Broker Check

September 1, 1992

New York City Tax Rates Extended

          According to a measure passed by the New York State Legislature, the New York City personal income tax rates for resident individuals that were in effect for taxable years beginning 1991 are continued for taxable years beginning in 1992. This provision also applies to the city surcharge on residents.

          Remember this when Mayor Dinkins says he has lowered taxes (sure, he`s reduced the increase!)

Florida Tax Amnesty

          A three month tax amnesty program for in-state and out-of-state persons who owe undisclosed or undiscovered Florida taxes that were due before June 1, 1992 has been established. This program will be implemented on October 1, 1992 and the deadline by which eligible taxpayers must file returns or amended returns and pay amounts due is December 31, 1992. By complying with this deadline, taxpayers may avoid criminal prosecution and criminal penalties.

          The tax amnesty program will apply to all state revenue laws administered by the Department of Revenue, including property, estate, document excise, gross receipts, fuel, sales and use, income, emergency excise, and insurance premium taxes as well as the tax on oil and gas production and the severance tax on solid minerals.

          A taxpayer may participate in the amnesty program only upon signing an oath affirming that the prerequisites for program participation have been met, agreeing to pay the amount that the Department determines to be due and waiving any right to initiate administrative or judicial proceedings or to claim a refund of monies paid under the ammesty program.

We Win Another One in Tax Court

          For almost one and one half years we have been li.tigating in Tax Court and the goverment recently agreed to drop the case of Krutulis v. Commissioner on the grounds that the taxpayer was an innocent spouse. An innocent spouse case is particularly difficult to win since it depends upon individual facts and circumstances rather than case precedent.

Arab Boycott Update

          L.A. Gear pays $404,000 to settle the Boycott charges. The L.A. Gear case demonstrates that a company may do business with Israel while at the same time violating U.S. anti-boycott laws by its operations in an Arab country. L.A. Gear was asked in 1987 and again in 1990 by a customer in Kuwait to identify its manufacturers so that the customer could get two letters of credit approved by the Kuwaiti Boycott Office. In reply L.A. Gear listed the names of 22 manufacturers. The U.S. Office of Anti Boycott Compliance argued that by submitting such a list, L.A. Gear implicitly agreed to cease business with those manufacturers for whom letters of credit could not be approved.

          If your company is contemplating doing business in the Arab world, consult your attorney before filling out any forms.

Can Deferred Compensation Plans Help Defray College Expenses?

          A deferred compensation plan, with its inherent flexibility remains one of the most attractive fringe benefits an employer can make available. From the employee`s perspective, deferred compensation plans offer the potential of increased retirement income without current taxation for amounts employers set aside to fund the plan informally. The fact that these plans can also provide substantial pre-retirement benefits serves to increase their attractiveness. If a plan is to achieve maximum effectiveness, certain steps should be followed to prevent the employee from being taxed currently on amounts deposited into the plan. An improperly drafted plan may allow the IRS to argue that the executive is in "constructive receipt" of funds informally allocated to pay for future benefits. To prevent this occurrence, planners strive to make the payment of benefits contingent upon the performance of services by the employee until retirement.

          Despite these requirements deferred compensation plans can offer what are sometimes referred to as "in-service distributions` to employees before they retire. Since it is not uncommon for employees to experience a short-term need to access cash for college tuition or unexpected medical expenses, the issue becomes focused.

          Some plans give the employee the option of receiving in-service distributions when the employee joins the plan. Other plans require the employee to file a written application with the plan`s administrators, and condition the distribution on the employee furnishing proof that the distribution is for "a financial hardship`.

          The IRS has recently privately ruled that in-service distributions in the event of "severe financial hardship" do not violate the "constructive receipt" rules.

          If you believe you have financial needs and that your plan might allow such distributions we are available to review the plan and advise both you and your company on the possible tax ramifications.

          If you have any questions about these or other financial matters, please call me.