2
Posts re-published below so they will be archived on our blog in the finance
section:
RE: Jim Miller's 2007 1040X Success
Dear PCN,
This notice is being forwarded out because I wish to get it
to a number of you working on this issue. Below and at the very bottom of this
email are a couple of links that Jim provided of his documented success. Maybe
others will have the same luck.
Mark
++++++++++++++++++++++++++++++++++++++++++++
Mark,
Here is the information that I said I would get to you. I've
already had one hit from a person and I am forwarding the same information to
him. The first is a letter that is a preface to the two other documents. One
attachment is the actual cover letter and document summary sent to the IRS and
the second is the actual Public Law and Section and the parts that I
highlighted for the IRS's attention. Any question just email me.
Thanks for keeping us advised and I hope this will help
others.
Sincerely,
John Miller
++++
HOW WE FILED THE 2007 1040X AMENDED U.S.
PURSUANT TO PUBLIC LAW No. 112-95, Section 1106, “FAA
Modernization
and Reform Act of 2012”
First off, I would like to correct an error in my email sent
to PCN in which I stated the funding cutoff date was August 15, 2012, it is
actually August 13, 2012. The latest date to file is 15 April 2013. I filed the
2007 1040X on May 7, 2012 and it was received by the IRS on May 11, 2012. (Note:
It can take up 8-12 weeks from receipt date to process an amended return.) I
received a letter from the IRS dated July 17, 2012 that they had received my
“correspondence” and would be contacted within 45 days. Then I received a
letter dated 23 July with the following information:
Dear Taxpayer:
Thank you for your amended return. We have adjusted your
account as you requested.
… you will get a refund in four to six weeks. It took ~ 10
weeks for it to be processed but only one week to be
approved. I firmly
believe that my cover letter, accompanied with my supporting documentation of
five (5) attachments, was the key to the quick action and their acceptance “in
Toto”. The cover letter specifically addresses the Public Law by number and
section, and that it is not a “barred” return (not limited to the standard time
limits of amended returns).
I am attaching the cover letter and a summary of five (5)
attachments (see links below) that accompanied the 1040X to support the
“Explanation of Changes” for PART III of the 1040X. I am also attaching
ATTACHMENT 5 which is the Law and Section with parts that I highlighted. I have
redacted those parts that refer to dollar amounts or specificity of accounts.
I completed the 1040X myself , cross checked it with Turbo
Tax and yes, all the language was formulated by myself. I guess 6 and a ½ years
working contact administration for CVG was well worth it.
Link to Cover Letter & Support:
Link to Act with Highlighted sections:
++++
Jim George's comments on above filing by John:
Hi Mark,
Can you please give me a call asap about this "Miller letter?" There
appears to be a significant problem with his approach, and it could be
misleading to your readership. (Specifically, if doing a conversion
from a Roth to a Traditional IRA under this act, one must ALSO
rollover (... "any net income allocable to such contributions)" ...
which requirement is NOT highlighted in his letter, and appears under
the heading "GENERAL RULES" just after his highlighting there.
Here is the key point: As a result of this requirement to ALSO roll
over any pro-rata gains, the math I have done for clients in EVERY
case that I reviewed did not support rolling assets from a Roth into a
Traditional IRA. This is due to the fact that all of those I looked at
(including my own) had VERY SUBSTANTIAL gains in value within the Roth
IRA. While I would like to claim brilliant investments in the Roth, in
point of fact, these large gains within the Roth's I have looked at is
largely based on "timing" of the investments in the Roth. As you know,
these Roth IRA contributions of airline payment amounts were allowed
by the original legislation in late December of 2008, and hence the
funding (for those who acted promptly) was generally accomplished in
early 2009. (Recall that the stock market bottom was March 9, 2009.)
Thus the requirement to also roll over the gains, taking them from a
totally NON-taxable environment (in the Roth) into a Taxable one
(actually Tax-Deferred, in the Traditional IRA) is the crux of the
issue. Of course, one's personal conclusions as to the efficacy of
making a Roth-to-Traditional IRA Rollover is VERY specific to each
individual, their gains (or possible losses) within their Roth, and
their expectation of future taxation on the distributions from the
Traditional IRA to them (or their heirs.) Again, I am not a Tax
Expert, but this is a key requirement of the Act.
John can call me if he wishes to discuss this.
Regards,
JG
jggeorge@cox.net
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
RE: Time Critical Information
Dear PCN,
I wanted to pass along to you some good information that may benefit a few
in our group provided that expands on some info in the last HL. Jim George
represents a financial firm but he is a good guy and has provided some valuable
general information in the following letter. Aug 13th is the deadline to
transfer to a TIRA.
Here is Jims letter followed by the entire ALPA memo on the same subject.
++++++++++++++++++++++++++++++++
From: Jim George
Date: 7/30/2012 5:35:57 PM
To: Jim George
Subject: +++ FAA Act IRA opportunity - one more possibility +++
Monday, July 30th, 2012
Hi All,
Sorry to fill up your inbox on the “New FAA Act IRA opportunity issue,”
but for the TINY population this one additional item may potentially impact, it
could be significant. As pointed out to me this weekend by Kat Schraeder, one
of our superb Relationship Managers at Retirement Advisors of America, ORIGINAL
shares of stock distributed to you as a result of your airline’s Bankruptcy
Settlement can potentially be a VERY favorable source for funding a Traditional
IRA under the February law.
NOTE: This may apply to Delta, Pre-merger Northwest, and United pilots.
Per our recommendation, most if not all of our Delta clients at Retirement
Advisors of America sold their original bankruptcy stock distribution at a very
favorable time in 2007, soon after receiving it. For those who sold their
original bankruptcy shares, none of this applies. Thus we believe that this
affects very few if any of our clients. However, there are undoubtedly some
Delta, Northwest, or United pilots or retirees who may benefit from this
subtlety, so I thought I’d put out a quick email in the event it does apply to
you or to someone you know.
Specifically, IF YOU DID NOT fully fund a Roth IRA per the prior opportunity
to do so, and IF YOU STILL OWN THE EXACT SAME SHARES from your initial airline
bankruptcy stock distribution, then as detailed in the ALPA “Q&A,” you can
ROLL THOSE EXACT SHARES INTO A TRADITIONAL IRA, AT THE ORIGINAL “COST BASIS” OF
THE SHARES, AND USE THAT TOTAL
AMOUNT AS A REDUCTION TO INCOME FOR PRIOR YEARS (2007 for Delta.) In other
words, you may be able to take advantage of the “paper loss” you have on the
original shares distributed to you in the BK Settlement, if you held on to
those shares and still have them.
NOTE 1: This may be applicable to United and Pre-Merger Northwest
pilots in addition to Delta.
NOTE 2: See question 13 - 16 of the Delta ALPA Q&A, which is
attached here for your convenience.
NOTE 3: This assumes that your Traditional IRA financial institution will
accept an “in-kind” rollover -- our custodian does. And, of course, funding is
subject to the total IRA funding limitations under the law.
Additionally, please note that for Delta, the shares distributed in 2011
are now HIGHER in value than when they were distributed. Thus for those latest
shares, your only viable option, if you wanted to use those assets to fund this
Traditional IRA opportunity, would be to sell the shares and then use the cash
to fund the IRA (in all cases making the contribution NLT the August 13th
deadline.)
If you think you may be impacted by this, please read the attached ALPA
Q&A. For RAA Clients, please do the same, and if this is still not clear
after reviewing it in detail, feel free to call me or your Relationship Manager
in Dallas
Again, as always, please be aware that we are not Income Tax experts or
advisors, so please consult your own income tax professional on these complex
matters.
Have a great week!
Regards,
Jim
James G. George
Financial Consultant/Pilot Representative
Retirement Advisors of America
A PHH Investments Company
7 Calle Pacifica
Business:
949-661-6879
Toll Free: 866-767-5757
Cell: 949-295-9025 Fax: 949-388-4895
Retirement Advisors of America is the
nation’s largest provider of comprehensive wealth management services to crew
members and their families. We manage over $1.6 billion of assets for more than
1,800 retired pilot families in 50 states. Beyond investment management, our
comprehensive wealth management services also include estate & tax planning,
distribution & withholding planning, medical and dental coverage, and
regular reviews of clients overall financial situations
+++++
February 16, 2012 12-01
Traditional IRA Rollover of Airline Payment Amounts
On February 14, 2012, President Obama signed into law the FAA Modernization
and Reform Act of 2012, Public Law No. 112-95 (the “2012 Act” or “new Act”).
Section 1106 of the new Act contains a provision, long sought by ALPA, that expands
upon the rollover opportunities previously afforded under Section 125 of the Worker,
Retiree, and Employer Recovery Act of 2008, Public Law No. 110-458
("WRERA").
You may recall that, under WRERA, eligible current and former airline employees
were permitted to transfer to a Roth IRA up to 100% of certain payments they
received in connection with their airline's bankruptcy. Whether or not they
took advantage of the Roth IRA rollover opportunity provided by WRERA, Section
1106 of the new Act allows eligible current and former airline employees, and
their surviving spouses, to transfer to a traditional IRA up to 90% of such
bankruptcy-related payments and claim a refund of the federal taxes they paid
on such funds. In addition, the new
Act allows individuals who did take advantage of the Roth IRA rollover opportunity
under WRERA to transfer those Roth IRA funds to a traditional IRA and claim a refund
of the federal taxes they paid on such transferred funds, subject to the 90%
limit.
If you elect to take advantage of one or both of these new
opportunities, please be advised the deadline for making the transfer is August
13, 2012, and the deadline for filing your amended federal tax return is April
15, 2013.
We remind you that, in issuing these FAQs, neither ALPA nor any representative
of ALPA is providing financial, investment or tax advice to the pilot membership
or to any individual. Since each individual’s situation is different, you
are strongly encouraged to contact a tax advisor and/or financial
advisor to understand what may be the best course of action for you and your
family. If, after carefully reading this Retirement & Insurance Report, you
have any further questions, please
contact:
Kevin Powell, Chairman Paul Kent, Vice Chairman
Delta MEC R&I Committee Delta MEC R&I Committee
+++++
FAQs
Section 1106 of the FAA Modernization and Reform Act of 2012
1. I want to make a rollover contribution to a traditional IRA under Section
1106 of the 2012 Act. Do the normal IRA limits and restrictions apply?
No. Under the usual rules that apply to traditional IRAs, an individual’s
annual contributions are limited to a stated dollar amount, the deductibility of
contributions may be limited based on the individual’s adjusted gross income
and whether the individual is an “active participant” in a qualified retirement
plan, and no contributions may be made by an individual who has attained age 70-1/2. These
limits and restrictions do not apply to trustee-to-trustee transfers or
rollovers made to a traditional IRA pursuant to Section 1106 of the new
Act.
2. What is the deadline for making a trustee-to-trustee transfer or rollover
to a traditional IRA under Section 1106 of the new Act?
You must make the trustee-to-trustee transfer or rollover to a traditional
IRA not later than August 13, 2012.
3. What are the advantages of making a trustee-to-trustee transfer or rollover
contribution to a traditional IRA, under the new Act?
A traditional IRA provides a number of tax advantages. Amounts you contribute
as a trustee-to-trustee transfer or rollover to a traditional IRA are excluded
from your income and grow tax-deferred until withdrawn in retirement, provided you
meet certain conditions.
4. I already have a traditional IRA. Do I need to open another one for
this purpose?
No. You may make a trustee-to-trustee transfer or rollover to your current
traditional IRA, or you may open one or more new traditional IRAs to make the qualifying
transfer or rollover.
5. How much may I transfer or roll over to a traditional IRA under the
new Act?
The total amount that can be transferred or rolled over to a traditional
IRA is 90% of the sum of your total airline payment amounts, as shown on all of
the IRS Form 8935s you have received from the Company. Most pilots received a
Form 8935 in 2009 that detailed the airline payment amounts they were paid in
2007 and 2008, and some pilots received
additional Form 8935s in 2009, 2010 and 2011, that detailed the additional
airline payment amounts they were paid in those years.
6. I’ve misplaced my IRS Form 8935(s). How may I obtain replacement(s)?
The Employee Service Center (ESC) can mail you another copy. The ESC can
be reached at 800-MY-DELTA (800-693-3582).
7. I previously rolled over an airline payment amount to a Roth IRA under
WRERA. May I now transfer some or all of those amounts to a traditional IRA under
the 2012 Act?
Yes. Under the new Act, you may transfer to a traditional IRA some or all
of the amounts you previously rolled over to a Roth IRA under WRERA, subject to
the 90% rule discussed below. Such a transfer must be a “trustee-to-trustee”
transfer (see FAQ 8, below). This would permit the amounts transferred
from the Roth IRA to the traditional IRA to be treated as if they were
originally contributed to a traditional IRA. The transfer to the traditional
IRA will be deemed
to have been made at the time of the rollover to the Roth IRA. The
amount you may transfer from the Roth IRA to a traditional IRA is limited to
90% of the total airline payment amounts reported on all of your IRS Form
8935s, as adjusted for gains or losses within the Roth IRA.
8. What is a trustee-to-trustee transfer?
In a trustee-to-trustee transfer from your Roth IRA to a traditional IRA,
the transfer is made directly from the trustee of the Roth IRA to the trustee
of the traditional IRA. You may not take the funds into your possession.
9. Please provide some examples of how much I may roll over or transfer
to a traditional IRA.
First, you must remember a few simple rules:
1. Your IRS Form 8935s reflect the total airline payment amounts that you
received from Delta or Northwest, as applicable.
2. Only 90% of the total amount reported on all of your Form 8935s can
be contributed to a traditional IRA under the new Act. However, if you had already
made a rollover contribution to a Roth IRA under WRERA, then your aggregate IRA
contributions could be 100% of the total airline payment amounts reported on
your Form 8935s, if split between the Roth IRA and a traditional IRA (by
leaving a minimum of 10% of the total airline payment amounts in the Roth IRA).
3. If you had previously made a rollover to a Roth IRA under WRERA, then
when applying the 90% limit on the amount you may transfer or roll over to a traditional
IRA and exclude from your income retroactively under the 2012 Act,
you must use the value of the Roth IRA funds at the time of your contribution
to the Roth IRA, not the current value. See examples 4 and 5 below on how to adjust
for gains and losses when making a trustee-to-trustee transfer from a Roth IRA.
All of the following examples assume that you received only one IRS Form
8935 reflecting a total airline payment amount of $100,000 for tax year 2007
(and that you received $0 for every other tax year).
Example 1: This example assumes that you did not roll over any portion
of your airline payment amount to a Roth IRA under WRERA. You may now roll over
up to $90,000 to a traditional IRA under the 2012 Act. You may file an amended
federal tax return for 2007 to exclude the $90,000 from your federal income
in 2007 and receive a refund of the federal income taxes paid on such amount.
Your amended return for 2007 must be filed no later than April 15, 2013.
Examples 2 through 6 also assume you had previously contributed $60,000
of your $100,000 airline payment amount to a Roth IRA under WRERA.
Example 2: If you wish to leave the $60,000 in the Roth IRA, you may now
contribute $40,000 to a traditional IRA and claim a corresponding $40,000 exclusion
from your federal income for tax year 2007, the year you received your
original airline payment amount, as reflected on your IRS Form 8935. You
would do this by filing an amended federal tax return for tax year 2007 to receive
a refund of the applicable federal income taxes. Your amended return for 2007
must be filed no later than April 15, 2013. Since you are not transferring
any money from the Roth IRA to the traditional IRA, it would not matter if the original
$60,000 in the Roth IRA had gained or lost value in this example.
Example 3: Assume the $60,000 you contributed to the Roth IRA is currently
worth $60,000 (there has been no net gain or loss). You may now make a
trustee-to-trustee transfer of as much of that as desired, and still make an
additional
rollover contribution (from other funds) to a traditional IRA, up to not
more than $90,000 in the traditional IRA and not more than $100,000 in both
IRAs combined. So, if you elect to make a trustee-to-trustee transfer from the
Roth
IRA to a traditional IRA in the amount of $40,000, you could still
contribute up to an additional $40,000 to the traditional IRA (from other
funds), for a combined total of $80,000 in the traditional IRA and $20,000 in
the Roth IRA. You would be
eligible to exclude $80,000 from your federal income in 2007 by filing an
amended federal tax return for tax year 2007, the year you received your original
airline payment amount, as reflected on your IRS Form 8935. Your amended
return for 2007 must be filed no later than April 15, 2013.
Example 4: Assume the $60,000 you contributed to the Roth IRA is currently
worth $50,000 (reflecting a net loss of $10,000), and you wish to transfer 50%
of the current Roth IRA balance to a traditional IRA. In this case, you would
make a trustee-to-trustee transfer of $25,000 from the Roth IRA to a traditional
IRA. In this instance, even though you transferred only $25,000, you would be eligible
to exclude $30,000 from your federal income in 2007 (the year you
received your original airline payment amount), the amount that was
originally contributed to a Roth IRA in respect of the amount you transferred.
Additionally, if desired, you could contribute up to an additional $40,000
(from other funds) as a rollover contribution to a traditional IRA and exclude
that amount from your 2007 federal income, as well. The math on this is as
follows:
• IRS Form 8935 airline payment amount for tax year 2007: $100,000
• Portion of airline payment amount remaining in Roth IRA, after the trustee-to-trustee
transfer: $30,000 (worth $25,000 today)
• Portion of airline payment amount transferred and rolled over to a traditional
IRA: $70,000 (worth $65,000 today)
• Airline payment amount excluded from federal income in 2007 on amended
tax return: $70,000 ($30,000 in the trustee-to-trustee transfer from the Roth
IRA to the traditional IRA + $40,000 in the rollover contribution to the
traditional IRA from other funds)
Example 5: Assume the $60,000 you contributed to the Roth IRA is currently
worth $80,000 (reflecting a net gain of $20,000), and you wish to transfer 50%
of the current Roth IRA balance to a traditional IRA. In this instance, you would
make a trustee-to-trustee transfer of $40,000 but you would be eligible to exclude
from your federal income in 2007 (the year your received your original airline
payment amount) only $30,000, the amount that was originally contributed to a Roth
IRA in respect of the $40,000 amount you transferred. If desired, you could contribute
up to an additional $40,000 (from other funds) as a rollover contribution and
exclude that amount from your 2007 federal income as well. The math on this is as
follows:
• IRS Form 8935 airline payment amount for tax year 2007: $100,000
• Portion of airline payment amount remaining in Roth IRA, after the trustee-to-trustee
transfer: $30,000 (worth $40,000 today)
• Portion of airline payment amount transferred and rolled over to a traditional
IRA: $70,000 (worth $80,000 today)
• Airline payment amount excluded from federal income in 2007 on amended
tax return: $70,000 ($30,000 in the trustee-to-trustee transfer from the Roth
IRA to the traditional IRA + $40,000 in the rollover contribution to the
traditional IRA from other funds)
Example 6: Assume, as in example 5, the $60,000 you contributed to the
Roth IRA is currently worth $80,000, and because it has increased in value, you
do not wish to transfer the gains, but you do want to take advantage of the
new Act. In this situation, you would need to perform two separate
transactions. In the first transaction, as permitted by current law, you could
withdraw principal from your Roth IRA, up to your entire principal amount of
$60,000, at any time without penalty. This withdrawal would provide you with
“other funds” from which to make a cash rollover contribution to a traditional
IRA under the new Act. Assume you withdraw $40,000 from your Roth IRA for this
purpose. In the second transaction, you would make a rollover contribution of
$40,000 to a traditional IRA under the new Act. However, since you did not make
a “trustee-to-trustee” transfer to a
traditional IRA as permitted under the new Act, you must continue to count
toward your rolled over airline payment amounts the $60,000 that you originally
contributed to the Roth IRA under WRERA. Thus, the maximum that you could
contribute to a traditional IRA under the new Act would be $40,000 ($100,000
total airline payment amount minus the $60,000 previously contributed to the
Roth IRA). A rollover of $40,000 will satisfy the 90% limit under the new Act since
you will be contributing only 40% of your total airline payment amount to a traditional
IRA. In summary, if you withdrew $40,000 from your WRERA
Roth IRA and then subsequently used that money to make a rollover
contribution to the traditional IRA under the 2012 Act, the math would work as
follows:
• IRS Form 8935 airline payment amount for tax year 2007: $100,000
• Portion of airline payment amount contributed to the Roth IRA: $60,000
• Portion of airline payment amount rolled over to a traditional IRA: $40,000
• Airline payment amount excluded from federal income in 2007 on amended
tax return: $40,000 (consisting of the $40,000 rollover contribution to the
traditional IRA from “other funds”)
Note: If you originally contributed 100% of your total airline payment amount
(as reported on IRS Form 8935) to a Roth IRA under WRERA, you cannot utilize
the option discussed in example 6, as you have no eligible airline payment
Amount remaining. However, you would be eligible to make a
trustee-to-trustee transfer from your Roth IRA to a traditional IRA, as
described in examples 2-5 above.
10. I received airline payment amounts in more than one tax year. Can
you provide an example of how the rules apply to my situation?
Assume you received a total of $100,000 of airline payment amounts over
three tax years, and your IRS Form 8935s reflect those amounts as follows:
2007: $80,000 2008: $15,000 2009: $5,000
Assume further that you had made no rollover to a Roth IRA under WRERA.
In this case, the maximum that you can roll over to a traditional IRA in 2012 (by
August 13, 2012) and exclude from your federal income in prior tax years is $90,000
(90% of $100,000). If you rolled over the full $90,000 to a traditional IRA,
you would have a few choices as to which tax years, and how much in each tax year,
you would exclude the $90,000. For example, you could exclude $80,000 in
tax year 2007 and $10,000 in tax year 2008. Alternatively, you could
exclude $5,000 in 2009, $15,000 in 2008 and $70,000 in 2007. You might choose
the first alternative to limit your amended federal tax returns to two tax
years (2007 and 2008).
Although the second alternative requires you to file amended returns for
three tax years, you might choose this alternative if it allows you to file one
or more amended state tax returns that you might not be able to file under the
First alternative (due to expiration of the applicable time period for filing
state tax returns). Other combinations are also available, though the maximum you
may exclude in any one tax year is the airline payment amount you received
that tax year.
11. I did NOT previously take advantage of the provisions of WRERA by
making a Roth IRA rollover contribution. May I now make a rollover contribution
to a Roth IRA?
Except as described in the next paragraph, the window for you to make Roth
IRA contributions of airline payment amounts, as shown on your Form 8935s, has closed.
The new Act does not have any special provisions for Roth IRA
Rollover contributions. However, under existing tax rules relating to
the conversion of traditional IRAs to Roth IRAs, you may be eligible to make a traditional
IRA rollover pursuant to the new Act and then convert that amount to a Roth IRA
in
A subsequent transaction. Please consult a tax advisor to determine your
eligibility for this subsequent transaction.
Exception. Under WRERA, a qualified airline employee is still permitted
to roll over to a Roth IRA all or any portion of an airline payment amount, so long
as the rollover is made within 180 days after receipt of the airline payment amount.
Some pre-merger NWA pilots received a final bankruptcy equity claim distribution
in October, 2011, and the WRERA Roth IRA rollover option will still be available
with respect to that airline payment amount only, until the 180th day
after receipt of that amount.
12. I made a rollover contribution to a Roth IRA under WRERA in 2009,
and then made a trustee-to-trustee transfer from the Roth IRA to a traditional
IRA in 2012, per the new Act. May I later convert my traditional IRA back to a
Roth IRA?
Yes, but not until after the five-taxable year period beginning with the
taxable year in which the trustee-to-trustee transfer was made (per the last sentence
of Section 1106(a)(2) of the new Act). In other words, you may convert the
traditional IRA back to a Roth IRA on or after January 1, 2017.
13. May I roll over shares of another company’s stock, or other property,
into a traditional IRA?
It is our understanding that, other than cash, the only property you may
roll over to a traditional IRA under the new Act is the Company stock you received
as part of your qualifying airline payment amounts (or the Delta shares you
received in exchange for the NWA stock that you received as part of
your qualifying airline payment amounts).
If you are making a trustee-to-trustee transfer from your WRERA Roth IRA,
you may liquidate your Roth IRA investments and transfer cash to the traditional
IRA or you may transfer investments in-kind, if permitted by both your Roth IRA
trustee and traditional IRA trustee.
14. I’m a pre-merger Delta pilot who received shares as part of the equity
claim in Delta’s bankruptcy. May I roll over my Delta common stock shares into
a traditional IRA?
Yes, but only if these were the exact shares you received as part of your
airline payment amount, and also if an in-kind rollover is permitted by your traditional
IRA financial institution. Please note that shares of Delta common stock
distributed as merger equity (Pilot Shares) are not part of your airline
payment amount that is eligible for rollover.
Also, for purposes of applying the 90% limit and determining the amount
to exclude on a previous year’s federal tax return, your bankruptcy equity
claim shares will be valued as of the date you received them, as reported on your
Form
8935, rather than their fair market value today.
Example. Assume that in 2007 you received a bankruptcy equity claim distribution
of 1,000 shares of Delta stock, then worth $20 per share. This distribution
would have been reported as an airline payment amount of $20,000 on your
Form 8935 (1,000 x $20). Assume that at the time of distribution 300
shares were sold to cover taxes, leaving you with a net distribution of 700
shares.
Assume (for purposes of this example) that this is the only airline
payment amount you ever received and that you have retained these exact 700
shares of Delta stock continuously ever since. Assume that Delta stock is worth
$11 per share at the time you wish to make a rollover to a traditional IRA
under the 2012 Act. In making such a rollover to a traditional IRA, you would
have the following choices:
(a) roll over all 700 shares of Delta stock (valued at $14,000 for purposes
of applying the 90% limit and claiming the 2007 income exclusion, even though
the actual value at the time of rollover in 2012 is $7,700) plus $4,000 in cash
(for a
total of $18,000 or 90% of your total airline payment amount of $20,000);
(b) roll over $18,000 in cash only (90% of $20,000); or
(c) roll over some combination of shares and cash not to exceed the
airline payment amount value of $18,000 (90%
of your total airline payment of $20,000). If you roll over the maximum
allowed, i.e. $18,000 of your $20,000 airline payment amount, then whether it consists
of shares plus cash or only cash, you would exclude $18,000 from your
federal income in 2007 by filing an amended federal tax return.
NOTE: ALPA does not have information related to the price of these shares
at distribution. Please review your Form 8935(s) and other financial records or
contact Fidelity at 800-544-9354 or www.netbenefits.com for this information.
15. I’m a pre-merger NWA pilot who received NWA shares as part of the
equity claim in NWA’s bankruptcy. May I roll over the DAL common stock I received
in exchange for the NWA shares?
Yes. The Delta shares a pre-merger NWA pilot received in exchange for the
taxable NWA shares received as part of the bankruptcy equity claim are eligible
for rollover under the 2012 Act. (Of course, such an in-kind rollover must also
be
permitted by your traditional IRA trustee/financial institution.)
Again, please note that shares of Delta common stock distributed as
merger equity (Pilot Shares) are not part of your airline payment amount and
are not eligible for rollover. Also, for
purposes of applying the 90% limit and determining the amount to exclude on a
previous year’s federal tax return, your bankruptcy equity claim shares will be
valued as of the date you received them, as reported on your Form 8935, rather
than their fair market value today.
Example. Assume that in 2007, as a pre-merger NWA pilot, you received a
bankruptcy equity claim distribution of 800 shares of NWA stock, then worth $25
per share. This distribution would have been reported as an airline payment
amount of $20,000 on your Form 8935 (800 x $25). Assume that at the time
of distribution 240 shares were sold to
cover taxes, leaving you with a net distribution of 560 shares. Assume (for
purposes of this example) that this is the
only airline payment amount you ever received. In 2008, as a result of
the merger with Delta, these shares were exchanged for Delta shares at the
ratio of 1.25 shares of Delta stock for each share of NWA stock you owned.
Thus,
your 560 NWA shares were exchanged for 700 shares of Delta stock. These
shares would be valued at $20/share ($25 divided by 1.25) for purposes of
applying the 90% limit and claiming the 2007 income exclusion. Assume that you
have retained these exact 700 shares of Delta stock continuously ever since.
Assume that Delta stock is worth $11 per share at the time you wish to make a
rollover to a traditional IRA under the 2012 Act. In making such a rollover to
a traditional IRA, you would have the following choices:
(a) roll over all 700 shares of Delta stock (valued at $14,000 for
purposes of applying the 90% limit and claiming the income exclusion, even though
the actual value at the time of rollover in 2012 is $7,700) plus $4,000 in cash,
(for a total of $18,000 or 90% of your total airline payment amount of $20,000);
(b) roll over $18,000 in cash only (90% of $20,000); or
(c) roll over some combination of shares and cash not to exceed the
airline payment amount value of $18,000 (90% of your total airline payment of
$20,000). If you roll over the maximum allowed, i.e. $18,000 of your $20,000
airline payment amount, then whether it consists of shares plus cash or only
cash, you would exclude $18,000 from your federal income in 2007 by filing an
amended federal tax return.
NOTE: ALPA does not have information related to the price of these shares
at distribution. Please review your Form 8935(s) and other financial records or
contact Wells Fargo at 800-259-2345 or www.shareowneronline.com for
This information.
16. May I roll over a combination of cash and my qualifying Delta shares
into a traditional IRA?
Yes, if permitted by your traditional IRA trustee/financial institution.
In this case, each would be valued as explained in the previous examples.
17. What action must I take to transfer or roll over my qualifying airline
payment amount(s) to a traditional IRA?
First, ALPA strongly recommends that you consult a tax and/or financial
planning advisor before electing to transfer or roll over all or any portion of
your qualifying airline payment amount(s). If you decide that making a
trustee-to-
trustee transfer to a traditional IRA from the Roth IRA you established
under WRERA, and/or making a rollover to a traditional IRA, is right for you,
your next step is to choose a financial institution. You may need to provide
your financial
institution with a copy of the IRS Form 8935(s) you received from the
Company. You should advise your financial institution that the deposit of funds
is to be treated as a rollover under Section 1106 of the 2012 Act. Using this
description will assist your financial institution in correctly characterizing
the transaction in its recordkeeping system.
Finally, you must complete your transfer and/or rollover on or before August
13, 2012.
18. In making a trustee-to-trustee transfer or rollover, must I use the
same funds I received in my qualifying airline payments?
If you are making a trustee-to-trustee transfer from a Roth IRA it must
be from your Roth IRA that was previously funded via a rollover contribution pursuant
to WRERA. If you are making a rollover
contribution to a traditional IRA, you do
not need to use the same exact funds you received from the Company —
whether the funds you received consisted of cash or shares of Company stock.
You may make the rollover from other funds that may be available to you.
19. What “other funds” may be available to me, that I can use to make the
rollover to a traditional IRA?
You may make a rollover to a traditional IRA, under the 2012 Act, from any
other funds available to you, such as the following:
• Your savings
• Amounts you receive as a gift
• Amounts you receive as a loan
*You may be able to take a loan (up to $50,000) from your account under
the Delta Pilots Savings Plan/401(k) plan. Information about plan loans is
available by accessing your plan account at www.netbenefits.com.
• Amounts you withdraw, in-service, from your account under the Delta Pilots
Savings Plan/401(k) plan. Keep in mind that all or a portion of your withdrawal
may be subject to income tax and may also be subject to a 10% early
distribution penalty if you are under age 59-1/2. Information on what amounts
are available for in-service withdrawal is provided in
Retirement & Insurance Report 10-04, available on the R&I
Committee page of the Delta MEC website.
The above list is provided for information purposes only. ALPA expresses
no opinion as to whether any of these options may be appropriate for you. Please
consult your tax and/or financial advisor.
20. May I make trustee-to-trustee transfers and rollovers to more than
one traditional IRA and/or to more than one traditional IRA financial institution?
Yes. You may make trustee-to-trustee transfers and rollovers to any number
of traditional IRAs at any number of financial institutions, so long as the
total amount you transfer or roll over to a traditional IRA does not exceed 90%
of
the total airline payment amounts reported to you on your IRS Form
8935s, and the total amount including rollover contributions previously made to
a Roth IRA under WRERA does not exceed 100% of the total airline payment
amounts
reported to you on IRS Form 8935s. (Note that you may have 100% of your
airline payment amounts in IRAs only by leaving at least 10% of your airline
payment amount(s) in the Roth (IRA.)
21. I understand that, if I make a trustee-to-trustee transfer or rollover
to a traditional IRA under the 2012 Act, I may exclude from my federal income
the amount transferred or rolled over, in the tax year(s) in which I received
the
airline payment amount(s), and receive a refund of the federal taxes paid
on such amount(s). May I also receive a refund of the employment taxes paid on the
amounts that are excluded from my federal income in a prior tax year?
No. Although the new Act permits you to receive a refund of the federal
income taxes with respect to amounts you exclude from your income in a prior tax
year, you cannot claim or receive a refund of employment taxes you paid on
Such amounts.
22. May I also file an amended state tax return(s) and receive a refund
of state income taxes I paid?
The new Act does not apply to state income tax returns. Therefore, you
will be able to file an amended state income tax return to reflect the federal income
exclusion only if permitted by applicable state law. The applicable state law
would likely need to define income for state income tax purposes based on
how it is defined for federal income tax purposes. In addition, the filing must
be made before the applicable deadline for filing an amended state tax return.
The time period for filing an amended state tax return varies from state to state.
States usually allow three years after the original state tax return filing deadline,
though some allow longer (e.g., CA, KY, OH, and MI allow four years). If you
live in one of the states that permit more than three years, you may
wish to consider making your traditional IRA rollover and/or trustee-to-trustee
transfer quickly and file your amended state tax return prior to the normal
filing deadline. In California, for example, you should have until April 15,
2012 to file an amended state tax return for the year 2007 (four years after
April 15, 2008, the original deadline for filing the 2007 state tax return).
Regardless of the state you live in, you should consult your tax advisor to
determine whether you may file an amended state income tax return(s).
23. Exactly how do I report the exclusion of income on my amended federal
tax return?
An amended federal tax return is filed using IRS Form 1040X. You may obtain
this Form and the related Instructions at www.irs.gov. However, because the IRS has issued
no guidance under the new Act, these documents will provide no
information specifically applicable to your right to file an amended return(s)
under Section 1106 of the 2012 Act. These FAQs will be updated as soon as we
receive any additional information from the IRS.
24. May I file the amended federal tax return, receive my income tax refund,
and THEN make my rollover contribution to a traditional IRA?
The new Act contains no provision specifically addressing this question,
so if you are interested in doing this, please consult your tax advisor.
25. What is the deadline for filing my amended federal tax return(s) under
the new Act?
April 15, 2013 is the extended deadline for filing your amended federal
tax returns with respect to exclusions of income you claim under the new Act
for any tax year before 2009. The vast majority of airline payment amounts were
paid
in tax years before 2009. For tax years after 2008, the standard
deadline for filing amended federal tax returns will be April 15, 2013 or
later.
26. Where may I obtain further information?
In addition to consulting your tax and/or financial advisor, you may wish
to refer to IRS Publication 590, Individual Retirement Arrangements (IRAs), available
on the IRS website at http://www.irs.gov/publications/p590/index.html.
27. What if I make a trustee-to-trustee transfer or rollover contribution
to a traditional IRA under the new Act but find that I need the money again soon?
May I withdraw the contributions immediately, if needed, without paying the 10%
early distribution penalty? What about the earnings?
After you make a trustee-to-trustee transfer or rollover contribution to
a traditional IRA under the new Act, all normal traditional IRA distribution
rules would apply. Generally, this means that, in addition to the normal tax due
on the
distribution, you will be subject to the 10% early distribution penalty
if you take a withdrawal before you reach age 59 ½, except under very limited circumstances.
Consult IRS Publication 590 for details.
28. I must sell my current stock investments in a taxable account at a
loss in order to obtain the cash to make a traditional IRA rollover under the new
Act. After making the rollover I intend to purchase the same stock investments
in
my traditional IRA. Will my ability to claim a loss on the sale be impacted
by the “wash sale” rules?
Ordinarily, if you sell stock in a taxable account at a loss, you will incur
a capital loss that you may deduct on your tax return (assuming you are otherwise
eligible to claim the capital loss). However, under the “wash sale” rules, if you
sell stock at a loss and within the 30 days before or after the sale you
purchase substantially identical stock, even if the purchase is made by your
traditional IRA, then your loss could be disallowed. The best course of action
to avoid this
possibility is either to wait at least 30 days after the sale before
purchasing substantially identical stock or to purchase different stock. See
IRS Revenue Ruling 2008‐5 and consult a tax advisor for details.
29. Are there any special eligibility rules under the new Act?
Yes. Under the 2012 Act, the surviving spouse of a qualified airline employee
may make trustee-to-trustee transfers and/or rollovers to a traditional IRA to
the same extent the qualified airline employee could have done had the
qualified airline employee survived. In addition, under the 2012 Act,
an individual is not considered a qualified airline employee if he or she had
been the CEO or one of the four highest-paid officers of the Company at any
time.
30. What is the exact language of Section 1106 of the new Act?
SEC. 1106. ROLLOVER OF AMOUNTS RECEIVED IN AIRLINE CARRIER BANKRUPTCY.
(a) GENERAL RULES.—
(1) ROLLOVER OF AIRLINE PAYMENT AMOUNT.—If a qualified airline employee
receives any airline payment amount and transfers any portion of such amount to
a traditional IRA within 180 days of receipt of such amount (or, if later,
within 180 days of the date of the enactment of this Act), then such amount (to
the extent so transferred) shall be treated as a rollover contribution
described in section 402(c) of the Internal Revenue Code of 1986. A qualified
airline employee making such a transfer may exclude from gross income the
amount transferred, in the taxable year in which the
Airline payment amount was paid to the qualified airline employee by
the commercial passenger airline carrier.
(2) TRANSFER OF AMOUNTS ATTRIBUTABLE TO AIRLINE PAYMENT AMOUNT FOLLOWING
ROLLOVER TO ROTH IRA.—A qualified airline employee who has contributed an
airline payment amount to a Roth IRA that is treated as a qualified rollover
contribution pursuant to section 125 of the Worker, Retiree, and Employer
Recovery Act of 2008, may transfer to a traditional IRA, in a
trustee-to-trustee transfer, all or any part of the contribution (together with
any net income allocable to such contribution), and the transfer to the traditional
IRA will be deemed to have been made at the time of the rollover to the Roth
IRA, if such transfer is made within 180 days of the date of the enactment of
this Act. A qualified airline employee making such a transfer may exclude from
gross income the airline payment amount previously rolled
Over to the Roth IRA, to the extent an amount attributable to the
previous rollover was transferred to a traditional IRA, in the taxable year in
which the airline payment amount was paid to the qualified airline employee by
the commercial
passenger airline carrier. No amount so transferred to a traditional IRA
may be treated as a qualified rollover contribution with respect to a Roth IRA within
the 5-taxable year period beginning with the taxable year in which
such transfer was made.
(3) EXTENSION OF TIME TO FILE CLAIM FOR REFUND.—A qualified airline
employee who excludes an amount from gross income in a prior taxable year under
paragraph (1) or (2) may reflect such exclusion in a claim for refund filed
within the period of limitation under section 6511(a) of such Code (or, if later,
April 15, 2013).
(4) OVERALL LIMITATION ON AMOUNTS TRANSFERRED TO TRADITIONAL IRAS.—
(A) IN GENERAL.—The aggregate amount of airline payment amounts which
may be transferred to 1 or more traditional IRAs under paragraphs (1) and (2)
with respect to any qualified employee for any taxable year shall not exceed
the excess (if any) of—
(i) 90 percent of the aggregate airline payment amounts received by the
qualified airline employee during the taxable year and all preceding taxable
years, over
(ii) the aggregate amount of such transfers to which paragraphs (1) and
(2) applied for all preceding taxable years.
(B) SPECIAL RULES.—For purposes of applying the limitation under
subparagraph (A)—
(i) any airline payment amount received by the surviving spouse of any
qualified employee, and any amount transferred to a traditional IRA by such
spouse under subsection
(d), shall be treated as an amount received or transferred by the qualified
employee, and
(ii) any amount transferred to a traditional IRA which is attributable
to net income described in paragraph (2) shall not be taken into account.
(5) COVERED EXECUTIVES NOT ELIGIBLE TO MAKE TRANSFERS.—
Paragraphs (1) and (2) shall not apply to any transfer by a qualified airline
employee (or any transfer authorized under subsection (d) by a surviving spouse
of the qualified airline employee) if at any time during the taxable year of
the
transfer or any preceding taxable year the qualified airline employee held
a position described in subparagraph (A) or (B) of section 162(m)(3) with the commercial
passenger airline carrier from whom the airline payment amountwas received.
(b) TREATMENT OF AIRLINE PAYMENT AMOUNTS AND TRANSFERS FOR EMPLOYMENT
TAXES.—For purposes of chapter 21 of the Internal Revenue Code of 1986 and
section 209 of the Social Security Act, an airline payment amount shall not
fail to be treated as a payment of wages by the commercial passenger airline
carrier to the qualified airline employee in the taxable year of payment because
such amount is excluded from the qualified airline employee's gross income
under
subsection (a).
(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this section
—
(1) AIRLINE PAYMENT AMOUNT.—
(A) IN GENERAL.—The term ``airline payment amount'' means any payment
of any money or other property which is payable by a commercial passenger
airline carrier to a qualified airline employee—
(i) under the approval of an order of a Federal bankruptcy court in a
case filed after September 11, 2001, and before January 1, 2007, and
(ii) in respect of the qualified airline employee's interest in a
bankruptcy claim against the carrier, any note of the carrier
(or amount paid in lieu of a note being issued), or any other fixed obligation
of the carrier to pay a lump sum amount.
The amount of such payment shall be determined without regard to any requirement
to deduct and withhold tax from such payment under sections 3102(a) of the
Internal Revenue Code of 1986 and 3402(a) of such Code.
(B) EXCEPTION.—An airline payment amount shall not include any amount
payable on the basis of the carrier's future earnings or profits.
(2) QUALIFIED AIRLINE EMPLOYEE.—The term ``qualified airline employee''
means an employee or former employee of a commercial passenger airline carrier
who was a participant in a defined benefit plan maintained by the carrier
which—
(A) is a plan described in section 401(a) of the Internal Revenue Code
of 1986 which includes a trust exempt from tax under section 501(a) of such
Code, and
(B) was terminated or became subject to the restrictions contained in
paragraphs (2) and (3) of section 402(b) of the Pension Protection Act of 2006.
(3) TRADITIONAL IRA.—The term “traditional IRA” means an individual retirement
plan (as defined in section 7701(a)(37) of the Internal Revenue Code of 1986)
which is not a Roth IRA.
(4) ROTH IRA.—The term “Roth IRA” has the meaning given such term by
section 408A(b) of such Code.
(d) SURVIVING SPOUSE.—If a qualified airline employee died after receiving
an airline payment amount, or if an airline payment amount was paid to the
surviving spouse of a qualified airline employee in respect of the qualified airline
employee, the surviving spouse of the qualified airline employee may take all actions
permitted under section 125 of the Worker, Retiree and Employer Recovery Act of
2008, or under this section, to the same extent that the qualified airline
employee could have done had the qualified airline employee survived.
(e) EFFECTIVE DATE.—This section shall apply to transfers made after the
date of the enactment of this Act with respect to airline payment amounts
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