REGS, IRS RULINGS & PRONOUNCEMENTS — June 2002

Final Regs. governing required minimum distributions (RMDs) from qualified plans and IRAs adopt, in modified form, the simplified rules proposed in 2001. Among them: (i) new tables of life expectancies for calculating RMDs; (ii) a new date for determining the designated beneficiary: September 30th (rather than December 30th) of the year following the year of the participant’s death; and (iii) a new requirement that a beneficiary’s disclaimer comply with the disclaimer rules of IRC § 2518. T.D. 8987, 67 Fed. Reg. 18987 (4/17/02).

Expenses for a weight-loss program (but not diet food) are deductible as a medical expense if incurred pursuant to a doctor’s direction to lose weight or to treat disease. Rev. Proc. 2002-19.

A deemed sale of capital assets pursuant to § 311(e) will not be treated as a disposition of the taxpayer’s entire interest in a passive activity. Notice 2002-29.

The Industry Issue Resolution (IIR) program has been made permanent and expanded to include small businesses and self-employed individuals. Submissions for guidance should describe the issue and the number of taxpayers affected. If material issues are present, and tax uncertainty involves a significant number of taxpayers, the Service may issue a revenue ruling,  revenue procedure, or other guidance. Notice 2002-20.

Employers maintaining various fringe benefit plans, such as cafeteria plans under IRC §125 or educational assistance programs under §127 are no longer required to file annual information returns (Schedule F) attached to a completed Form 5500 pursuant to IRC § 6039D. Notice 2002-24.

A grantor’s power to replace an independent trustee will not render the gift to the trust incomplete and similarly, the reserved power will not result in inclusion of the trust property in the grantor’s estate under IRC § 2038. PLR 200213013.

Former spouse who was custodial parent was entitled to claim exemption notwithstanding court order granting taxpayer such right. Presumption under IRC §152(e) is that custodial parent is providing over one-half of child’s support. A claim for exemption may be released under §152(e)(2), but Form 8332 must be executed by the releasor. FSA 200211004.

Rev. Proc. 2002-18 provides the terms for a change in accounting method imposed by IRS, while Rev. Proc. 2002-19 (modifying Rev. Proc. 2002-9) sets forth procedures for eligible taxpayers to obtain advance consent or automated consent to change a method of accounting.

Compensation of medical residents does not qualify for the FICA exception  for students, since residents are receiving “on-the-job-training” rather than incident to a course of study. CCA 2002212029.

IRS deputy associate chief counsel Lewis J. Fernandez, responding to a specific query from the ABA Tax Section, stated that businesses hurt by the 9/11 attacks may receive gifts from charities on a tax-free basis. However, the businesses may not deduct business expenses (e.g., payroll) to the extent allocable to the excluded gifts.

The IRS will no longer seek to tax in-kind benefits relating to the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.  Announcement 2002-18.

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