Masonry Magazine January 1971 Page.121
MCAA Industry Tour of Spain
(Continued from page 26)
Forte, Mr. & Mrs. Joseph Bryan. Mr. & Mrs. B. A. Lybeck, Mr. & Mrs. Kenneth Thompson, Mr. & Mrs. Carpio Rivera, Mr. & Mrs. Thomas Terreri, Mr. & Mrs. Al Sapia, Mr. Jerry Ranke, Mr. & Mrs. John Kohring, Mr. & Mrs. Edward Morris, Mr. & Mrs. Donald Neil, Mr. & Mrs. F. Cheinlanza, Mr. & Mrs. R. Dubrul, Mr. & Mrs. P. Sparagna, Mr. & Mrs. James B. Sullivan, Jr., Mr. & Mrs. T. Nicoson, Mr. & Mrs. E. Pisacano, Mr. & Mrs. F. Jeanguenat. Mr. & Mrs. Edward Albaugh, Mr. & Mrs. Fred Spranza, Mr. & Mrs. James C. Tucker, and Mr. & Mrs. George Miller & Susic.
Taxes
(Continued from page 34).
Interest at the prevailing rate was paid on the loan and it was properly secured. However, Section 503(b) of the Internal Revenue Code prohibits any transaction to the creator of the trust, a person who has made a substantial contribution to the trust, or to a corporation controlled by such creator or person. The IRS ruled that the loan to the union is not a prohibited transaction such as those prohibited by Section 503(b). A union that negotiates on the terms of a pension plan or which is a representative on the board that administers the plan is not one of the parties specified in Section 503(b). Rev. Rul. 71-462.
H.R. 10 PLAN
A premature distribution of the benefits of an H.R. 10 plan is not only taxable income but is penalized at a higher than normal rate of tax. Also, in order to qualify as a self-employed individual's retirement plan, the retirement benefits may not be paid until the owner-employee reaches the age of 59½ or becomes permanently disabled. These are the ways in which the Federal Government protects its tax break from being abused. Because, as you know, retirement funds are protected in a double way. Deductions are granted employers for their contributions and the trust funds enjoy tax exemption.
However, employers must beware that without so intending they may cause a premature distribution and thus be penalized with a higher tax. This can happen when the funding of a plan is changed. In one Ruling involving an H.R. 10 plan, the taxpayer was an owner-employee under 59½ years and not disabled and he was also the only participant in the H.R. 10 plan. He funded the plan by taking out a nontransferable annuity.
Later on, the owner-employee created a new, second H.R. 10 plan (again with himself as the only participant) and established a bank as custodian of the assets under the terms of the plan. To get the funds for this new plan the taxpayer surrendered, for its cash surrender value, the annuity issued under the first plan. He immediately handed over to the bank as custodian the cash surrender value. But, by then, the IRS explained, he had already been the recipient of a premature distribution of an H.R. 10 plan and thus subject to the tax penalty. This was held to be so because when the taxpayer received the cash surrender value he received it without any limitation on its use. Thus, with this case as a warning, employers should take care when changing the method of funding an H.R. 10 plan that they avoid this pitfall by not letting the funds come into the hands of the owner-employee without any restrictions on its use.
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