seTTleMenT silver lining: reTaining TaX deFerred growTH
Securities Section
Continued from page 56
independent third-party arbitration
award) to put the money back into
their IRAs as restorative payments
(that is, payments to restore losses
due to the aforementioned breach,
fraud, or securities violations)
instead of as an ordinary
contribution. 2 In doing so, the
individual avoids all the tax
consequences of the settlement and
maintains the tax-deferred growth
of the IRA, since restorative
payments can be made without
regard to the usual limitations on
contributions to an IRA. 3
It is important to note that in
determining whether settlement
proceeds are restorative payments,
the IRS takes into consideration
MAR - APR 2019
|
HCBA LAWYER
all the relevant facts and
circumstances surrounding the
particular payment of settlement
proceeds. 4 For instance, in PLR
200640003, reimbursements
for diversion of plan assets by
a trustee were characterized as
restorative payments, and in
PLR 200604039, a reimbursement
for losses from a prohibited
transaction was also characterized
as a restorative payment. 5
Keep in mind, however, that
the legal effect of a private letter
ruling is limited to the taxpayer
who requests it, so PLRs cannot
be cited as authority in any
litigation with the IRS. So it is
prudent to consider seeking a PLR
to obtain a definitive ruling for
your particular circumstances.
See Bruce D. Steiner, Restorative
Payments, Trusts & Estates Wealth
Watch News (Aug. 22, 2007), at
https://www.kkwc.com/wp-content/
uploads/2015/04/TE_Wealth_Watch_
News_August_2007.pdf.
2 PLR 200921039 (February 25,
2009); PLR 200719017 (Feb. 12, 2007).
3 See id.
4 See PLR 200723025 (June 26,
2007).
5 Steiner, supra
note 1.
1
Author:
Joseph P.
Glackin –
McNamara &
Carver, P.A.
57