Monthly vs. Annual – Semantics or Not?

L1: Monthly vs. Annual – Semantics or Not?I once was found,but now I’m lost. I’m a bit confused about monthly versus annual distributions.
I have always understood the following: it’s fine to calculate an annual72(t) distribution amount and divide that amount by 12 to determine the monthly distribution (using 120% of annual federal mid-term AFR and annuitization method). I also thought it was valid to make a “catch-up” distribution in the first distribution year where distributions commence mid-year.
For example: taxpayer calculates an annual 72(t) distribution of $12,000, or $1,000 monthly. Taxpayer starts first monthly distribution of $1,000 in July. Taxpayer also take a “catch-up” distribution in July of that same year for $6,000 (the $1,000 monthly x the first 6 months of the year). Total distributions for the tax year would be $12,000, as it would be in all subsequent years, except for perhaps the final distribution year.
Gregory Kolojeski commented in his article in Ed Slott’s July newsletter that “informal consultation with the IRS has also resulted in the expressed opinion that payment of a full twelve months distribution amount in a short first year would be a clear violation of the “substantially equal periodic payments” requirement for the fixed amortization and fixed annuitization methods.” He goes on to state that “there is consdierable authority that 72(t) payments more frequent than annual should and must total less than a full year’s payments for a first (and last) short year when the fixed amortization and fixed annuitzation methods are used.”
Admittedly, I may be missing a piece of the puzzle here, but Gregory’s comments seem to be in direct contradiction to statements made by Mr. 72(t) himself, GFW, in his August article in Mr. Slott’s newsletter in Q&A #2 (unless, of course, Gordon was not referring to “short first years”).
Anyone willing to take a shot at clearing up my confusion? Thanks.
Scott
p.s. Thanks for all the great information over the years, Gordon!2004-08-04 12:19, By: BarbeeFP, IP: [161.15.50.2]

L2: Monthly vs. Annual – Semantics or Not?Hello Barbee:
I think this issue is pafrt semantics and part not. Suppose a taxpayer commences a monthy distribution plan, just as you suggest and proceeds to take $6k in 2004, $12k in 2005…..until the end. Obviously, no problem. Next, suppose the taxpayer makes the $6k catch-up in the fall of 2004 in order to get to $12k for 2004. The catch-up looks like a change/modification to a “MONTHLY” distribution plan; simply becuase the plan was defined as monthly.
Who defined the plan? Why would a taxpayer do such a (stupid) thing? Instead I suggest that intra-year distribution frequency never be mentioned in a plan. IRC 72(t)(2)(A)(iv) is pretty explicit. It says “not less frequently than annually”. This creates a one-sided test — a mimimum of one distribution per calendar year. Further, since enactment (about 20 years ago) plus the committee reports plus all of the official pronouncements from the IRS make it pretty clear; the IRS HAS NO PERVIEW in what a taxpayer does on an intra-year basis; he may make 1, 2, 12, 0r 79 distributions as long as the sum of the distributions total to the correct amount.
Asa result, I suugest that intra-year distribution frequenct never be mentioned.Some might construe such a mention (presumably in writing) as binding on the taxpayer.
TheBadger
wjstecker@wispertel.net
2004-08-04 12:31, By: TheBadger, IP: [66.250.23.21]