Masonry Magazine March 1974 Page. 21
TAXES
By MIRIAM McD. MILLER
TAX RETURNS
If you filed your tax return in January, you should have received any requested refund by now. Refunds requested on returns filed after February 1st will not be processed from six to eight weeks.
Should you not be one of those lucky taxpayers who is entitled to a refund and must instead send a check to accompany your return, be sure to identify your check. The IRS recommends that the taxpayer's Social Security number be written on every check sent to pay taxes. The purpose of the check payment could also be noted on the face of the check, e.g., "Ist Qtr. 74, Est. Tax." Should a check become separated from a return, then the chances of its being properly attributed to the right taxpayer's account are greatly increased when such identifying notations are made.
Waiting until the April 15th deadline does not mean, the IRS assures taxpayers, that a return will get less attention due to the volume of returns being sent in around that time. All returns go through the same processing at service centers. The IRS selects returns for audit by means of a computer program of classifying returns and ranking them by error potential. The returns which have the highest probability of error are the ones selected for audit.
CAR POOLING
The Emergency Highway Energy Conservation Act was passed on January 2, 1974. One of its provisions, which should be of particular interest to both employers and employees, authorizes a study to explore means of increasing car pools in urban areas. IRS is a participant in this study and it is likely that some sort of tax-incentive will be offered to try to increase the use of car pools in job commuting.
MEDICAL INSURANCE
A taxpayer had an insurance policy which contained features of health insurance and benefits for loss of life. The insurance contract did not state the charge attributable to the health insurance feature. The taxpayer received no separate statement of the amount of the premiums paid as deductible health care insurance on his income tax return.
The Tax Court ruled that the taxpayer could not treat portions of his premiums paid as deductible health care insurance on his income tax return. Amounts paid for medical care insurance must be separately stated. (Tratner v. Commissioner, T.C. Memo 1974-8.)
WINTER CASUALTIES
The Internal Revenue laws permit taxpayers to make a deduction for non-business losses that result from storm or other casualty, to the extent the loss exceeds $100 for each casualty. According to the IRS, a casualty is the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected or unusual nature. Damage and losses resulting from snow, freezing, flooding and electrical blackouts have been allowed. Of course, the burden is on the taxpayer to prove that the event occurred and that a loss was sustained.
EMPLOYEES PLAN
A corporation established a pension plan to which both employer and employees contributed. According to the terms of the plan the employees were required to contribute an amount equal to 5% of their total current compensation. However, the plan also allowed an employee to make voluntary contributions of up to 5% of such compensation.
A further provision of the plan, and the one presented to the IRS for determination as to its disqualifying effect, concerned the following: the plan provided that if in any year a participant does not make the required contribution, the trustee will transfer funds from the participant's voluntary-contribution account in order to make the required contribution on his behalf.
The IRS ruled that this provision for transferring funds from the employee's voluntary account to his required account would not cause the plan to fail to qualify. The IRS explained that the voluntary-contribution account was merely intended to increase the employee's deferred compensation. Should an employee desire he could withdraw the amount in his voluntary contribution account and take the money himself. He could also withdraw the money and make the required deposit to the fund himself.
However, the IRS did point out that any amount transferred from the voluntary contribution account to the required account is, in effect, a distribution. Therefore, when this occurs it is necessary for the employee to report this amount as income to him in the year that the transfer is made. (Rev. Rul. 73-581.)
TRUST LOAN
An exempt employee's trust made a loan to the employer-creator of the trust. The loan was evidenced by a note bearing a reasonable rate of interest. It was secured by a deed of trust on real property owned by the employer corporation. However, the deed of trust was not recorded.
The law of the state in which the real property is located and in which the transaction occurred provides that a deed of trust is not valid as against any class of persons with any kind of rights (except between the parties thereto) until the time such deed of trust is recorded. The advice of the IRS was sought to determine whether such a loan would be regarded as a prohibited transaction within the meaning of section 503(b) (1) of the Code.
Section 503(b) (1) includes as a "prohibited transaction" any transaction in which a qualified employee's trust lends any part of its income or corpus, without receipt of adequate security and a reasonable rate of interest, to the employer-grantor of the trust.
The IRS advised that the rights of intervening third parties without knowledge of the unrecorded security may weaken the value of such security. Therefore, it was the decision of the IRS that the unrecorded deed of trust did not constitute adequate security for the loan. Thus the (Please turn page)