For employers adopting a retirement plan, such as a 401(k) plan, the employer has these plan options:

• Individually designed plan,
• Master and Prototype plan,
• Volume Submitter plan.

To ensure that the plan document complies with the Internal Revenue Code, the plan sponsor may request the IRS review the document and issue a favorable determination letter on its qualified status. Requesting a determination letter is not legally required. The requirements for getting a favorable determination letter for a qualified retirement plan are prescribed in a January 3, 2012 guidance published by the Internal Revenue Service (IRS), Revenue Procedure 2012-6.

Changes to issuing determination letters went into effect Feb. 1, 2012 (May 1, 2012, for terminating and preapproved plans). The changes are meant to reduce the processing time for determination letter applications. The following summarizes changes to the determination letter program:

Eliminate Elective Demonstration Feature: Under the new procedures, the IRS will no longer make a determination relating to nondiscrimination, minimum coverage, and minimum participation requirements. Though, qualified plans are still required to perform and pass these tests.

Form 5307 Restricted to Minor Changes to a Volume Submitter (VS) Plan: Effective May 1, 2012, the IRS will not accept determination letter applications filed on Form 5307 for pre-approved master and prototype (M&P) plans. The IRS will no longer accept applications on Form 5307 for VS plans unless the modifications are not so significant as to cause the plan to be considered an individually designed plan.

Circumstances for Submitting Application for Pre-Approved Plan on Form 5300: Effective as of May 1, 2012, an adopter of a M & P or VS plan can get a determination letter by filing Form 5300 for one or more of these reasons: the employer has added language to a M&P plan to satisfy the requirements of Internal Revenue Code Sections 415 and 416 because of the required aggregation of plans or the plan is a pension plan with a normal retirement age under 62.

The IRS’s review of a determination letter application for a plan does not mean a determination of governmental plan or church plan status. An applicant needs to include any documentation under the Employee Plans Compliance Resolutions System (EPCRS) such as a closing agreement or compliance statement with a determination letter application. If a plan merger occurs, the applicant must submit to the IRS the following for each of the merged plans:

• prior determination,
• opinion or advisory letter,
• prior plan document and any amendments adopted after the date of the most recent determination, opinion or advisory letter.

Contact an experienced New York attorney for complex tax questions.

Any employer who passed January 31, 2012 without delivering information statements to their employees, and then to the IRS, that report 2011 exercises of incentive stock options (“ISOs”) and transfers of stock under employee stock purchase plans (“ESPPs”) may be in for some trouble for not following Internal Revenue Code Section 6039. Failure to distribute copies of the forms to employees can result in the assessment of $100 per statement, up to a maximum of $1.5 million per year. Failure to submit either the information statement to the IRS may result in a penalty of $100 for each return that has not been timely filed, with the aggregate assessment not to exceed $1.5 million in a calendar year.

Section 6039 of the Internal Revenue Code first required information statements to be delivered to employees in 2011 for exercise or transfer activity that happened during 2010. There was uncertainty on how employers were to follow these requirements before and during the first year of implementing Section 6039. Much of that confusion has been resolved with Forms 3921 and 3922. Forms printed from the IRS website are not scannable. Employers need to order official scannable forms from the IRS.

For ISOs, employers must deliver an information statement to employees by using IRS Form 3921. The form goes to all employees except nonresident aliens who have exercised options in the prior taxable year by January 31 of the following year. After delivering the form to the employees, the business must file the form with the IRS by either the last day of February (for paper filings) or March 31 (for electronic filings).

The information statement for ISOs needs to contain identifying information about the issuing company and employee, and:

• Date of grant;
• Date of exercise;
• Exercise price per share;
• Fair market value per share on the date of exercise; and
• Number of shares transferred to the employee resulting from the exercise.

For ESPPs, the information statement should be made on Form 3922. Form 3922 is required when the shares of stock transferred are acquired at an exercise price that is less than 100% of the value of the stock on the grant date or which is not fixed or determinable on the grant date. The distribution and filing deadlines are the same as the requirements for Form 3921.

The information statement for transfers of stock under an ESPP requires this information:

• Date of grant;
• Date of purchase;
• Fair market value per share on the grant date;
• Fair market value per share on the date of purchase;
• Purchase price; Number of shares purchased; and
• Date the legal title was transferred.

Contact an experienced NY tax attorney for complex tax questions.

Many times people do not file bankruptcy to get rid of their financial worries because they do not ask the right questions to better understand the bankruptcy process. The following answer frequently asked questions about bankruptcy proceedings:

What is bankruptcy?

Bankruptcy is a proceeding to discharge debt for individuals. Bankruptcy provides a fresh start to debtors by getting rid of old debt.

Bankruptcy filings have increased dramatically since 2008. Some areas in New York have seen a doubling of bankruptcy filings. As the economic downturn continues into 2012 with many Americans still seeking employment, bankruptcy relief may be the only way to get out of credit card debts, medical bills, mortgage obligations, or rental property liabilities.

Where does a debtor get bankruptcy information?

After filing bankruptcy, a debtor’s actions will be examined by the bankruptcy court. To avoid unnecessary complications during the bankruptcy process consult an experienced NY bankruptcy attorney early on. An experienced NY bankruptcy attorney can advise a debtor to follow the guidelines set by the court to ensure a smooth bankruptcy process. These guidelines include not:

• Using credit cards
• Taking cash advances
• Transferring assets with the intent to shelter the assets from creditors.

Will there be a court proceeding?

After signing a bankruptcy petition, a debtor usually worries about having to appear in court. A debtor appears for at least one court proceeding, the 341 hearing. At this meeting, the trustee, usually a self-employed individual, not an employee of the court, questions the debtor under oath about assets, liabilities, transfers, and income. The debtor has to tell the truth in all answers. Creditors may be present in the courtroom or trustee’s office and ask the debtor about circumstances under which the person incurred debts. If a debtor commits fraud, or does not tell the truth, the debts will not get discharged. The debtor needs to pay attention to the trustee’s question and answer only what is asked. If the debtor does not answer the question asked, the trustee may repeat the question until the trustee gets a direct answer.

To navigate through the bankruptcy process, engage an experienced NY bankruptcy attorney.

Many people get into financial debt because of legal problems. Individual legal problems can stem from contract disputes or tax problems. Speak with an experienced NY bankruptcy attorney to understand if the type of debt incurred from a legal dispute can be wiped out by filing bankruptcy.

A tax debt may not be dischargeable in bankruptcy, but filing bankruptcy may result in dischargeable debt that leaves cash to pay off tax debt.

In a contract dispute, there is a legally enforceable agreement between competent parties. Competent parties are those who have capacity to contract – they are of sound mind. In a contract, one party agrees to do something in exchange for some form of benefit. This benefit could be compensation. A contract must contain an offer, acceptance of the offer, a promise to perform, and consideration such as money. Contracts are essential to business deals, property acquisitions, and service provider-customer relations. Contract disputes often occur in society and leaves individuals with debt when there are lawsuit judgments for one party not fulfilling a promise in an agreement. Individuals see contracts everywhere from cellular phone providers to mortgages.

In a bankruptcy, an individual who owes money in a contract may decide to keep the contract and continue paying on the debt, or let the creditor know that the individual does not plan to perform under the contract. If an individual does not perform under a contract, the person has to give up any property such as a car that the contract involved.

Bankruptcy is a legal proceeding to discharge debt for individuals. A debtor is able to forego debt in bankruptcy because bankruptcy provides a new start to debtors by cutting off old debt. Bankruptcy involves the bankruptcy court, judge, attorneys, creditors, debtors, and trustee. The trustee represents the creditors and goes through a petitioner’s bankruptcy filings with a fine tooth comb. The judge tries to keep proceedings on track and fair. For instance, when a person is late for court, the judge may give the person a chance to arrive by waiting 20 minutes to call a case again before dismissing the case. This gives the party due process. The attorneys represent the different parties in the bankruptcy. They may represent the creditors or the debtors.

Two popular types of bankruptcy filings for individuals are the Chapter 7 and Chapter 13. Chapter 7 bankruptcy discharges all an individual’s debts except for some non-dischargeable debt, and is best for individuals who do not have many assets, and whose home equity does not exceed an equity limit.

Chapter 13 is for individuals whose income prohibits them from filing a Chapter 7 bankruptcy or who have assets they want to keep from getting sold to pay off creditors. In Chapter 13, the debtor makes repayments to creditors over a three to five year payment plan. At the end of that period, the remainder of the person’s debts is discharged.

If you are in debt, speak with an experienced NY bankruptcy attorney about your bankruptcy options.

After the busy winter holidays it is time for everyone to take a close look at any debt. Credit card bills from gift buying, travel expenses, mortgage, and car payments are screaming to get paid. Unforeseen circumstances such as a layoff, car accident, or cancer have added to the list of creditors.

Bankruptcy is not necessarily the result of bad behavior. Not everyone can benefit from working at a company whose stock prices shoot up in an initial public offering. Not everyone can afford health insurance. In 2010 over 50 million Americans lived without health insurance. The cost of treatment, even for minor issues like a cold or a dental cleaning, can be high. Insurmountable debt stems from the inability to pay bills, and can happen even to people who work all the time or are conscientious about saving money.

Look to a New York bankruptcy attorney with years of experience with debtors to understand that debt can be overwhelming.

A person in debt just wants to take all the bills and throw them in the garbage or a box in the dark corner of a closet. While an experienced NY bankruptcy attorney understands a debtor’s urge to hide debt from sight, do not ignore the bills. Creditors will soon begin harassing a debtor to payoff the debt. The debtor’s wages might get garnished and the debtor might face foreclosure on home that is not just a place to live but a place of memories.

Open each envelope holding bills, sort the bills by creditor and add up the debt and the monthly payments. Is there income enough to pay all these bills every month and take care of the cost of living? If not, consider filing for Chapter 7 or Chapter 13 bankruptcy. Don’t hesitate to call an experienced NY bankruptcy attorney to find out about bankruptcy options. Chapter 7 or Chapter 13 bankruptcy will help clean up financial problems and start 2012 fresh.

Chapter 7, filed by most individuals without a lot of assets, is the type of bankruptcy named from the chapter of the bankruptcy code which can be found at Chapter 7 of Title 11 of the United States Code. Chapter 7 bankruptcy gives the debtor a fresh start. In Chapter 7 bankruptcy all dischargeable debts will be cancelled. Creditors are not able to claim any debt after a discharge. Most people get to keep all of their property such as their home in Chapter 7 bankruptcy.

While filing a Chapter 7 bankruptcy may sound simple, filing the proper court documents, with all the scheduling of assets and liabilities, and understanding how to protect property through the bankruptcy process can be confusing and overwhelming to someone not represented by an attorney.

A Chapter 13 bankruptcy is another type of bankruptcy often filed by individuals. It differs from a Chapter 7 in that there is a payment plan.

A Chapter 7 or a Chapter 13 bankruptcy may be filed jointly for married couples. This makes a difference when evaluating exemption amounts. Exemption amounts mean amounts such as retirement benefits that are exempt from a Chapter 7 or Chapter 13 bankruptcy.

Consult an experienced NY bankruptcy attorney on how to deal with insurmountable debt.

Three years after Bernard Madoff’s arrest, about $11 billion of the $18 billion in estimated losses has been recovered by Irving Pickard, the Madoff trustee.

In 2011, Picard faced legal challenges. First he obtained a court approval of a $7.2 billion settlement by the estate of Jeffry Picower. Picower was a Wall Street investor who profited well from Madoff accounts. In 2012, Picard’s priority will be to appeal lower court rulings that could reduce any future recovery by about $11 billion. The lower court rulings involved three major issues:

• Picard’s legal right to sue Madoff’s bank or other third parties on behalf of defrauded investors,
• whether there is a safe harbor to protect investors from having to turn over profits made prior to the collapse of the Ponzi scheme; and
• proof Picard needs to establish that sophisticated investors were willfully blind to the fraud.

The third issue has been highlighted in a NY case involving the New York Mets owners, presided by Judge Jed S. Rakoff of Federal District Court in Manhattan.

While Madoff served a 150-year sentence in a federal prison in Butner, NC, Picard sustained in 2011 congressional and public criticism on his claims formula. In approving the 2,425 out of 16,519 claims filed, Picard evaluated just the net figures, denying claims by investors who eventually withdrew more money than they invested with Madoff. A federal appeals court approved Picard’s formula on who should be paid first. The net winners argued their claims should be based on the last account statements they received prior to Madoff’s arrest. These statements showed the investors were owed a total of $64.8 billion.

In February 2011, Rep. Scott Garret (R-NJ) introduced a bill requiring the trustee in a brokerage-firm bankruptcy to accept claims on the final account statements, rather than the net cash lost. The bill also proscribed the trustee from recovering the fictional profits the investor received, according to “The Lasting Shadow of Bernie Madoff,” The New York Times, December 10, 2011. The bill would also stop a trustee from suing to recover fictional profits from net winner investors even if the brokerage firm’s bankruptcy was a result of a Ponzi scheme, where the profits were really cash the schemers stole from someone else.

During summer 2011, Garrett requested the Government Accountability Office to investigate how Picard handled the Madoff liquidation, which is still ongoing.

For complex bankruptcy questions, contact an experienced NY bankruptcy attorney.

Cellfor, a privately held company headquartered in Vancouver, Canada that supplies conifer varietal seedlings to the forest industry, got a court order granting it protection under the Companies’ Creditors Arrangement Act.

An order from Justice Harris of the Supreme Court of British Columbia grants a stay of proceedings against all actions and creditors until January 16, 2012, when a further hearing is scheduled to consider a possible extension of the stay. A stay prohibits creditors from taking collection activities against the debtors during the pendency of the case. In a US bankruptcy, once a debtor files a petition, creditors cannot collect on the debts, including the sending of letters, telephone calls, foreclosure proceedings, or prosecution of lawsuits. In the US, any creditor that continues with collection actions a debtor files a bankruptcy petition may be in violation of US federal law and may be subject to penalties.

In the Northern District of Georgia, Cellfor has been granted a temporary restraining order under the US Federal Bankruptcy Laws Chapter 15 by the United States Bankruptcy Court. There was a hearing scheduled on January 20, 2012 to determine the issue of recognition of the Canadian CCAA proceedings and to review a request by Cellfor for a permanent injunction.

Cellfor Inc. has main operations located in British Columbia. It is the sole shareholder and owner of Cellfor Corp., a US company registered in Delaware, headquartered in Georgia. The two companies do business collectively under the name Cellfor and have the same CFO and CEO.

Cellfor’s business involves research, development and commercial sale of technologies relating to cloning conifer seedlings for the forest industry. The company selects, produces and markets seedlings that provide improved growth rates, disease resistance, and wood quality.

Research, development work, and administration of the tissue culture phase of production, are done at laboratory and storage facilities near Victoria, BC. The production process is done through subcontracts with industry partners in Canada and the United States.

According to its filing with the BC Supreme Court, Cellfor is experiencing negative cash flow and its existing investors are unable to provide more funding. The company is insolvent because it cannot meet obligations when they are due and cash reserves are not enough to operate the business without court protection.

Cellfor states its financial difficulties relate to a continuing research and development activities, slow reduction in production costs, low sales volume growth, and a challenging economic climate.

Current assets are valued at about $12 million, with primary assets being intellectual property and a portfolio of seedling products preserved as tissue in cryopreservation facilities. Current liabilities are around $5.8 million, with an additional $5.9 million owed to secured convertible note and debt holders.

For complex bankruptcy questions, consult with an experienced New York bankruptcy attorney who keeps updated on bankruptcy news developments.

Already 2012, and tax time is coming up.

This year, the IRS and many states are not mailing tax forms. They are expecting people to go onto their websites to print out forms and instructions. The Internal Revenue Service provides tips to make sure the tax-filing process goes smoothly:

1. Gather records: order the forms and instructions needed for filing a return; gather receipts, canceled checks and credit card statements that support income or deductions being claimed on a return.

2. Make a list of W-2s and 1099s: Look out for W-2s and 1099s. These documents need to be attached to returns. Sometimes these documents may contain errors. Keep a spreadsheet on what the amounts should be by reviewing prior invoices, receivables, and paystubs.

3. Get Answers: Instead of guessing how to fill out something on a return, use the Interactive Tax Assistant available on the IRS website to get answers to tax questions on credits or deductions.

4. Use Free File: Available on www.irs.gov is Free File. Everyone can prepare a tax return and e-file it for free. If a person makes $57,000 or less, the individual qualifies to use free tax software offered through a private-public partnership with manufacturers. If an individual makes more than $57,000 or is comfortable preparing a tax return, Free File Fillable Forms, the electronic versions of IRS paper forms, area available at www.irs.gov/freefile.

5. Use IRS e-file: e-file lets people receives their refunds faster. The IRS issues refunds to 98% of e-filers by direct deposit within 14 days, and some may be issued in 10 days.

6. Investigate filing support: There are many avenues of support for the tax payer. Besides paid tax preparers, a person may be eligible for free volunteer help.

7. Use direct deposit: If a taxpayer expects a refund, consider direct deposit to receive it faster than a paper check in the postal mail.

8. Get to know the IRS website: The IRS website at www.irs.gov is a place to find forms, publications, tips, answers to frequently asked questions and updates on tax law changes. It is better than staying on hold when calling the IRS.

9. Read IRS Publication 17: IRS Publication 17, Your Federal Income Tax, found on the IRS website provides a resource for taxpayers when filing a return.

10. Review: Do not rush through preparing a tax return. Look for calculation errors. There may be mistakes in using the wrong tax tables. Filing a return with mistakes slows down the processing of a return, or may result in penalties.

To learn more about tax returns, consult an experienced New York tax attorney.

On December 7, 2011, the IRS issued guidance for dual citizens of the United States and a foreign country who failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). The guidance, FS-2011-13, is found at http://www.irs.gov/newsroom/article/0,,id=250788,00.html.

Under FS-2011-13, dual citizens who fail to file U.S. tax returns or FBARs will not be automatically imposed penalties. Taxpayers will not owe U.S. tax penalties if they owe no U.S. tax. For instance, they do not owe taxes because of the application of the foreign earned income exclusion or foreign tax credits, or failure was due to reasonable cause.

The IRS often grants a failure is due to reasonable cause when the taxpayer exercised ordinary business care and prudence in meeting the tax obligations but failed to meet them. This may happen when the taxpayer establishes the taxpayer was not aware of particular obligations to file returns or pay taxes. The IRS considers education, history of being subject to federal income tax or penalties, changes in the tax forms or law the taxpayer could not reasonably be expected to know, and the complexity of a tax.

A FBAR must be filed by any United States person by June 30 of the year following the calendar year in which the United States person (U.S. citizen or U.S. resident, corporation, trust, partnership or limited liability company created, organized or formed under U.S. law) has a financial interest in, or signature authority over, foreign financial accounts (FFAs) where the aggregate value exceeds $10,000 at any time during the calendar year. Read 31 C.F.R.§1010.350(a); TD F 90-22.1 (Rev. 3-2011).

A FBAR violation may be due to reasonable cause when the taxpayer relies on the advice of a professional tax advisor who was informed of the existence of the foreign financial account. If this happens, the unreported account must be established for a legitimate purpose. There must not be no indications of intentional concealment of the reporting of income or assets. There should be no tax deficiency, or if there is a tax deficiency, the amount is de minimis.

Factors that weigh against a finding of reasonable cause in a FBAR violation include whether the taxpayer’s background and education show s/he should have known of the FBAR reporting requirements, if there was a tax deficiency related to the unreported foreign account, and if the taxpayer did not disclose the account existence to the person preparing the tax return.

Consult with an experienced New York tax attorney to prevent late tax filings and penalties.

When drafting a trust, or planning for what happens to property after death, the taxpayer needs to be aware that all estates face tax issues. Federal and state laws must be considered. When studying federal laws, a taxpayer should pay attention to IRS administrative rulings.

The estate tax is a federal tax due when an individual dies and his/her property is given to heirs. In a trust, upon death, trust beneficiaries will be subject to estate taxes. The estate tax considers everything the deceased owned or had interests in at the date of death. The estate tax does not change based on whether the deceased transfers assets through will, trust, or state intestacy laws.

The gift tax prevents avoidance of the estate tax by giving away an estate before death.

However, there are personal exemptions from estate and gift taxes. There is no estate tax when a person leaves an estate to a spouse. This is because of the marital deduction. For gifts to individuals other than a spouse, the personal tax exemption applies. In 2009, estates with a value of $3.5 million could be left to other individuals without estate taxes. Reference to the federal estate tax can be obtained from www.irs.gov.

Some trust structures allow combining the individual tax exemption of a couple to save estate taxes when a second spouse dies. Such a trust is known as the AB Trust. Other names for the AB Trust are: bypass trust, exemption trust, family trust, credit shelter trust. AB Trust tax savings apply to married individuals only. AB Trusts avoid probate and provide estate tax savings.

An AB Trust uses the personal estate tax exemption of each spouse to maximize tax savings on the combined estate for heirs, such as children, of the couple. The structure of the AB Trust uses a shared living trust for both spouses and two additional trusts for each spouse, Trust A and Trust B.

If one spouse passes away, the spouse’s designated property of the shared trust goes into a new Trust A, which becomes irrevocable and provides the surviving spouse a lifelong interest in the trust assets. No trust assets are transferred upon the death of the first spouse to the other spouse. They remain in the
irrevocable Trust A.

The designated property of the surviving spouse goes into Trust B. Trust B stays revocable. The children of the married individuals are often nominated as second beneficiaries of the two trusts. As long as the surviving spouse does not change Trust B, according to trust terms, the children receive the trust assets of Trust A and Trust B.

As to the estate tax, the first transfer from the shared trust to Trust A is taxable because the marital deduction does not apply. Though, the personal estate tax threshold reduces or nullifies estate taxes. When the children become Trust A beneficiaries, there is no estate tax. Estate tax is applied on the assets of Trust B. Trust B is the trust of the surviving spouse. The personal estate tax threshold of the second spouse reduces or nullifies the estate tax on Trust B.

To learn more about estate and gift tax savings, consult with an experienced New York tax attorney.