Month: April 2005

The U.S. Supreme Court issued an opinion today in Rousey v. Jacoway, reversing the Eight Circuit Court of Appeals, in a unanimous decision holding that IRAs can be shielded from creditors in bankruptcy proceedings, so long as the requirements of ?522(d)(10)(E) of the Bankruptcy Code are met. The opinion written by Justice Thomas begins as follows:

The Bankruptcy Code permits debtors to exempt certain property from the bankruptcy estate, allowing them to retain those assets rather than divide them among their creditors. 11 U. S. C. §522. The question in this case is whether debtors can exempt assets in their Individual Retirement Accounts (IRAs) from the bankruptcy estate pursuant to §522(d)(10)(E). We hold that IRAs can be so exempted.

Background of the case from the Duke Law website here:

Debtors Richard and Betty Rousey filed for bankruptcy under Chapter 7 of the United States bankruptcy code. Included in the couple’s assets were two individual retirement annuities (“IRAs”) valued at $42,915.32 and $12,118.16. The Rouseys claimed exemptions for a large portion of the IRAs from the bankruptcy estate under 11 U.S.C. § 522(d)(10)(E). The bankruptcy trustee filed an objection to the exemptions.

The Bankruptcy Court of the Western District of Arkansas and the Bankruptcy Appellate Panel for the Eight Circuit found that the IRAs were not exempt under 11 U.S.C. § 522(d)(10)(E). The Eight Circuit Court of Appeals affirmed.

More on the history of the case here from USAToday.com.

Recent news articles:

• AP article from the Boston Globe: “Supreme Court: Creditors can’t seize IRAs.”
• Reuters: “Supreme Court: IRAs Are Shielded from Creditors.”

UPDATE: From Law.com, “Justices Rule IRAs Protected in Bankruptcies.” Excerpt:

“It is not unusual in these economic times for people to change jobs — voluntarily or otherwise — several times over the course of their careers. By protecting IRAs from creditors in bankruptcy, this decision allows workers to preserve retirement savings when, after a job change, their circumstances force them into bankruptcy,” said Jean Constantine-Davis, a lawyer for the AARP, which sided with the Rouseys in the case. “Had the decision gone the other way, many thousands of people in circumstances similar to the Rouseys’ would have lost retirement savings simply because they switched jobs.”

Hunting for information about taxation issues pertaining to incentive stock options, such as AMT? Try Michael Gray’s Incentive Stock Option Frequently Asked Questions. You can also access archives for his newsletter here which he describes as “[a]n irregular newsletter for employees with tax issues relating to employee stock options.”

More on AMT from an article published by the Journal of Financial Planning: “The AMT: Pitfalls and Solutions.” The article discusses AMT issues related to incentive stock options, including this summary of a “worst-case” scenario:

The absolute worst-case scenario is when the stock plummets during the holding period, as it did for many high-tech employees in 2000, 2001, and 2002. For example, take an executive with incentive stock options whose strike price is $500,000 but whose market price has tripled to $1.5 million. Under the AMT, the $1 million bargain element would result in a tax of $280,000. But instead of dropping to a point still above the strike price, the price drops precipitously and the stock becomes worthless, or too low to sell (emotionally). The client is unaware that a disqualifying disposition would negate the AMT. Thus, the stock is not sold and there is no AMT credit. In this tragic case, the executive experiences a double-whammy: the out-of-pocket cost to exercise the ISOs ($500,000) and the AMT tax ($280,000). Make that a triple- or quadruple-whammy, since the stock is worthless and the executive is out of a job. Can it get any worse? Yes—the executive borrowed the $500,000 to exercise the ISOs and now cannot repay.

And finally, the National Center for Employee Ownership also has an article entitled “Stock Options and the Alternative Minimum Tax (AMT).“

UPDATE: Kerry Kerstetter, who writes the TaxGuru-Ker$tetter Letter, reminded me about the Reform AMT website which is dedicated to correcting “an injustice created by the way in which the Alternative Minimum Tax (AMT) is inappropriately and unjustly imposed upon owners of incentive stock options.” There is a great deal of good information there about pending legislation.

FURTHER UPDATE: Joe Kristan of RothCPA.com also reminded me about the recent Tax Court case of Ronald J. Speltz, et ux. v. Commissioner , 124 T.C. No. 9 in which ISOs and AMT were the focus of the case. More on AMT from RothCPA.com at this link, including a letter from the taxpayer’s attorney in the Speltz case.

In an article entitled “Find What Workers Want” from SHRM’s HR Magazine, benefits is listed at the top of a list of job-satisfaction factors for employees, followed by compensation, feeling safe in the work environment, job security and flexibility to balance work/life issues.

The subject of health care and the trend in providing consumers with information regarding quality of care dominated a recent SHRM conference which I attended in D.C. The topic is in the news this week with the announcement that the Department of Health & Human Services has launched a new web site–called “Hospital Compare”–devoted to providing information on how well hospitals are caring for their adult patients with certain medical conditions. You can access a Wall Street Journal article here (subscription only) discussing the web site as well as the Kaisernetwork.org‘s summary of the development here.

Excerpt from the WSJ article:

Consumers, employers and insurance companies have been calling for public disclosure of hospital-quality information, especially clinical data that are already collected by government agencies and regulatory bodies. The Bush administration is pushing for changes in health coverage, such as health savings accounts, that would require patients to make more decisions about when and where to go for care and how much to pay for it.

But making wise choices is difficult without good information: Consumers today can get more information about buying a car or a TV set than they can about hospitals or doctors. . .

Also, along those same lines, there’s another article worth reading from the Wall Street Journal this week: “Doctors Criticize Health Insurer Over Provider-Ratings Program.” Excerpt from that article:

In 13 states, Minnetonka, Minn.-based UnitedHealth Group Inc.’s UnitedHealthcare has analyzed two years’ of claims data to designate physicians who provide higher-quality, lower-cost care, according to the program’s criteria. In the areas where the UnitedHealth Performance Designation Program is in place, on average about 25% of doctors in the company’s network are on the list, the company says.

Three large companies — General Motors Corp., DaimlerChrysler AG’s Chrysler Group unit and United Parcel Service Inc. — have adjusted some of their health benefits so that some employees have incentives, such as lower co-payments, to go to these doctors.

Don’t miss Derrin Watson‘s Question 274 at Benefitslink.com: “79.9″ Isn’t 80%; But Wait– There’s More!.” He’s the only one I know who can discuss the maze of controlled group and affiliated service group rules of the Internal Revenue Code without putting readers to sleep!

You can access more of his Q & A’s here and his helpful website here.