CEO of National Pension Partners and Northeastern University, Boston

Nick Paleveda MBA, J.D., LL.M
CEO of National Pension Partners and
Adjunct Professor of the Graduate Tax Program
Northeastern University, Boston
Why the recession is coming!
By Nick Paleveda MBA J.D. LL.M
CEO National Pension Partners.
Last month I predicted a recession is coming the day after the deal was sealed in the “other Washington”. Shortly
thereafter the stock market went into cardiac arrest and the pundits predicted the probability of a recession at 1/3
or 50% or …whatever. No one gave a good analysis or reason. Now, I will explain why this is an easy call.
Look at “Game Theory”. If you ever play Monopoly, the banker generally gives you $200.00 every time you pass
go. This allows the players to remain in the game (at least for a while) buying houses and paying rent. Now play
the game where the banker does not give you $200.00 but takes away $200.00 every time you pass go. Notice
how more bankruptcies occur, notice how many people are “out of the game” (unemployed) very quickly. When
our friends in the other Washington decided to remove 1 trillion from the game (soon to be followed by another
1.5 trillion) what do you think will happen?
Capitalism is reward by “profits” not losses, no matter how artificial they may be as inflation may take away the
“real profits”. When you remove capital, well it is like removing blood from your system creating stock market
cardiac arrest! Or you decide you are too fat and go on a diet and do not eat anything for one day now two now
three-well you are losing weight but …
Game theory is the “best” as in many cases games are a microcosm of our economy. A shrinking money supply
keeps profits down, increases potential for losses, increases bankruptcies all in due time. Play Monopoly with
different rules! Take money out and see what happens! The Banker needs to be responsible and keep the money
supply moving. Today, the Banker is the “tea party” and is taking money out because the banker does not want
deficits or debts. The banker also wants to ignore other ways to handle the debt which will be the subject of next
month’s Pension News!
The opinions expressed are only the authors and not the opinions of National Pension Partners, it affiliates or Northeastern
University.
Tax Trivia
For a $5.00 Starbucks Card
Q – This law school did a study of 219 court cases and concluded: “Courts upheld agency interpretations 76.26% of the
cases studied” - Name this law school.
e-mail the answer to nick@nationalpensions.com (limit first 10 correct responses)
Congratulations to last month’s winners:
1. George Cicotte J.D.
2. Philip Garnett CPA
4. Joseph Reisman
5. Don Wolfe CPA
3. Darlene Plumley CPA
The answer was:- Veba Rules were first written in 1928!
__________________________________________________________________________________________________
Tax Planning Strategies with Defined Benefit Plans
Sponsored by the Washington Society of CPAS
Length: 4 hours
CPE Credits: 4
Course Level: Update
Field of Study1: Tax
OBJECTIVE:
The workshop will highlight how to structure the retirement plans for medical doctors and other professionals using “cross
testing” to allow them to contribute more for their retirement plans without driving up employee cost. A special segment
on deferring income taxes on small practice sales using a pension plan.
DATES:
August17, 2011
September, 16, 2011
October 19, 2011
November 4, 2011
December 2, 2011
December 7, 2011
9:00am PDT
9:00am PDT
9:00am PDT
9:00am PDT
9:00am PDT
9:00am PDT
FACULTY:
Nick Paleveda MBA. J.D., LL.M
Adjunct Professor of the Graduate Tax Program Northeastern University, Boston
__________________________________________________________________________________________
New York Society of CPAs - on the Internet
Nick Paleveda MBA J.D. LL.M,
Adjunct Professor - Graduate Tax Program, Northeastern University will be presenting
“Tax Strategies Using Defined Benefit Plans” for the New York Society of CPAs
For more information about the programs, contact The New York Society of CPAs.
“Live at the University of Denver”
“Section 401(k) and Cross-Testing Plans”
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Learn what a “Cross Tested” plan is.
Estate planning strategies using “Cross Tested” plans.
Income Tax Strategies using “Cross Tested” plans.
Learn why you need to know about “Cross Tested” plans.
How to use “Cross Tested” plans to transition a business on a tax favored basis.
Learn how “Cross Tested” plans can save business owners thousands of dollars in taxes.
Learn how a “Cross Tested” plan can reduce employee retirement cost.
Learn about the secrets of these plans that can be used for estate planning and income tax planning.
By Nick Paleveda MBA J.D. LL.M, Adjunct Professor
Graduate Tax Program, Northeastern University.
This is a live presentation at the University of Denver, Rickerson Law building
on:
Monday, October 31, 2011, 1:00-4:30p.m.
CPE and CLE Credits available.
To register - contact the University of Denver Graduate Tax Program
ask for Linda Browning at 303-871-6243
SENIOR PENSION CONSULTANTS
SENIOR PENSION CONSULTANTS
New York City
Allan Corby CFP, CLU, REBC, SPC
(917)576-6466
Gary Palomba, SPC (845)225-2536
Pietro Sabatino, QKA (917)833-2344
Ron Henley, IGM (917)460-3834
Joseph W. Tucciarone, CFP®
(516)629-9043
Phoenix, AZ
Anatol Prehar, MBA, SPC
(602)249-6549
Joe Ballarino, CFP, CPhD, SPC
(480)421-0939
Boston, MA.
Tom Ruggiero CLU, ChFC, SPC
(800)844-1842
Ken Martinelli, CLU, MBA, SPC
Cheryl Villani, CEBS (603)345-6755
Raleigh-Durham, NC
Mel Johnson, SPC (919)373-4185
Tampa-St. Petersburg, FL.
Pat Sullivan, CFP, SPC (727)518-0051
Nick Paleveda MBA J.D. LL.M
(360)733-1356
Boca Raton, FL.
Barry Siegel, JD (866)573-3913
Houston, TX.
Carla Cargle, SPC(832)541-7470
Minneapolis, MN.
Roy Bredholt, Jr. CFP, SPC (952) 476 2003
Portland, Or.
Bruce Porter, SPC.
Denver, CO
Dan Flanscha, CFP, SPC
(971)461-0808
Salt Lake City, UT
Max Coulliette, CFP, ChFC, SPC
(801)676-1500
Terry Rushton, CPA, MBA, SPC
(808)707-7821
William Menghi, PC
(801)676-1515
Grand Rapids, MI
Kevin DeVries, SPC (616)285-5437
Michael DeVries, SPC (616)285-5437
Glenn Hargrove, SPC (616)285-5437
Seattle/Bellingham
Nick Paleveda, MBA, JD, LL.M
(360)733-1356
Peter Pearce, SPC (360)305-0927
Jeff Ashmore, PC (360)733-1356
Nashville, TN.
Pat Sullivan, CFP, SPC (727)518-0051
Orlando, FL.
Joseph Bilello, ChFC, SPC
(407)331-7330
Dan McMonagle, ASA, EA, MAAA
(503) 913-0338
San Francisco, CA.
Sunny Wang, SPC
(408)971-2060 x2009
San Mateo, CA
Bill Huang, SPC (650)357-9750 x104
San Diego, CA.
Tony Parsons, SPC (619)316-4188
Cincinnati, Ohio
Timothy P. Murray CLU, ChFC, SPC (513)376-7100
Detroit Michigan
Jeremy Goldstein CLU, ChFC, SPC
(248) 585-1900
Barrington, IL
John Vogel, CLU, ChFC, CRC, AIF
(847) 304-1869
5 Facts about the IRS and Mortgage Debt Forgiveness
Mark J. Kohler, J.D., CPA, Attorney at Law
If your mortgage debt is partially or entirely forgiven during tax years 2007 through 2012,
you may be receiving a 1099-C in the mail. Regrettably, this is a phone call from my clients
I have to field on a regular basis and they are oftentimes terrified that now after going
through the nightmare of home foreclosure or short-sale, they may now be paying tax on
‘debt forgiveness’.
However, not all is lost, you may be able to claim special tax relief and exclude the debt
forgiven from your income. Here are 5 facts the IRS wants you to know about Mortgage
Debt Forgiveness.
1. What is a 1099-C. If you had debt forgiven or eliminated during the past year, normally
you will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your
lender. By law, this form must show the amount of debt forgiven and the fair market value
of any property foreclosed. Generally debt forgiveness results in taxable income that must
be claimed on your tax return.
Mark J. Kohler is an attorney, certified public
accountant, entrepreneur, and author of “What
Your CPA Isn’t Telling You”: “Life-Changing
Tax Strategies” (Entrepreneur Press) and
“Lawyers are Liars”: “The Truth about
Protecting Our Assets” (Life’s Plan
Publishing).
Kohler’s principal career has been as a partner
in the accounting firm Kohler & Eyre CPAs,
LLP, and the law firm Kyler, Kohler,
Ostermiller, & Sorensen, LLP, where he
specializes in the areas of business, estate and
tax planning.
He is a personal and small business tax and
legal expert, who helps clients build and
protect wealth through wealth management
strategies, and business and tax remedies often
overlooked in this challenging, ever-changing
economic climate. A well regarded speaker on
this topic, his seminars have helped tens of
thousands of individuals and small business
owners navigate the maze of legal, regulatory
and financial laws to greater success and
wealth.
Kohler is a contributing writer to
Entrepreneur.com as well as the host of
weekly internet radio show, The Mark Kohler
Show, which can be accessed at:
www.blogtalkradio.com/kkolawyers
Mark is a proud father of four beautiful
children and husband to his lovely wife. They
reside in Orange County, California.
To learn more about Mark, visit
www.markjkohler.com
2. Primary Residence. Under the Mortgage Forgiveness Debt Relief Act of 2007, you can
exclude up to $2 million of debt forgiven IF it was to purchase your principal residence. The
limit is $1 million for a married person filing a separate return. Also, you may exclude debt
reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
To qualify, the debt must have been used to buy, build or substantially improve your
principal residence and be secured by that residence.
3. Refinanced Debt. Refinanced debt may or may not be taxable, it depends on what the
money was used for. Proceeds used for the purpose of substantially improving your
principal residence will qualify for the exclusion. However, proceeds of refinanced debt
used for other purposes – for example, to pay off credit card debt or buy a rental property
will not qualify for the exclusion.
4. Second homes and Rental Property. Debt forgiven on second homes, rental property,
business property, credit cards or car loans do not qualify for the tax relief provision under
the Mortgage Forgiveness Debt Relief Act of 2007. However, in some cases, other tax relief
provisions – such as showing insolvency or claiming bankruptcy may allow a taxpayer to
avoid claiming the debt forgiveness as income. .
5. Obtaining the Exclusion. If you qualify, to claim the special exclusion a taxpayer must
file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it
to their federal income tax return for the tax year in which the qualified debt was forgiven.
IRS Form 982 provides more details about these provisions.
As you can imagine, this is not something to trifle with and this may not be the year to try
and do your tax return yourself. Examine the Form 1099-C carefully. Notify the lender
immediately if any of the information shown is incorrect. You should pay particular
attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in
Box 7.
Most importantly, retain a CPA that understands this issue to assist you in the preparation of
your tax return. Remember, this too will pass. What doesn’t kill you will make you
stronger.
Mark J. Kohler, CPA, Attorney at Law and Author of the Best Selling Book “Lawyers are
Liars”- “The Truth about Protecting Your Assets” and his new book “What your CPA isn’t
telling you”. For more information visit www.markjkohler.com .
4164 Meridian Street, Suite #208
Bellingham, WA 98226
(360) 733-1356
DB PENSION PLAN
TIPS & TRAPS
DB pension plan installation and DB pension plan maintenance can present problems for the unwary. This information
on DB pension plans will help you avoid them.
DB pension plan: Overview
Tip: A DB pension plan is one in which the benefits are first “defined” and the annual employer contributions needed to
provide these benefits are then determined. For a successful DB pension plan, each of the following five plan functions
must be well executed: design, investments, administration and compliance, communication with employees and
control of expenses. An actuary is crucial to the success of a DB pension plan.
Trap: Employers are frequently unprepared for the demands that a DB pension plan can place on an organization.
Among these are the necessity of making the annual contribution in a timely manner despite financial hardship, the
complexity of DB pension plan administration and the difficulty in effectively communicating the plan to employees.
DB pension plan: Design
Tip: A DB plan must be carefully designed. To accomplish this, sophisticated actuarial calculations are required to
determine a benefit formula that is consistent with the employer’s objective and budget.
Trap: Poorly designed DB plans may not produce the benefits desired by the employer for the participants, necessitating
plan redesign or termination. Moreover, once the benefit formula is determined, an annual contribution must be made
by the employer to provide these benefits, despite financial difficulties. To avoid future problems, employers should
insist on benefit projections and costs under various assumptions before a defined benefit pension plan is established.
DB pension plan: Investment
Tip: Plan investment options must be carefully established and monitored. Since benefits are ultimately provided from
employer contributions and their investment earnings, the employer’s annual costs are reduced or increased by
investment performance. Therefore, investments should not be overly aggressive; if a large loss occurs, contributions
may require a dramatic increase. Employers need not worry as much about fiduciary liability with investment
performance as in a defined contribution retirement plan.
Trap: Fiduciary responsibilities should be fully understood by the employer prior to a DB pension plan’s establishment.
Small DB plans are especially vulnerable to self-dealing between the employer and the plan. These are referred to as
prohibited transactions and could lead to severe penalties from the Dept. of Labor.
DB pension plan: Administration and Compliance
Tip: DB pension plan administration and compliance requirements must be assigned and monitored. A TPA and actuary
will often be needed for this function. A description of all necessary services should be indicated by the DB plan
provider when the plan is established. Controls are needed to ensure that the data used to calculate participants’
benefits are accurate. If these controls are not properly maintained, mistakes could easily occur and, if serious enough,
ultimately result in plan disqualification by the IRS.
Trap: Distribution of a participants’ benefits based on incorrect data, delay in making the required employer annual
contribution even a few days past the due date and the “overfunding” or “underfunding” of a DB plan are examples of
difficulties that can be encountered. Precautions should be taken to avoid such possibilities.
DB pension plan: Communication with Employees
Tip: Employees are frequently unaware of how benefits are accrued in a DB pension plan. Care should be taken to
ensure they understand the plan’s benefit formula as well as possible. Poor understanding of the plan’s benefits by
employees could jeopardize the desire of employers to continue the plan. The DB pension plan should be explained to
employees before it is adopted.
Trap: Employers should be especially careful with all communication material containing benefit calculations. Annual
employee benefit statements should be reviewed for reasonableness before they are released; at the very least, the
data used should be verified.
DB pension plan: Expenses
Tip: DB pension plan expenses can arise from any of the four areas mentioned above. Employers should be cognizant of
all fees when the plan is established and make provision for their periodic review.
Trap: DB pension plan fees are often high because of sophisticated actuarial work; however, failure to use sufficient
actuarial services may cause problems and result in unnecessary costs.
DB pension plan further assistance
If you are considering a defined benefit pension plan but have questions or need assistance, please complete our short
form. We will reply promptly.
If you already have a DB pension plan and would like complimentary evaluation, please complete one short review
questionnaire.
- Plan Design Review
- Plan Investment Review
- Plan Administration and Compliance Review
Phone: (360) 733-1356 Fax: (360) 756-9033 | 4164 Meridian Street, Suite #208 Bellingham, WA 98226 | http://www.nat