Annual Recalculation Is Back With A Vengance

L1: Annual Recalculation Is Back With A VenganceThe IRS issued three Private Letter Rulings this morning; all of which where originally issued to taxpayers last May. All three approve the “annual recalculation” methodology used in conjunction with both the amortization and annuitization base methods. The language in the PLRs is substantatively the same as that outlined in my article of may 11, 2004.
At least by my standard (the issuance of three affirmative PLRs) this closes this issue in the affirmative.
TheBadger
wjstecker@wispertel.net
2004-08-09 08:56, By: TheBadger, IP: [66.250.23.21]

L2: Annual Recalculation Is Back With A VenganceSorry, for those of you who are mildly anal-retentive & wish to actually read the PLRs; they are 2004-32021, 2004-2004-32023 & 2004-32024.
TheBadger
wjstecker@wispertel.net
2004-08-09 08:59, By: TheBadger, IP: [66.250.23.21]

L2: Annual Recalculation Is Back With A VenganceIunderstand this to mean that I can recompute my yearly withdrawal amount every 12 months based on the allowable interest rate and my IRA balance at that time. Is this correct? I will be using the amortization method when I first begin my 72(t) next year.2004-08-10 23:12, By: Jeff, IP: [166.87.100.29]

L2: Annual Recalculation Is Back With A VenganceActually, Jeff, these are just Private Letter Rulings (PLRs) from the IRS, which means you can’t just assume that you can do the same thing. If you really want to recalculate your 72(t) annually, you will need to apply for your own PRL, or wait for the IRA to put this in the regs.
Fuddy2004-08-11 15:55, By: Fuddy, IP: [12.163.2.3]

L2: Annual Recalculation Is Back With A VenganceI need to agree as well as disagree just a bit with Fuddy. Certainly, these are just three PLRs and are therefore only applicable to the requesting taxpayers (I have commented on the reliance issues with respect to PLRs before). Therefore, if the next John Q. Taxpayer can not rely on these PLRs, what is John to do? He actually has several alternatives:
(1) He can certainly file for his own PLR. Costs are a real factor here as the total price tag can easily run from $3000 to $8000 depending on all the details.
(2) He can locate a CPA or tax attorney who will separately opine to John that John’s annually recalculated SEPP plan is correct & via the opinion process essentially writes John an insurance policy that the plan is correct. It is usually this later process, mostly because it is more cost effective, that winds up being employed as no one, neither the submitter nor the IRS are really interested in opining on the Nth+1 PLR on the same subject.
(3) John can simply run naked; e.g. without a net,& implement an annually recalculated plan on his own. I do not recommend this strategy for simplest of reasons — the downside risks (that of penalties and interest) are simply too high to be ignored; particularly when #2 above can be employed for a modest cost.
Lastly, I doubt we will ever see this issue formalized in a IRS revenue ruling, procedure or notice remembering that doing so effectively ties the IRS’s hands almost forever. Secondly, I doubt that this issue is big enough in their eyes to warrant an official & public position. Thirdly, but potentially most important, I sense a conflict between the IRC and IRS on this issue; e.g. who stepping on whose toes?
TheBadger
wjstecker@wispertel.net
2004-08-11 16:47, By: TheBadger, IP: [66.250.23.21]

L2: Annual Recalculation Is Back With A VenganceFor Fuddy:
Although your comment concerning PLR’s is technically correct, many tax planning strategies and advice are based on PLR’s which were obtained by a different taxpayer. It is generally accepted to rely on these opinions when multiple rulings on one subject have been made which affirm the position of the IRS.
2004-08-17 16:34, By: Gary, IP: [24.145.164.87]

L2: Annual Recalculation Is Back With A VenganceIt’s true that PLRs only officially apply to the person or entity that filed them. But for how many years did we run SEPPsbased on existing PLRs? Does anyone have data showinghow many times the IRS hammered someone for following the PLRs?
Jim2004-08-17 16:44, By: Jim, IP: [68.230.162.247]

L2: Annual Recalculation Is Back With A VenganceThere are only 3 or 4 court cases on IRC 72(t)(2)(A)(iv) in the last 20 years. In every case the IRS won; however, every case was close to or absolutely frivolous; e.g. people assuming interest rates of 29% and similar crap.
Unfortunately, there are no statisitics anywhere to my knowledge that would even give us a clue as to how many taxpayers have just piad up the 10% penaly even though they thought they were rightfully taking SEPP distributions. Taxpayers rightfully following a group of PLRs would be a subset of this bigger group; unfortunately I have no clue as to how to get a handle on it. The only hint I can provide is that 2 of my clients (for whom I have written opinion letters) have been audited. Both passed when they presented the opinion letter to the IRS examiner.
Lastly, on the subject of reliance. Every PLR issued comes with the language “This letter ruling is directed only to the taxpayer that requested it. 6110(k)(3) of the IRC provides that it may not be used or cited by others as precedent”. This is the truth and a lie. It is true that 6110(k)(3) says “no precedent” however, there are a several exceptions that the IRS does not tell you about:
1. The IRS is required to rule fairly & consistently; that’s why I am hopeful when I see one PLR and it becomes a dead bang winner when I see three.
2. Only by being the submitter of a PLR and then seeing the ultimate ruling (most often affirmative) doesone get to see the areas where the IRS just does not want to go; most often because they have no provence; e.g. no authority as is the case in “intra-year” distribution frequency.
3. The rule of “no predence” only holds up in front of the IRS (and then only sometimes). Courts, either Tax or Federal are NOT obligated to follow these rules and most often do not; e.g. there are numerous cases where taxpayers havepresented multiple PLRs on a subject; the IRS motioned to have that evidence disregarded and the judge told the IRS to shove it.
TheBadger
2004-08-17 17:02, By: TheBadger, IP: [66.250.23.21]

L2: Annual Recalculation Is Back With A VenganceBadger, do you write opinion letters on annual recalculation on a SEPP using the amortization method and if so what do you charge? Thank you.2004-08-26 21:07, By: Garry, IP: [65.37.28.131]

L2: Annual Recalculation Is Back With A VenganceHello Garry:
Yes I do write opinion letters on annually recalculated SEPP plans. My fees are by the hour and dependent on the complexity of the particular facts & circumstances.
TheBadger
wjstecker@wispertel.net
2004-08-26 22:20, By: TheBadger, IP: [66.250.23.21]

L2: Annual Recalculation Is Back With A VenganceBadger, please give me a range on what you charge for an opinion letter on an annual recalculation SEPP relative to a PLR. I see that you gave a range of $3,000 to $8,000 for a PLR. Finally, are you a CPA or a tax attorney? Thank you.2004-08-27 13:33, By: Garry, IP: [65.37.28.131]

L2: Annual Recalculation Is Back With A VenganceHello Garry:
I think details are best left to individual correspondence. I will be happy to reply but I don’t know your email at this point.
William J. Stecker, CPA
(aka TheBadger)
wjstecker@wispertel.net
2004-08-27 13:45, By: TheBadger, IP: [66.250.23.21]