Booth v. Comr. - the Tax Court reins in runaway multiple-employer welfare plans

Article Abstract:

The Tax Court's ruling in the 1997 Booth case rejected the Prime plan, a product which used the 10-or-more employer plan exemption to set up small business severance pay trusts under IRC s. 419(f)(6), i.e, employer welfare plans. This use of aggregated trusts appealed to many small businesses and professional corporations as a way of getting around contribution limits set forth in IRC ss. 419 and 419A. The implications for deferred compensation arrangements, deductibility of whole life insurance premiums, and the future of nontraditional multi-employer welfare benefit trusts are discussed.

Employee benefits, Severance pay

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IRS revokes 1993 PLR on multiple employer rabbi trust funded with employer stock

Article Abstract:

IRS Private Letter Ruling 9609010 reverses portions of Private Letter Ruling 9235006, a ruling that has been questioned since its issuance in 1993. The 1993 ruling validated a rabbi trust formed by a controlled group to hold stock in the parent company for the benefit of executives of all members of the group. The IRS had found that the parent was the sole grantor and that no income would be recognized on the trust's purchases of stock or on dividends paid. The 1996 ruling finds that the parent is not the sole grantor and that dividends and gains and losses will result in income.

Taxation, Affiliated corporations, Dividends

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