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Cypen & Cypen
APRIL 13, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Internal Revenue Service announced that more people than ever are using “Where’s My Refund,” the popular internet-based service whereby taxpayers can check on their federal income tax refunds. More than 21 million requests have been received so far this year, representing a growth of more than 20% compared to the same period last year. “Where’s My Refund” is a fast, easy way to check on a refund. Taxpayers can securely access their personal refund information through the agency’s website at Then, enter your Social Security number, filing status and exact amount of refund. These shared secrets, which are data known only to the taxpayer and IRS, verify the persons authorized to access the account. IRS reminds taxpayers not to share any of these data with anyone who by e-mail claims to be from IRS.


Internal Revenue Service has announced the interest rates for tax overpayments and underpayments for the calendar quarter beginning April 1, 2006. For noncorporate taxpayers, the rate for both overpayments and underpayments will be 7%. For corporations, the overpayment rate will be 6%. Corporations will receive 4.5% for overpayments exceeding $10,000. The underpayment rate for corporations will be 7%, but will be 9% for large corporate underpayments. What if you cannot pay your income taxes by April 17? File your tax return on time. IRS imposes separate penalties for late filing and late payment, so by filing (even though not paying), the late filing penalty is avoided. The late payment penalty is .5% of the net tax due (reduced for credits for withheld taxes and estimated taxes) for each month that the payment is late, up to 25% maximum. Of course, interest on top of the unpaid taxes also applies.


Bloomberg News reports that homeowners paid off mortgages at a faster pace in March amid a rise in home sales and as falling interest rates in January encouraged loan refinancing. Prepayment rate on $443 Billion of bonds paying 5.5% interest and guaranteed by Fannie Mae, the biggest provider of mortgage money, rose to 13.2% in March, fastest since November, from 10.6% in February. Rival Freddie Mac said homeowners prepaid its 5.5% bonds at an 11.5% pace, most since December and up from February’s 9.5%. March prepayment increases followed the biggest jump in U.S. home sales in two years in February, as mild weather brought out buyers sooner than expected. The increase in prepayments for mortgages that originated last year is likely in response to the significant levels of appreciation that many of those homeowners have seen over the last twelve months. U.S. home prices rose 13% in the fourth quarter versus a year earlier. The increase in prepayments also was due to a greater number of business days in March than in February. Fannie Mae and Freddie Mac package pools of residential mortgages from lenders into bonds for sale to investors or their own portfolios. The government-chartered public companies also issue their own debt to raise cash for mortgage purchases. Government-owned Ginnie Mae issues only mortgage securities.


By letter dated February 1, 2006, Ann Combs, Assistant Secretary for Employee Benefit Security Administration, has responded to Congressmen George Miller and Edward Markey. The Congressmen wrote to the Secretary of Labor and to the Securities and Exchange Commission Chairman regarding concerns identified in the May 16, 2005 Securities and Exchange Commission’s Staff Report on its examinations of selected pension consultants under the Investment Advisers Act of 1940 (see C&C Newsletter for May 19, 2005, Item 1). The Department of Labor, in coordination with SEC, has undertaken a number of actions to address the issues raised in the SEC’s report. In considering this matter, it is important to keep in mind the distinction between the definition of fiduciary under the Adviser’s Act and under the Employee Retirement Income Security Act. While DOL and SEC regulate activities of pension consultants, they do so pursuant to statutes that contain different definitions, authorities and sanctions. Specifically, a pension consultant that is a registered investment advisor under the Adviser’s Act is, by definition, a fiduciary. Such firm or individual, however, may not be a fiduciary under ERISA’s functional definition of the term. The term “investment adviser” is not defined in ERISA, but the functional approach means that the person is a fiduciary to the extent he or she engages in certain “fiduciary” activities, without regard to title or position. Under ERISA, the person acts as a fiduciary when he (a) exercises discretionary authority or control over management of a plan or exercises any authority or control over management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct and indirect, with respect to any monies or other property of a plan or has any authority or responsibility to do so or (c) has discretionary authority or responsibility in the administration of a plan. Thus, registered investment advisers who lack sufficient authority or control over plan assets are not fiduciaries under ERISA unless they render investment advice for a fee or other compensation with respect to plan assets. Under DOL regulations, a person renders investment advice only if he gives advice as to the value of securities or other property or makes recommendations as to advisability of investing in, purchasing or selling securities or other property. In addition, he must either (1) have discretionary authority or control over purchasing or selling securities or other property for the plan or (2) render the advice on a regular basis pursuant to a mutual agreement or understanding that the advice will serve as a primary basis for the plan’s investment decisions and that the advice will be individualized to the plan based on the plan’s particular need. Although an investment adviser may not be a plan fiduciary under ERISA, as a service provider to a plan the investment adviser is a “party in interest” to the plan as defined in ERISA, which prohibits transactions between a plan and a party in interest except under certain carefully defined circumstances. A plan fiduciary that hires or retains a service provider for the plan has a responsibility to ensure that the relationship between the plan and its service providers meets the requirements of ERISA, including the requirement that the services provided to the plan are necessary and appropriate and that the plan pay no more than reasonable compensation to the service provider.


Does 42 U.S.C. §406(b)(1)(A) permit an award of attorneys’ fees when a district court remands a case to the Commissioner of Social Security for further proceedings, and the Commissioner subsequently awards claimant past-due benefits on remand? That statute provides:

Whenever a court renders a judgment favorable to a claimant under this subchapter who is represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment, and the Commissioner of Social Security may ... certify the amount of such fee for payment to such attorney out of, and not in addition to, the amount of such past-due benefits.

The district court reasoned that the statute did not provide the court authority to award attorneys’ fees because its prior judgment did not amount to a victory for the claimant, but simply reversed and remanded this case to the Social Security Administration for further consideration. As the district court literally read the statute, an award of attorneys’ fees was unavailable unless its judgment entitled claimant to an award of past-due benefits and included an award of attorneys’ fees. On appeal, the court held that §406(b)(1)(A) clearly and unambiguously permits attorneys’ fees for past-due benefits after remand. Bergen v. Commissioner of Social Security, 19 Fla. L. Weekly Fed. C411 (U.S. 11th Cir., April 4, 2006).


This week’s quote comes from that well-known philosopher, Dolly Parton. “The way I see it, if you want the rainbow, you gotta put up with the rain.” On the other hand, some say Dolly is all wet.

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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