Attempt to avoid tax on repaying loan backfires

Article Abstract:

The trustee of a qualified plan failed in his bid to treat his loan from the plan as uncollectible. At the time the plan was terminated, his loan had then amounted to $180,000. The taxpayer claimed that the amount can be considered as cancellation of debt income because the notes confirming the loan were not enforceable under the local law since the statute of limitations had run. He argued that the amount was excludable from income under Sec. 108 because he was not solvent at this time. However, the court discovered that he was actually solvent, thus making the income taxable. Furthermore, it rejected the taxpayer's stance that the loan was not collectible, instead reiterating that the loan extinguishment was indeed a taxable distribution from a qualified plan. In addition, he was fined with 15% tax on excess distributions because the loan went over $150,000. He narrowly avoided ERISA liabilities but was still penalized for negligence.

Qualified benefit plans, Loan servicing

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Using insurance trusts to increase unified credit, avoid kiddie tax, and fund education

Article Abstract:

The Tax Reform Act of 1986 permits a married couple to gain significant estate tax benefits and cut the cost of private education by establishing irrevocable insurance trusts. An example is presented in which a husband and wife increase their unified credit equivalent from $1.2 million to $2.2 million through a spousal insurance trust. A second type of irrevocable life insurance trust is also described: a 'grandchildren's' insurance trust, in which a married couple invests in life insurance for their children or grandchildren. It is irrelevant for tax purposes who owns life insurance policies when both spouses leave all their property to each other.

Life insurance trusts

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Wash sale rules are extended to option losses but planning can avoid the deferral

Article Abstract:

The Technical and Miscellaneous Revenue Act of 1988 set down rules for the treatment of wash sales. The 61-day rules states that if taxpayers sell stock at a loss, and wish to write off the loss on their taxes, they cannot purchase a substantially identical stock within 30 days before or after the sale. Short sales, and 'in the money' put options are also included in the rule. Security dealers and straddles are exempt.

Securities, Securities taxes

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