Masonry Magazine January 1971 Page.96
Taxes
(Continued from page 33) most often determinative of the courts' decisions in this area.
AFTER DEATH BENEFITS
How do the employment tax laws apply to death benefits paid to the beneficiaries and estates of deceased employees and also to other amounts representing regular compensation that was earned immediately preceding death but unpaid at the time of death? The sort of death benefits in question are those that are paid under a plan established by the employer for all employees.
The IRS has expressed its position on both types of payments. So far as the collection of income tax or withholding is concerned these benefit payments made to beneficiaries of deceased employees as well as payments representing unpaid compensation for services rendered by the deceased employee are not wages.
However, this is not the case for purposes of FICA and FUTA taxes so far as the earned but unpaid compensation is concerned. On this amount both the Federal Insurance Contributions Act and the Federal Unemployment Tax Act apply. On the death benefits paid under a plan established by an employer these amounts are not subject to be taxed under either the FICA or FUTA, Rev. Rul. 71-456.
EMPLOYEE PLANS
Loan to Participant. An employee's noncontributory money purchase pension plan contained a provision that two-year loans may be made by the trustee to the participants. The only security to be used for any such loans is the vested portion of the participants' account. It was also provided that if any loan, or portion thereof, were not repaid within the two-year period the amount thereof and the interest thereon is then to be deducted from the account of the participant.
The IRS was asked if this loan provision would cause the plan to be disqualified. The IRS ruled, in effect, that an employee plan can allow adequately secured loans to be made to the participants and still be fully qualified. However, the problem in this plan was the provision that if any portion of a loan were not repaid within a two-year period, the amount thereof (and the interest) is then to be deducted from the account of the participant.
This latter provision was regarded by the IRS as a plan that permits distributions of employer contributions or increments thereof prior to severance of employment or termination of the plan. As it has been the firm opinion of the IRS that a pension plan does not qualify if it permits distributions of the employer's contributions or increments thereon prior to severance of employment or termination of the plan, this plan was held to be disqualified. Rev. Rul. 71-437.
Loan to a Union. A pension trust was established under an agreement between an association of employers and a union. The plan was adopted by several employers and was administered by a board composed equally of employer and union representatives. The union did not adopt the plan for the benefit of its own employees.
This particular trust came to the attention of the IRS because of a loan made by the trust to the union. The union constructed a headquarters building and needed additional financing which it obtained through a loan from the trust. (Continued on page 59)
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