RESTORATIVE PAYMENT TO IRA ALLOWED

The Internal Revenue Code has strict limitations on amounts that may contributed to an individual retirement account ("IRA"). In a recent Private Letter Ruling, the IRS characterized a contribution to an IRA with funds received from an investment advisor for indemnification of investment losses in an IRA as restorative payments and not "contributions" subject to contribution limits. In allowing for this treatment, the IRS applied the reasoning of Revenue Ruling 2002-45 which allowed similar treatment for qualified plans.

So when will a transfer of funds to an IRA constitute a qualified "restorative" payment? According to the Private Letter Ruling, payments to an IRA are restorative payments only if the payments are made in order to restore some or all of the IRA losses resulting from breach of fiduciary duty, fraud or federal or state securities violations (such as payments made pursuant to a court-approved settlement or independent third party arbitration or mediation award.) In contrast, payments made to an IRA to make up for losses due to market fluctuations or poor investment returns are generally treated as contributions and not as restorative payments.

PLR 200705031

MERE CONFLICT NOT ENOUGH TO DENY APPOINTMENT OF PERSONAL REPRESENTATIVE [FLORIDA]

Under Florida law, an individual may appoint a Personal Representative ("PR") in their Last Will. Such appointment is to be given significant deference by the probate court when the individual dies and a PR is appointed.

A recent Florida case addresses the issue of what happens if the person designated PR in the Last Will has a conflict with estate beneficiaries. In the case, the designated PR was a brother of another estate beneficiary. The probate court noted that the designated PR and the beneficiary were fighting over some estate issues, and instead appointed an unrelated attorney to serve as PR. The designated PR appealed the ruling.

The complaining beneficiary alleged that the designated PR had the original Last Will and had taken too long to act upon it, and was thus delaying the administration of the estate. He also alleged that the designated PR had withdrawn more funds than he was entitled to from an account, but the probate court did not agree as to that.

The appellate court noted that the mere presence of a conflict between a named PR and beneficiaries is not enough to deny the appointment, and it reversed the probate court and directed that the brother be apopinted as PR. However, this does not mean that in no case will a conflict disallow a named PR from serving. If the named PR has actual hostility towards a beneficiary, or if a dispute will cause unnecessary litigation and impede the estate's administration and other exceptional circumstances exist, a probate court could name another person to serve.

ANGEL RUBEN LOPEZ HERNANDEZ, Appellant, v. ANGEL RAUL LOPEZ HERNANDEZ, ET AL., Appellee. 5th District. Case No. 5D06-1230. Opinion filed January 19, 2007.

WHY APRIL 17?

Pretty much everyone knows that federal income tax returns are usually due on April 15, unless that day is on a weekend. This year, April 15 is on Sunday, but returns are not due until April 17. How come?

April 16 is Emancipation Day, a legal holiday in the District of Columbia. Under a federal statute enacted decades ago, holidays observed in the District of Columbia have impact nationwide on tax issues, not just in D.C. Thus, the whole country gets until the 17th to file their returns.

IR-2007-15, Jan. 24, 2007