The Worker, Retiree, and Employer Recovery Act of 2008 suspends mandatory withdrawal rules for 2009, provides PPA technical corrections and freezes some contribution requirements.


On December 23, former President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA 2008). WRERA 2008 provides a number of relief provisions for qualified plan sponsors and their beneficiaries and individual retirement arrangements.

Required Minimum Distribution Relief for 2009

WRERA 2008 includes provisions that eliminate Required Minimum Distributions for distribution year 2009 for IRA’s, qualified employer defined contribution plans (including 401(k) plans, profit sharing plans and money purchase pension plans), 403(a) and 403(b) plans and 457(b) plans. You will not have to add any skipped payout to what you have to withdraw in 2010.

Roth-to-Roth Rollovers

The $100,000 adjusted gross income limitation for IRA roll-overs does not apply after 2009. WRERA 2008 provides that a rollover from a Roth IRA or a designated Roth account to a Roth IRA is not subject to the adjusted gross income limitation and is not subject to tax.

Rollovers by Non-spouse Beneficiaries

            Non-spouse beneficiaries can now roll over inherited eligible retirement plans to an IRA created to receive the inherited eligible retirement plan in a direct trustee-to-trustee transfer. After 2009, a rollover by a non-spouse beneficiary is generally treated like any other eligible rollover.

Written by Casey Jones.



Congress recently enacted and the President signed into law the Emergency Economic Stabilization Act of 2008. Among other things, this new legislation included the extension of provisions of the Pension Protection Act of 2006 relating to IRA distributions to qualified charities. The provisions of the 2006 law (which expired at the end of 2007) now continue to be effective for distributions made in 2008 and 2009. Qualified distributions directly from an IRA to a charity are not reportable as taxable income to the taxpayer and the taxpayer takes no charitable deduction for contribution. Set forth below are the requirements that must be met:

·The taxpayer must be at least 70 1/2 years of age at the time of the distribution/gift

·The distribution/gift must be from a traditional or Roth IRA (other retirement plans such as a 401(k) do not qualify)

·With limited exceptions, the distribution/gift must be made to a public charity that is not a supporting organization or a donor advised fund

·The distribution/gift must be made outright to the charity with no life income benefits to the taxpayer or others such as those that may be available through a charitable gift annuity or charitable remainder trust

·The distribution/gift must be paid directly from the IRA administrator to the charity

·Qualifying distributions are limited to a total of $100,000.00 per individual per year

·The exclusion from income applies only if the entire distribution would have been allowed as a charitable contribution but for the application of this law (e.g., the charitable deduction would not have been reduced or eliminated because of benefits available to the taxpayer resulting from the gift)

This provision of this law may be particularly beneficial to taxpayers who do not itemize deductions since they would not claim a charitable deduction if the IRA distributions were made directly to them and they in turn made donations to charity. Not having to include the IRA distributions as reportable income saves taxes on those distributions. Taking advantage of this law may also reduce the amount of social security benefits that are subject to tax, since the taxation of social security is contingent upon the taxpayer’s reportable income. The lawmay also benefit those who have carryover charitable contributions and those who may otherwise be subject to reductions in itemized deductions.

The foregoing information is intended as general information only and is not intended as legal or tax advice. Please contact Strong & Hanni for specific legal or tax advice on this matter.

Article provided by Paul Hess.




We recommend that any of our clients using payroll agents protect themselves, because the IRS has taken the position that a business is on the hook for unemployment taxes if the payroll agent goes bankrupt. Among the steps the IRS has recommended are the following:

            1.         Make sure the agent has posted a fiduciary bond;

            2.         Insist that all IRS correspondence regarding your company’s payroll taxes come to you, not to your payroll agent; and

            3.         Make sure that your payroll agent deposits your taxes electronically so that it will be easy for you to check your bank statements to make sure the payments were made.

Written by Paul Hess


Effective January 1, 2009, the annual gift tax exclusion will increase from $12,000 to $13,000. That amount doubles to $26,000 if the spouse joins in the gift.

Written by Paul Hess

A Silver Lining in Decreasing Values

We are all disappointed and discouraged by the ongoing turmoil in the financial markets and the loss of value in our own investment portfolios. But we want to remind our high net worth clients of an important opportunity in this depressed market, and that is the opportunity to shrink your taxable estate by gifting. As you may recall, Federal Law allows each American a $1 million exemption from the U.S. Gift Tax. This is in addition to the $12,000 per person Annual Exclusion.

Now is an opportune time to consider using your $1 million lifetime exemption to reduce your taxable estate and to reduce future death taxes to be paid by your family. You can leverage your gifting while stock and real estate values are low. For example, if you have suffered a 20% loss in the value of a bundle of stocks, a gift that would have eaten up $1 million of gifting ability a few weeks ago would now use up only $800,000 of your exemption.

The U.S. Estate Tax is not likely to go away. The U.S. Senate has recently adopted proposed legislation that would lock the exemption from Estate Tax at $3.5 million per person. The lifetime Gift Tax exemption is likely to stay at around $1 million. If you use your lifetime Gift Tax exemption, of course that eats into your Estate Tax exemption at death, dollar-for-dollar.

Let us know if we can answer any questions for you about this important gifting opportunity!

Written by Paul Hess


The Department of Homeland Security has updated its Employment Eligibility Verification Form I-9. All employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the U.S. On the form, the employer must verify the employment eligibility and identity documents presented by the employee and record the document information on the Form I-9. Employers must keep the Form I-9 for three years after the date of hire or for one year after employment is terminated, whichever is later.

The current version of the Form I-9 is the same as the 2007 version of the form, but has an expiration date of June 30, 2009. The Form I-9 with the June 20, 2008 expiration date is no longer accepted. The expiration date of the Form I-9 is located in the upper right hand corner of page one of the instructions and also in the upper right hand corner of the form itself. Employers may now sign and retain Forms I-9 electronically as instructed on page 2 of the Form I-9. 

The 2008-2009 Form I-9 can be found at

Provided by Strong & Hanni's Business Group

ILTSs as an Estate Planning Tool

An “ILIT” is an irrevocable trust which is created for the purpose of owning a life insurance policy. The primary goal of an ILIT is to remove the life insurance proceeds from the insured-grantor’s estate. Because such trusts are irrevocable, they cannot be amended or rescinded in any way after their creation. Accordingly, once the grantor contributes an insurance policy into an ILIT, he or she has effectively released any claim to control the property or to change any of the terms of the trust. 

ILITs can be useful tools in creating an effective estate plan.  If it is properly constructed, an ILIT can result in payment of a death benefit to a beneficiary which will not be included in the gross estate of the insured. Furthermore, the ILIT can be designed so that the trust can provide benefits to an insured’s surviving spouse without inclusion of the proceeds in the surviving spouse’s gross estate. However, if the ILIT is not constructed or properly created there is a danger that the proceeds will be included in the decedent’s or the insured’s estate. This could result in an effective estate tax rate of nearly 50%.

In crafting an ILIT, it is vital to avoid the “incidents of ownership” which will result in the inclusion of the insurance proceeds in the insured’s estate.  See IRC § 2042. In addition, the surviving spouse of the insured may not have any incidents of ownership in the ILIT. The result would be that the proceeds are included in the surviving spouse’s gross estate. Incidents of ownership include the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan, or to obtain from the insurer a loan against the surrender value of the property. IRC Regs. § 20.2042-1(c)(2). Incidents of ownership also include a reversionary interest in the policy or its proceeds if the value of that interest immediately prior to death exceeds 5% of the value of the policy. IRC Regs. § 20.2042-1(c)(3).

In addition, the life insurance policy must be transferred to the ILIT more than three years prior to the death of the insured. Otherwise, the proceeds of the insurance policy will be included in the insured’s estate. See IRC § 2035. Such transfers are considered taxable gifts based on the insurance policy’s cash surrender value at the time of the transfer. However, the tax cost of transferring a life insurance policy during life could be substantially less than the estate taxes that would otherwise be due upon the individual’s death. Nevertheless, if the insured were to die within three years of the transfer of the insurance policy, the proceeds would be brought back into the insured’s taxable estate.

Another approach is to have the trustee of the ILIT apply for a new life insurance policy on the individual’s life after the ILIT has been created. Proceeds may then be transferred to the ILIT on an annual basis so that the trustee has the funds necessary to make the premium payments for the policy. The annual cash transfers are generally considered taxable gifts. However, because the insured never had any ownership rights in the policy, the policy proceeds would not be included in the insured’s taxable estate even if the individual were to die within three years of the purchase of the policy.

The most common technique for making the cash gifts to an ILIT for the payment of future life insurance premiums is through the annual gift tax exclusion combined with a beneficiary’s unexercised right to withdraw the cash gift. Currently, up to $12,000 per beneficiary of the cash gifts used to pay the premiums can qualify for the annual gift tax exclusion under IRC § 2503(b). The withdrawal right of a beneficiary to use the annual gift includes the unrestricted right for a specified period of time to take the cash before it is contributed to the ILIT and used to pay for the premium. The IRS takes the position that in order to be eligible for the annual gift tax exclusion, holders of the withdrawal rights must (1) have a beneficial interest in the ILIT; and (2) receive an annual notice of the withdrawal right and a reasonable opportunity to exercise the power before it lapses (i.e., thirty (30) days).    

            If properly constructed and managed, ILITs provide an excellent estate planning tool whereby an insured can channel funds to his or her intended beneficiaries without the inclusion of such proceeds in the insured’s taxable estate.

Written by Jeffrey J. Owens


Immigration related liabilities are an increasing concern for employers. In 2006, the number of employers and employees arrested in immigration raids quadrupled. We anticipate that immigration enforcement will continue to increase.

On December 12, 2006, Immigration and Customs Enforcement conducted one of its largest raids in history by arresting 1,282 workers at six Swift & Company meat processing plants, including one in Hyrum, Utah. Due to the arrests, Swift lost 40% of its labor force and temporarily suspended operations at all six of its plants. The one-day raid resulted in approximately $20,000,000 of lost production.

One might ask how Swift could not have suspected that much of its labor force was undocumented. However, Swift, fearful of being penalized for hiring undocumented workers, had intensely scrutinized the documents of its workers – so much so that in 2001 Swift was forced to pay a $200,000 settlement to the Department of Justice for excessively scrutinizing the documents of individuals who looked or sounded “foreign.” Accordingly, employers are caught between two Federal agencies with opposing interests: ensuring that all workers are authorized for employment versus protecting those who are lawfully here from discrimination.

The Immigration Reform and Control Act of 1986 requires all employees to fill out an I-9 Form available at for all employees hired after November 6, 1986, regardless of their immigration status. The form consists of two portions. In Part 1, the employee attests, under penalty of perjury, that he or she is a citizen, lawful permanent resident, or alien authorized to work temporarily. In Part 2, employers are required to record that they have examined original documents from a specified list verifying the employee’s identity and eligibility to work. Employers must accept the documents if they appear “reasonably genuine” and relate to the person presenting the documents.

The I-9 must be completed within three days of starting work. The employer must keep the form on file for three years from the date of hire, or one year after the last day of work, whichever is later. Employers are not required to complete I-9s for independent contractors, but remain liable if they know that contractors are using unauthorized aliens to perform labor or services.

The Immigration Reform and Control Act of 1986 also prohibits any person or entity from knowingly hiring or continuing to employ an unauthorized worker. “Knowledge” may be either actual or constructive. Constructive knowledge is knowledge which may fairly be inferred through notice of certain facts and circumstances which would lead a person, through the exercise of reasonable care, to know about a certain condition. Failure by an employer to complete the I-9 would be an example of constructive knowledge on the part of the employer. 

With the congressional debates continuing to include immigration reform as a “hot topic”, work-site enforcement will continue to intensify. We believe that any new immigration reform bills will likely impose a higher standard of due diligence on employers. With the Government’s renewed enforcement efforts, simple precautionary measures, such as internal audits and strict compliance with I-9 related regulations, are now more important than ever.

Written by H. Burt Ringwood

The 2007 IRA Charitable Contribution - A One Time Offer

          If you are 70½ years old and have an IRA retirement account, Congress has given you an unusual charitable contribution opportunity during 2007.   IRA’s are wonderful private retirement plans, but withdrawals after the owner’s death are taxable income to the recipient.   State and federal income tax will be paid at the receiver’s income tax rate and reported on the receiver’s tax return.   Further, if your estate is subject to death taxes, your estate must also pay death taxes on the same IRA money that is subject to income tax.   In many scenarios, those IRA dollars can be taxed at a combined rate approaching 80% of the total IRA balance, to satisfy income and death taxes.

          As a result, if you already have sufficient income and assets for your retirement, you may find that taxable IRA monies present a perplexing problem of double taxation.   One partial solution has been to withdraw and spend those IRA monies during retirement, paying the taxes as you go, rather than using other assets for living expenses. However this approach increases your income tax during retirement years. Another solution has been to give those IRA monies to charity at your death by naming a charity as the beneficiary of the IRA.    The IRS has now provided a third alternative.

Only through December 31, 2007, an IRA owner who is at least 70½ years of age, can direct his or her IRA to cut a check directly to a charity for up to $100,000 and the gift will satisfy the IRA owner’s minimum withdrawal requirements up to $100,000 (which will not be taxable to the owner) and a spouse can make a like distribution from a spousal IRA account with the same results   By so doing, the owner (and spouse) will satisfy the minimum withdrawal requirements for 2007 (without incurring income tax liability) will reduce the total amount of IRA funds exposed to double taxation, can make available up to $200,000 from cash flow for other uses and can help a charity of choice with a significant gift.

Written Scott R. Jenkins

Net Zero Tax Estate Planning

As many of our clients know, the current estate tax exemption in the United States is $2,000,000 (this $2,000,000 exemption is scheduled to change in future years). This means that if a U.S. citizen dies in 2007 with a gross estate (i.e., roughly your net worth) of less than $2,000,000, then no estate taxes are owed and no estate tax return need even be filed with the IRS. 

The maximum estate tax rate for a person dying in 2007 is 45%. This means that after the $2 million exemption is applied, your taxable estate would be subject to this wealth transfer tax equal to 45% of the value of those assets.

If an estate is larger than $2,000,000, we want our clients to know that it is possible to effectively “zero-out” your estate tax bill. Depending upon the net worth involved, advanced planning techniques necessarily involve some degree of complexity and a higher risk of IRS audit. Advanced estate planning often also involves life insurance in order to replace estate taxes paid. Some of our clients have opted for simplicity at the price of paying more estate taxes. 

We strongly recommend that basic foundational estate planning documents be put into place to ensure that husband and wife each take full advantage of the $2,000,000 estate tax exemption. These foundational documents include separate trusts for husband and wife, separate “pourover” wills for husband and wife, and other collateral documents. Many of our clients with net worth larger than $2,000,000 have executed these important foundational documents. With these documents and appropriate asset titling in place, a married couple can leave up to $4,000,000 to their children free of any U.S. estate tax. 

We have clients with net worth in excess of $4,000,000 who have not yet gone beyond the basic foundational documents in order to “zero out” their future estate tax bill. These additional techniques involve strategies such as the following: ownership of life insurance in an irrevocable life insurance trust or in an LLC owned by the children; forming a family foundation and transferring assets to it; engaging in other charitable giving techniques such as charitable remainder trusts; forming family limited liability companies and gifting away interests in it; combining various types of trusts such as grantor retained annuity trusts, qualified personal residence trusts, etc.

If you have a desire to zero-out your net estate tax bill, we would be happy to sit down with you and explore these additional estate planning strategies.

One important component of almost every estate tax savings plan is to shrink your estate through a regular, annual gift-giving program to your children and other descendants. The annual gift tax exclusion (i.e., the amount you can gift each year to each donee) is $12,000. In addition, each U.S. citizen has a lifetime gift tax exemption of $1,000,000. This is over and above the annual exclusion. Gifting away $1,000,000 worth of assets now is a good way to leverage the shrinking of your taxable estate, since a gift today also carves out of your estate the future appreciation or growth in value on the assets that you gifted away.

If you would like assistance in any of these areas, please feel free to contact any member of the Strong & Hanni Business and Estate Planning Group.