Broker Check

                                                                                                               April 30, 2005


Supreme Court Confirms IRA Bankruptcy Exemption

            Resolving a conflict among the Circuits, the Supreme Court has held that traditional Individual Retirement Accounts can qualify for bankruptcy exemption under the federal exemption statute.  The Court reversed a contrary holding by the Eighth Circuit which had created a split with the Second, Fifth, Sixth and Ninth Circuits, all of which had allowed bankruptcy exemptions for IRA’s

            To meet the Federal bankruptcy exemption, a debtor’s right to receive payment must meet three requirements:

1.      it must be from a pension, annuity, or “similar plan or contract”

2.      it must be “on account of” illness, disability, death, age, or length of service, and

3.      if the foregoing requirements are met, it is exempted only to the extent that it is reasonably necessary for the support of the debtor or a dependent of the debtor.

The two issues in the case were the “on account of” test and the “similar plan or contract” test.  The Court stated the right to payment from an IRA was causally connected to their age.  The Court also held the 10% early withdrawal penalty tax to be substantial.  Because the tax is removed when the debtor becomes 59 ½, the Court included that an account holder’s right to his IRA balance is a right to payment “on account of age”.  The Court also held the IRAs to be “similar plans or contracts” to stock bonus, pension, profit-sharing, annuity plans or contracts and not deferred compensation.

            Now that IRAs have the same bankruptcy protection as pension or profit-sharing plans, taxpayers may want to consider consolidating their Keoghs, profit sharing, pension, traditional IRAs and SEP-IRAs without losing their bankruptcy protection in order to save on annual maintenance fees for the underlying brokerage accounts.  If you want to consider this, please call Howard Lisch to find out the other relevant considerations, including tax matters and spousal protection issues which may be involved. Rousey v. Jacoway 95 AFTR 2d (2005 S.CT)

            Howard Lisch is also a Registered Representative and Registered Investment Advisor and can handle the consolidation technicalities for you.


IRS Targets Tax Cheating

            After having concluded 46,000 compliance examinations the IRS has determined the areas targeted for increased audits die to perceived tax cheating.  They will consist of:

1.      Self employed, especially those working in the underground economy or inflating their deductions

2.      Partnerships and S-corporations

3.      Employees who earn tips

4.      Gamblers

Additionally, the K-1 document matching program will be expanded. Kiplinger Tax Letter 4/8/05


New York Can Tax Telecommuters

            The New York State Court of Appeals upheld an assessment on a telecommuter who lived in a state with no income tax who took a job with a New York company.  He worked mainly from his home office but spent 25% of his time in New York, handling projects.  He filed a New York tax return and allocated 25% of his salary there.  According to the Court, New York can tax 100% of the salary.  The Court held the employee worked out of state for his own convenience, not because he was required by his employer to do so.  Additionally, by working 25% of his time in New York, he had enough of a connection to all the state to tax all of his pay. Kiplinger Tax Letter 4/8/05

            If you feel you may be in such a position or are contemplating such an arrangement, please call Howard Lisch for a consultation of your potential for tax liability and how to avoid that tax liability.


WOW! What a Season!

            First, it was four days in the hospital for me.  Then, it was a very slow start in January and February due to a foul up by New York City’s Department of Education in issuing incorrect W-2s that caused many of you to delay seeing me until you had a correct W-2.  We also began our program as the official retirement counselor to the NYC Correction Captains and Local 246 of SEIU, which also consumed some valuable tax season hours.  Next, it was a second visit to the hospital in the beginning of March.  These resulted in a horrendous and packed March and April such that there were not enough hours in the day (14-16) for March and April nor enough days at 7 days a week for 6 weeks to accommodate all of our clients.  This has not happened in over 15 years.

            Nobody who was offered a choice of meeting with our other CPA chose that option.

            We thank all of you who requested to be put on extension instead of burdening an already overtaxed organization.

            Many thanks to the extra hours put in by Audrey, Charmaine and Steve in order to make this another successful tax season.

            And, I am healthy again.

            If you have any questions about the foregoing or any other financial matters, please call us.  If you want to read more, visit the AOHL Newsletter Archives at


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