor Protection Act of 2009 and the Department of Treasury White Paper entitled “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” In a nutshell, the two-prong goal of the administration is to turn broker-dealers into fiduciaries, and then subject them to the same fiduciary standard that governs registered investment advisers. The great uncertainty of this titanic struggle, of course, will be whether broker-dealers will actually be turned into fiduciaries and, even if they are, what kind of fiduciary standard they will actually have to meet. Broker-dealers are regulated under the Securities Exchange Act of 1934, and, as such, they are not fiduciaries. (The Investment Advisers Act of 1940 regulates registered investment advisers.) A broker-dealer follows the "suitability" standard, which does not require a broker-dealer to place the interests of its clients ahead of its own. Under the non-fiduciary suitability standard, a broker-dealer need provide only "suitable advice" to its clients, even when it knows that the advice is not the best advice as required under the fiduciary standard. (A broker-dealer, of course, is even allowed legally to avoid being subject to the suitability standard altogether by ensuring that any advice it does provide is only "incidental" to any transaction executed in behalf of its client!) Today, many broker-dealers give investment advice to their clients. Because they do, many (including the Obama administration) believe that broker-dealers providing investment advice to their clients would have to meet the higher standard required of a registered investment adviser fiduciary, rather than the lower suitability standard required of a broker-dealer. Adoption of the Employee Retirement Income Security Act fiduciary standard (as opposed to other fiduciary standards) and making it mandatory for all providers of investment advice obviates the need for the broker-dealer industry to come up with a new federal fiduciary standard. We already have a federal fiduciary standard, and have had it for 35 years: ERISA Section 404(a). ERISA is derived from the common law of trusts, which ERISA merely federalized. The fiduciary standard found in ERISA merits application to all investment advisers. The beauty for broker-dealers, though, is that even with this seemingly worst-case outcome there is still a way for them not only to avoid being a fiduciary but also to thrive in the qualified retirement plan market as they never have before. This newly-found prosperity exists not at the plan level, per se, but among the many plan participants who can provide a multiple of revenue for broker-dealers. Don’t look for this wrestling match to go smoothly.
6. TOP LEGAL DECISIONS OF 2009: Lawyers USA looks back at ten of the most groundbreaking decisions issued by federal and state courts in 2009:
- Smokers can sue for medical monitoring. Long-term cigarette smokers can sue a tobacco company for cost of medical monitoring required due to their increased risk of lung cancer, Massachusetts’s highest court ruled in answering questions certified by a U.S. District Court.
- Cell phone claims not completely pre-empted. Federal law does not completely preempt product liability claims alleging that radiation from cell phones causes brain cancer, the D.C. Court of Appeals ruled.
- Social Security attorneys entitled to contingency fees. Lawyers who successfully represented Social Security claimants are entitled to their contingency-based fees, the en banc 9th Circuit ruled.
- Law firm violated Fair Debt Act. A law firm violated federal debt collection law by sending out a debt collection letter without undertaking a “meaningful review” of the debtor’s case, a U.S. District Court in New York ruled following a bench trial.
- In-house lawyers can bring Sarbanes-Oxley suit. An attorney’s duty to protect client confidences does not necessarily prevent two in-house lawyers from bringing a federal whistleblower suit against their former employer, the 9th Circuit ruled in reversing a summary judgment.
- Fiancee cannot sue for retaliation under Title VII. A man who was fired after his co-worker and fiancee filed a discrimination charge with EEOC cannot sue for retaliation under Title VII, the en banc 6th Circuit ruled.
- Government liable for Hurricane Katrina damage. The federal government is liable for damage suffered by five property owners when a system of levees failed during Hurricane Katrina, a U.S. District Court in Louisiana ruled in rendering a $720,000 verdict.
- Employer may use hidden cameras. An employer’s limited use of hidden cameras in the workplace did not violate its employees’ privacy, the California Supreme Court has ruled in reversing a summary judgment.
- Expert can testify on variability in breath tests. A drunk driving defendant should have been allowed to introduce expert testimony that the blood-alcohol content indicated by his breath test overstated the actual amount of alcohol in his blood, the California Supreme Court has ruled.
- Iowa statute prohibiting same-sex marriage is void. A state statute limiting civil marriage to a union between one man and one woman violates the state constitution, the Iowa Supreme Court has ruled.
7. “WE THE PEOPLE,” WRITTEN AND PERFORMED BY RAY STEVENS: Here is a little ditty on health care in our country, from the inimitable Ray Stevens: http://www.youtube.com/watch?v=Dc_-L4fyLUo. Note, do not get confused with that other Stevens cat.
8. EARLY PENSION CHECKS CREATE TAX PROBLEMS: The Louisiana State Employees Retirement System sent some $40 million in electronic checks to 35,000 retiree accounts on December 22 -- a month early-- creating a big headache for them and the pension system. Retirees, as reported by 2theadvocate.com, have been receiving postcard notices from LASERS, notifying them that they would be required to pay 2009 income taxes on the benefits should they choose to keep their checks. Alternatively, retirees could request that LASERS reclaim the funds, so that checks could be reissued in 2010. However, if retirees choose that option, they had to notify LASERS by January 8, 2010. Nevertheless, new checks would not be issued until January 21, 2010. Incidentally, LASERS does not know how much money the pension system may have lost in investment earnings because pension checks went out early, but, fortunately. only electronic transfers were affected. As they say, no “good” deed ever goes unpunished.
9. JUST HOW BAD IS IT?: Some times we may not realize how bad it really is, until we focus on ground level:
- A guy got a pre-declined credit card in the mail.
- A lady ordered a burger at McDonald's, and the kid behind the counter asked, "Can you afford fries with that?"
- CEOs are playing miniature golf.
- If the bank returns your check marked "Insufficient Funds," call and ask if they meant you or them.
- Hot Wheels and Matchbox stocks are trading higher than GM.
- McDonald's is now selling the 1/4 ouncer.
- Parents in Beverly Hills fired their nannies and learned their children's names.
- A truckload of Americans was caught sneaking into Mexico.
- Motel Six won't leave the light on anymore.
- The Mafia is laying off judges.
- Exxon-Mobil laid off 25 Congressmen.
- Congress is looking into the Bernard Madoff scandal. Oh, Great! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!
- A guy was so depressed last week thinking about the economy, the war, U.S. job losses, his savings, Social Security, IRAs, and so he called the Suicide Hotline. He reached a call center in Pakistan, and when he told them he was suicidal, they got all hyped up and asked if he could drive a truck.
We can’t help but say it again: Is this a great country, or what?
10. IF FAMOUS CHARACTERS THROUGHOUT TIME HAD JEWISH MOTHERS: MICHELANGELO'S JEWISH MOTHER: “A ceiling you paint? Not good enough for you the walls, like the other children? Do you know how hard it is to get that schmutz off the ceiling?”
11. FABULOUS RANDOM THOUGHTS: I think everyone has a movie that they love so much, it actually becomes stressful to watch it with other people. I'll end up wasting 90 minutes shiftily glancing around to confirm that everyone's laughing at the right parts, then making sure I laugh just a little bit harder (and a millisecond earlier) to prove that I'm still the only one who really, really gets it.
12. QUOTE OF THE WEEK: “Learn all the rules, every one of them, so that you will know how to break them.” Ty Cobb (who else?)