Rate options for 72t lasting more than 9 years

L1: Rate options for 72t lasting more than 9 yearsIf the required period for your 72t will exceed 9 years, do you have the option of using the federal long-term rate vs. the federal mid-term rate – since long-term is referred to as 9 years ?
Thanks for creating this site, it is wonderfu!!! And thanks for your prompt response!!!2003-06-11 22:50, By: tricia, IP: [127.0.0.1]

L2: Rate options for 72t lasting more than 9 yearsNo. Revenue Ruling 2002-62 is very explicit about using 120% of the mid-term rate as a maximum.

The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with 1274(d) for either of the two months immediately preceding the month in which the distribution begins). 2003-06-12 04:58, By: Gfw, IP: [127.0.0.1]

L2: Rate options for 72t lasting more than 9 yearsHello tricia:
Gordon is 100% correct; at the moment, one is limited to 120% of the mid-term AFR irrespective of age or program duration. However, I would like to tackle this issue from a theoretical perspective for a moment.
1. Does the IRS have the right or obligation to issue the AFRs each month? Absolutely yes. In fact they are statutorily mandated by Congress.
2. Does the IRS have the right or obligation to issue a revenue ruling on the mechanics of IRC 72(t)? Again, absolutely yes. Therefore, unitil such time as there is contrary authority, we all need to accept the ruling as the law of the land.
3. Does the IRS have the right or obligation to limit interest rate assumptions, for use in 72(t) or another 100 places where interest rates are important in the Code? Again, yes. However, I have (2) buts:
A. In all other cases, to the best of my knowledge, the application of an AFR is both: statutorily mandated; e.g. Congress wrote it into the Code; and, the interest rate becomes a valuation / pricing component; e.g. valuation of a remainderman interest in charitable gift trust, etc.
B. Most other AFR applications in valuation of assets & dedcutions are a function of time; e.g. different AFRs get used depending on the time duration of a contract or some other event. In the case of 72(t) the AFRs are used differently to represent a right-handed or one-tail test; e.g. a ceiling.
(A) & (B) above cause me to ponder: did the IRS potentially overstep its bounds in this case.On the one hand, the IRS solved the old “not unreasonable interest rate on the date payments commenced” problem. This old language left the field of available interest rates wide open and almost unchallengable when a taxpayer got overly aggressive. On the other hand, the current language seems overly restrictive with numbers in the 3% to4% range.
In summary, Isuspect the interest rate ceiling is challengable and winable particularly for younger taxpayers wholonger plan durations in the 10 – 20 year range.
TheBadger
wjstecker@wispertel.net

2003-06-12 09:42, By: TheBadger, IP: [127.0.0.1]