L K Williams wrote:

- quote -

Since the simplified method applies to monthly payments
separately, he is entitled to the 16.5 x the exclusion
factor.

Look for the "easy button" in your software, IOW,
override! Override either the "12" or the amount incorrectly
calculated.

ChEAr$,
Harlan Lunsford, EA n LA

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Arthur Kamlet wrote:

- quote -

HEY! You're right. And while we're at it, what about the U
S Postal Service? and Department of State?

ChEAr$,
Harlan

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Harlan Lunsford <hlunsford[at]bellsouth.net> wrote:

- quote -

In the case I was referring to in my original post, my
client's annuity starting date, as far as the employer was
concerned, was in August 2004, which was his last day of
employment.. His employer was an agency of the UN, which is
an organization with as much bureaucratic rules and
regulations as any government -- including the US. It took
them until January 2005 to figure out how much his monthly
pension would be. In part, this was because there was a
lump-sum distribution of his contributions into the plan.

Thus, the true starting date was something like August 15,
2004. However, for the purposes of the simplified method,
the annuity starting date is the date when the first regular
periodic payment is received. My client received everything
he was due from August to January in a check at the end of
January. His first MONTHLY payment was received in
February; ergo, his annuity starting date for calculating
the non-taxable portion was February 1.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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- quote -

Next thing you know, you'll want SSA and RRB to start using
IRS forms.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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L K Williams wrote:

- quote -

In the case of U S civil service at least, the annuity
starting date is always the day right after retirement.
It's the service itself that's just slow in calculations.

However let it be said that these days, unlike those of old,
the USPO (U S Personnel office) actually calculates the
exclusion and gives the two pertinant figures, gross and
taxable on the 1099R form, a form whose layout is like no
other. They should at least use IRS forms! (grin)

ChEAr$,
Harlan Lunsford, EA n LA

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"A.G. Kalman" <glendale202-mtmtax[at]yahoo.com> wrote:
- quote -

Because it is not periodic!

The simplified method uses the number of months FOR which
payments were received during the year. According to Pub
575, the "catch-up" payments are not periodic -- which they
are not, they are a lump-sum. To qualify for determination
using the simplified method, payments must be received in
equal, periodic payments.

The IRS rules specifically state that any such "catch-up"
payments are to be considered as a lump-sum received before
the annuity starting date.

For this purpose there are really two annuity starting
dates. First, is the starting date being used by the payor.
This is the date that the persioner is first eligible to
receive payments and from which date the amounts due him/her
are calculated. Since this may take some time to determine,
the actual monthly payments will start at some later date.
For purposes of the simplifed method, this latter date is
considered the annuity starting date.

In the case of the client I was discussing in my original
post, the annuity is being paid by a UN organization
headquarted in Canada. He left his position in August 2004
and he was entitled to payments from that time. But, since
the processing involved the organizations headquarters in
Canada and UN headquarters in NY, he didn't actually receive
any money until February 2005. On February 1, he received a
single check paying all benefits due from 8/15/04 to
1/31/05. Then, on March 1, he received the first of the
regular, monthly payments.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Harlan Lunsford <hlunsford[at]bellsouth.net> wrote:
- quote -

Try reading Pub 575, pages 14 and 15. The instructions
there are quite clear - a lump-sum to cover retroactive
payments cannot be part of the simplified method. However,
in the case you cited, the pensioner only received 12 (or
24) payments during the year. In the cases discussed in Pub
575, the pensioner is receiving more than 12 montsh of
payments. In such cases, the retroactive portion is
considered a lump-sum received before the annuity starting
date.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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L K Williams wrote:
- quote -

If the annuity start date was supposed to be 2004 and for
some reason beyond the control of the annuitant, the
payments were not made until 2005, why wouldn't you consider
this a corrective distribution and therefore not a
nonperiodic payment?

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L K Williams wrote:

- quote -

Well, once the factor is determined for monthly payments,
it is applied to the payments received during the tax year,
be they monthly, biweekly or semi monthly. Say the factor
is 240, and annuitant is paid semi monthly. We would then
use a factor of 480.

- quote -

Disagree. My wife just retired from US civil service 12/31.
She received interim estimated payments for Jan and Feb,
the way all civil service annuitants receive them, then
first regular payment came for March. In any event, it all
evens out in the annual calculation using her factor.

Now if for some reason her paperwork had been delayed, and
she got one lump sum in March for three months, that would
have been for those three months, and an excludable amount
duly calculated.

- quote -

But I think we agree on this point anyway.

ChEAr$,
Harlan

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"A.G. Kalman" <glendale202-mtmtax[at]yahoo.com> wrote:
- quote -

Thanks for the response, A G, I appreciate the help.

In the meantime, I've been doing some research on my own and
think I've found my answer. In case anyone else has a
similar situation, I thought I would post what I learned.

In the simplified method, you cannot have more than 12
payments because the method only applies to payments FOR the
tax year. Only payments received in the form of an annuity
can be counted. And, to be an annuity, the payments must be
in EQUAL, periodic amounts.

If the annuitant receives a sum to cover retroactively due
payments, this is to be treated as a lump-sum received
before the annuity starting date. For this purpose, the
starting date is the date the first periodic payment is
received, not the date the person became eligible to receive
payments.

Thus, the retroactive payment must be treated as a lump-sum
payment and the tax-free portion determined under the rules
for such payments. This reduces the contract balance for use
in the simplified method for the monthly payments.

See 14 and 15 of Pub 575 for more detail.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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L K Williams wrote:

- quote -

First off, I believe the "annuity starting date" is defined
as the period when you get your first payment. So, in this
case, 2004 is irrelevant if no payments were received. The
simplified method uses the exact number of payments made in
the year. I use ATX software and it accepts a number other
than 12 in the payments box. It does round a partial month
up.

LK copied to expedite.

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I have a client whose pension start date was in 2004 but who
did not receive any payments until 2005. As a result, he
received 16.5 payments this year. However, my software
calculated the non-taxable portion using only 12 payments,
resulting in a greater taxable portion. The software
developers say that the simplified method is for payments
"FOR" this year, received this year. Is this the correct
interpretation of the rules?

Or, does the fact that he received more than 12 payments
mean that he is not eligible to use the simplified method?

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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