IRS precluded from requiring retroactive changes in actuarial assumptions.

• Author: Langford, Brady

IN THIS DEPARTMENT

Accounting Methods and Periods Payment of accrued compensation; p. 657.

Business Expenses

Tax-related payments; p. 654.

Depreciation

Property placed in service in short tax years; p. 655.

Estate Planning

Inheritance planning; p. 649.

Gifts Cancellation of installment obligations; p. 650.

Gross Income

Effect of nonrecourse debt on insolvency determination; p. 651.

Liquidation of Corporation

Liquidating trustee's personal liability; p. 652.

Partners and Partnerships

Sec. 752 election under final regulations; p. 660. Workout arrangements; p. 642.

Pensions ESOP valuations; p. 658. Retroactive changes in actuarial assumptions; p. 640. State and local plans; p. 662.

Procedure and Administration Offers in compromise; p. 661.

S Corporations AMT calculations; p. 666. Trust installment obligations; p. 644.

State Taxes Nexus; p. 659.

Unless otherwise indicated, contributors' firms are associated with DFK International.

"Like Christmas in July" was the sentiment among many taxpayers and practitioners who eagerly awaited the decisions handed down in Vinson & Elkms, 99 TC No. 2, and Wachtell, Lipton, Rosan & Katz, TC Memo 1992-392, on July 14, 1992. These cases involved the reasonableness of actuarial assumptions made by the enrolled actuaries of the taxpayers' defined benefit plans. In both cases, the taxpayers prevailed. Unfortunately, the timing of these decisions, the planned expiration of the offers at the Actuarial Resolution Program and the IRS's absolute refusal to discuss the issues may leave taxpayers with no acceptable option. Certainly, advisers should consider the availability of the award of legal fees under Sec. 7430.

Background

The Service has devoted substantial resources since its success in Jerome Mirza and Associates, Ltd., 882 F2d 229 (7th Cir. 1989), aff'g 692 F Supp 918 (DC III. 1988), in identifying the sponsors of primarily small defined benefit plans that are perceived as abusive, and challenging the deductions claimed by these sponsors. The IRS contention has been that actuarial assumptions used in projecting maximum employer contributions have been unreasonable. The Service believes that these assumptions have been set to maximire current contributions and related deductions, and that these assumptions do not reflect economic reality. 1t has been the IRS position that a retroactive change in assumptions--which would translate into tax deficiencies, interest and excise taxes under Sec. 4972, and penalties...