Masonry Magazine July 1969 Page. 16
TAXES
By MIRIAM McD. MILLER
NEW FORMS FOR 1969
The IRS has announced that for 1969 tax returns a new Form 1040 will be used. There will no longer be Form 1040(A), the short form return. One of the reasons for this is that the use of the short form has dropped off considerably in the last few years. In 1967, only 27% of the taxpayers used the short form.
The new Form 1040 is to be a basic one page form. Then, there will be about 9 other schedules that may be added to the taxpayer's return if he needs them.
On a separate page, and with more space than before, will be Schedule A for itemized deductions. Schedule B will be a separate page for listing dividends and interest. Schedule C is for business or self-employment; D for gains and losses from sales or exchanges of property; E for reporting various types of miscellaneous income, such as from pension, rents, royalties, partnerships, etc.; F for farming income; G for income averaging: R for claiming the retirement income credit and T will be for tax computations usually used as a worksheet only and not filed.
The IRS estimated that almost half of the individuals filing for 1969 will need only the one-page Form 1040, while the remaining half will require varying numbers of the other schedules.
REVENUE ACT OF 1969
Some of the members of the House Ways and Means Committee believe that the Revenue Act of 1969 will be enacted into law before Labor Day, September 1, 1969. Primarily the law would concern tax treatment of private foundations, charitable contributions, farm losses and conglomerate mergers.
One measure in the law that would affect many taxpayers is that on moving expenses. It is expected that the definition of moving expenses will be enlarged to include expenses for pre-move house-hunting trips, temporary living expenses at the new job, expenses related to the sale of the former residence. The total deduction would be limited to $2500 of which house-hunting trips and living expenses could not exceed $1000.
RETIREMENT PLANS
What is the fate of the established H.R. 10 plan in an unincorporated business when, as so often happens, the owner decides that he wants to incorporate? What happens to the assets of the H.R. 10 Plan? May they be transferred over to a newly established corporate plan? The answer is NO at least not without undesirable tax consequences. Very likely an attempt to transfer the assets of an H.R. 10 plan into a corporate plan would result not only in the disqualification of the H.R. 10 plan but possibly of the new corporate plan as well.
There are so many advantages from an owner's point of view with a corporate retirement plan, that this factor may weigh heavily upon his decision to incorporate. Under a corporate plan there is no dollar limit on contributions and deductions. There is no requirement for immediate and full vesting of contributions made on behalf of covered employees. Also, some employees who have to be covered under an H.R. 10 plan need not be included in a corporate plan.
The requirements of an H.R. 10 plan-such as those for immediate and full vesting, which creates the necessity for the continuing segregation of each participant's interest in the funds do not cease to exist should the business incorporate. Also, there is the matter of the rules concerning the timing of distributions for owners and the ineligibility of owners for capital gains treatment on lump-sum distribution. A transfer of funds would very likely be viewed by the IRS as premature distribution to the owners with a resultant tax penalty.
If it would not be wise to transfer the assets of an established H.R. 10 plan to another plan, what course should be followed when a business incorporates? Two possible solutions are recommended-the H.R. 10 plan can be frozen or it can be terminated with the assets distributed to the participants.
If the plan is frozen it will continue in existence but contributions to it will cease. The earnings of the fund would continue to be tax exempt. The owner-participant could not withdraw his benefits until he reaches the age of 591½ or has a disability at an earlier age. The other employees would be entitled to benefits according to the terms of the plan.
Should the decision be made to terminate the plan and distribute the assets, the regular employees would get capital gains treatment of the lump sum payment. The employees could be given the choice of taking their distributions in the form of immediate or deferred annuity contracts or retirement bonds. Also, under this form of termination, an owner under the age of 5912 years can escape a tax penalty only by taking the termination distributions in the form of of a nontransferable deferred annuity paying no benefits before the age of 59½ or in the form of a U.S. Government retirement bond. Com. Cl. House, June '69.
DUTY TO WITHHOLD
The following case involved a wife who became the executrix of her husband's estate and then failed to see to it that certain withholding and other employment taxes were paid and she was held subject to a 100% penalty assessment.
The taxpayer's husband loaned a Country Club, that was in financial difficulties, some $35,000. As part of the deal he subsequently handled all fiscal matters for the Club. Two years later he died. His wife was his sole beneficiary and independent executrix under his will. The taxpayer-widow then employed an attorney and a certified public accountant to help handle the estate's business.
Because of the fact that the withholding and other employment taxes were not paid for four quarters following the taxpayer's husband's death, the IRS levied a 100% penalty assessment against the taxpayer.
The taxpayer argued that he had delegated the purse-string authority to her attorney and accountant prior to the time that these obligations arose and was therefore not liable.
(Continued on page 36)
masonry July, 1969