Restoration to plan for derivatives losses not 415(c) addition

Article Abstract:

Ltr. Rul. 9506048 provides clarifications regarding the status of a restoration payment made by investment managers to a defined contribution plan. The restoration payment, which consists of interests and principal losses incurred by the fund as a result of investments on derivatives, was made by the managers to deal with existing and potential claims of breach of fiduciary duty. The losses incurred in each account of each participant were restored through the payment, which was based on actual losses and not on compensation. The IRS declared that the payment was not a contribution and therefore does not warrant an annual addition under Sec. 415. Moreover, it found that it did not violate anti-discrimination rules of Sec. 401(a)(4). Participants consequently did not receive taxable income.

Derivatives (Financial instruments), Investment advisers, Defined contribution plans

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Maximizing pre-change losses after a corporate sale

Article Abstract:

Sections 382 and 384 limit the amount of income that can be sheltered with pre-change losses annually after a change in corporate ownership. The recognition of pre-change NOLs and built-in losses may be increased through ordering rules provided by Section 282 (1)(2) and allocation elections. Sequencing for loss utilization must be well planned in order to make carryforward limits less burdensome.

Laws, regulations and rules, Business sale, Business losses, Carryforward losses, Carryover losses

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