Finance - HL 131 (2)

From: Jim Horan

Date: 6/10/2012 5:59:53 PM

To: 'Mark Sztanyo'

Subject: PCN Finance Item relating to 2007 Taxes

Hey Mark:

On June 3^rd I sent an email to Merrily Probst Whalen asking a few questions about my personal 2007 tax situation. Her reply is below. She said I could share with the PCN.

Apparently there is a one-year statute of limitations which restricts the IRS from coming after an individual who has received a successful ruling on a filing, in my case that was the 1040X and Form 843. I received the check for my 1040X filing at the end of May, 2011. My second appeal on the 843 filing was recently denied.

Merrily has been very generous with her time in fielding all the emails. And without any compensation, I might add.

I know there are only a handful of us who “went with Whalen” that turned out to be successful with our 1040X filing. And I know of only one pilot who was successful with his 843 filing (that info came from Jim Munton over a year ago).

If any of the PCN group has an idea about some type of group appeal, let’s hear about it.

Sincerely,

Jim

Jim Horan

P.O. Box 7480

2165B Saddle Ridge Loop

Avon, CO 81620

970-845-7922

From: Merrily Whalen [mailto:Merrily3@cox.net]
Sent: Saturday, June 09, 2012 10:57 AM
To: 'Jim Horan'
Subject: RE: A Few Questions

Jim,

You are out of the woods on your 1040X refund check, the statute is closed. The IRS is not going to be allowing any more Delta claims to be paid. The CP21B is the number of the form letter that the IRS uses. If they know the letter (when you would call) they then know what it says.

As you have probably found out, the IRS is not going to allow any further claims as far as the DAL bankruptcy issue. The IRS’s #1 attorney has notified all of the offices that is the position they will all take. You were lucky to get your check because these payments quite frankly do not meet the requirements from exclusion from income under the §3121. Their argument is that regardless of employment status it is a form of deferred compensation. The IRS will stick to the position that it is payment for the “termination of your rights” to participate in the medical plan. What they won’t acknowledge is that you weren’t just “participating” – these were provisions provided under union contract. They are contractual obligations and that contract was breached when they reneged. You had no choice in the matter or alternatives. You don’t want to confuse these guys with the facts. Your union and their attorneys threw you under the bus – I believe intentionally. Too bad you weren’t auto workers union and you would have ended up owning the company (ala GM) and we all know who was thrown under the bus in that scenario.

Now they come out with the new ‘helpful’ law to make things all better.

I have received a lot of inquiries regarding the new “FAA Modernization and Reform Act of 2012” (Public Law 112-95) provisions. Basically it is mental masturbation by the IRS. It allows for 90% of the DAL distribution to be put into a regular IRA account and amend the 2007 return to take the deduction. It does not change the fact that they withheld Social Security and Medicare from the payment and it is all taxable – just not all taxable in 2007. There is no difference in tax paid except in timing. They win. Plus the amount you have to fund is more than you received because 90% would include a lot of the taxes that they withheld.

What it does do is give a refund of the tax paid on the amount in 2007 and make it taxable in a future year. However, if they pay the refund there will be interest paid on the amount for the four plus years (and that interest will be taxable of course). The contribution has to be made into an IRA by August 13, 2012, and the 2007 again amended by April 15, 2013.

The previous plan allowed the amount to be rolled into a Roth IRA (which is non-taxable when collected). If a Roth was funded in 2007 when received they will allow 90% to be rolled into a Regular IRA and the deduction allowed, but it has to be a trustee-to-trustee transfer.

These provisions are especially wonderful in that the tax liability may be spread over several year, those dollars that you receive will be greatly inflated and have a greatly diminished buying capabilities (thanks to our wonderful representation in DC) and the tax rates will ‘necessarily’ be substantially higher (if the current regime continues). Face it, whether you are a half empty or a half full person, you are still being screwed out of 50%.

Take care and enjoy the Summer,

Merrily

+++++++++++++++++++++++++++++++++++++++++++++

From: Jerry Knapp [mailto:pecanman@windstream.net]
Sent: Friday, June 08, 2012 12:06 PM
To: Merrily Whalen
Subject: new 90% law

Merrily,

My accountant and I have looked into this new law and think it stinks. They want me to take my Roth IRA money out and put it into a regular IRA. before I get a refund. Then I would have to pay taxes on it with RMD. This is crazy.

I have decided to forgo this crazy scheme The only way I might come out is to sue them in a joint suit with other pilots. What do you think? I would be willing to pay money into this if you decide to go this route. Delta should never have made this a W-2 event. Delta got us coming and going.

Thanks for letting me blow steam Merrily

Yours Gerald Knapp

From: Jerry Knapp

Date: 6/10/2012 3:29:09 PM

To: Undisclosed-Recipient:,

Subject: Fw: new 90% law

From: Merrily Whalen

Sent: Saturday, June 09, 2012 12:11 PM

To: 'Jerry Knapp'

Subject: RE: new 90% law

Gerald,

As you have probably found out, the IRS is not going to allow any further claims as far as the DAL bankruptcy issue. The #1 attorney for the IRS has directed all of the offices to deny any further claims for refund. Their argument is that regardless of employment status it is a form of deferred compensation. The IRS will stick to the position that it is payment for the “termination of your rights” to participate in the medical plan. What they won’t acknowledge is that you weren’t just “participating” – these were provisions provided under union contract. They are contractual obligations and that contract was breached when they reneged. You had no choice in the matter or alternatives. You don’t want to confuse these guys with the facts. Your union and their attorneys threw you under the bus – I believe intentionally. Too bad you weren’t auto workers union and you would have ended up owning the company (ala GM) and we all know who was thrown under the bus in that scenario.

Now they come out with the new ‘helpful’ law to make things all better. The worst part of this is that it specifically addresses airline bankruptcy and all but eliminates any recourse. This is their idea of fixing the problem and making it all fair.

I have received a lot of inquiries regarding the new “FAA Modernization and Reform Act of 2012” (Public Law 112-95) provisions. I agree with you that it is not a good alternative. Basically it is mental masturbation by the IRS. It allows for 90% of the DAL distribution to be put into a regular IRA account and amend the 2007 return to take the deduction. It does not change the fact that they withheld Social Security and Medicare from the payment and it is all taxable – just not all taxable in 2007. There is no difference in tax paid except in timing. They win. Plus the amount you have to fun is more than you received because 90% would include a lot of the taxes that they withheld.

You found out that what it does do is give you a refund of the tax paid on the amount in 2007 and make it taxable in a future year. However, if they pay the refund there will be interest paid on the amount for the four plus years (and that interest will be taxable of course). The contribution has to be made into an IRA by August 13, 2012, and the 2007 again amended by April 15, 2013.

You were smart in putting your money into a Roth. I believe they are doing this because they don’t like the fact that all that money is sitting there tax-free and this is just a ploy to have one more shot at the funds.

All of these provisions are especially wonderful in that the tax liability may be spread over several year, those dollars that you receive will be greatly inflated and have a greatly diminished buying capabilities (thanks to our wonderful representation in DC) and the tax rates will ‘necessarily’ be substantially higher (if the current regime continues). Face it, whether you are a half empty or a half full person, you are still being screwed out of 50%.

Unfortunately I have no idea what Bill’s intentions are at this point. I have not personally spoken to him in over six months and have not received a dime from him either for ‘babysitting’ all the DAL files. So I cannot say with any certainty what to expect. With this new law passed in 2012 (I am sure as a result of all the DAL claims) the wording has pretty much quashed the position. The ONLY issue that could possibly win is if they consider it a payment for DAL ‘breach of contract’ and that wording is nowhere in the BK settlement (refer back to paragraph 1). Sorry I am no longer very optimistic about any positive outcome.

Take care,

Merrily

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