Friday, September 10, 2010

US Non-Qualified Pension Claim and IRS

Earlier this year I wrote about my attempt to get a ruling from the IRS regarding the possibility of rolling over into an IRA, any payout I might receive as a creditor of NNI for my non-qualified pension. I also asked about the possibility of claiming a loss for the portion of the non-qualified claim that I didn't receive.

The tax advocate called me a few times to discuss this but was never able to provide a clear or definitive answer. She was limited in her ability to get assistance from the experts in the IRS who deal with pensions.

I decided to go see the IRS at the local federal building. The people there tried to help but I think they also do not have the knowledge to deal with such a complex issue. In fact I think they are only equipped to deal with simple tax filing questions.

However the clerk did mention something that may be important. She said that the questions could only really be answered when it was clear how the court would title the payments. If the payments are made on a 1099-misc then they are subject to tax like ordinary income. I explained that these claims are for tax deferred pensions that disappeared and she said that if the court titled the payments as 1099-R then we may be able work out a way to roll them over. Not sure yet.

Hence my next step is to try to find out how the court defines the payments and if it is possible to distinguish the payouts as pension related by issuing us a 1099-R. It seems to me that we could perhaps have a lawyer put a motion before the court to treat the claims for non-qualified pension as 1099-R eligible. After all it wouldn't make any difference to the other creditors but it would allow us to place the money into an IRA and withdraw it on an annual basis so that we were not hit with a large tax fee for the entire amount all at once.

I realize that the NQ portion of the pension was over the IRS limit at the time the pension started, however in the last 10 years the limit has increased a lot so that it is possible the claim payout would be under the new IRS limits. In addition we were receiving the payments from Nortel over a period of years so it was being treated as if it was a tax deferred fund with annual payments, like an IRA.

I still don't have a feel for the second question about claiming the loss. I'll keep trying the IRS to see if I can get some guidance.

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