Kathleen ReynoldsKeymasterNovember 17, 2022 at 5:48 pmPost count: 428
December 14, 1989
Individual A = * * *
Individual B = * * *
Dear * * *
This is in response to a letter from Individual A’s authorized representative dated August 17, 1989, as supplemented by a letter dated October 9, 1989, in which Individual A’s representative requested a private letter ruling on his behalf regarding the income tax consequences of proposed distributions from Individual A’s individual retirement account (“IRA”).
You have submitted the following representations of fact:
Individual A established an IRA with funds rolled over from distributions from retirement plans qualified under section 401(a) of the Internal Revenue Code. Individual A desires to institute periodic distributions from his IRA which would be part of a series of substantially equal periodic payments (not less frequently than annually) made over the joint life expectancies of Individual A and Individual B, his wife.
An assumed interest rate would be based on the federal long-term interest rate published and in effect as of June 1, 1989. Table VI of section 1.72-9 of the Income Tax Regulations will be used for purposes of initially computing the life expectancy of Individual A and Individual B, who is the designated beneficiary of the IRA account, based on the attained ages of Individuals A and B as of July 1, 1989.
Distributions in a given year would be in monthly installments intended to amortize the entire balance of the individual retirement account in uniform monthly installments over the joint life expectancy as initially determined on July 3, 1989, at the assumed interest rate, based on an amortization schedule as set forth in the “Loan Payments Handbook” published by Computo Facts, 209 Shepherd Avenue Bast, Willow Dale, Ontario, Canada M2N 5W2. Withdrawals would be made in equal monthly installments throughout each calendar year. During calendar year 1989, the monthly installments for the short calendar year would equal a proportionate part of an entire year’s distributions.
The fair market value of the IRA would initially be determined on July 1, 1989 and would be redetermined as of December 31st of each year. The monthly periodic distributions from the IRA for the following year would then be adjusted solely to reflect the change in the fair market value of the IRA as of that December 31st. In each calendar year after 1989, the monthly installments would be adjusted by reducing the life expectancy by one year, and by adjusting the fair market value of the IRA as the December 3let of the immediately preceding year.
Based on the foregoing, Individual A requests, through his authorized representative, a ruling that the method of distribution described hereinabove will qualify as a series of substantially equal periodic payments (not less frequently than annually) made for the joint life expectancy of Individual A and his designated beneficiary, within the meaning of section 72(t)(2)(A)(iv) of the Code.
Section 72(t)(1) of the Code states that if any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c) of the Code), the taxpayer’s tax for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
Section 4974(c) of the Code defines the term “qualified retirement plan” to include an individual retirement account described in section 408(a) of the Code.
Section 72(t)(2) of the Code provides that the additional income tax imposed by section 72(t)(1) shall not apply to distributions enumerated therein. With specific reference to the distribution method at issue in this ruling request, section 72(t)(2)(a)(iv) provides that this tax shall not apply to distributions which are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and his designated beneficiary.
Notice 89-25, 1989-12 I.R.B. 68, March 20, 1989, Q&A 12, provides 3 methods by which a series of distributions may satisfy the substantially equal periodic payments exception of section 72(t)(2)(A)(iv) of the Code. The payment methods described in Notice 89-25 are intended to serve as examples of substantially equal periodic payments and are not the only distribution methods which will satisfy the requirements of section 72(t)(2)(A)(iv) of the Code.
Individual A’s proposed method of distribution is consistent with the guidelines set forth in Notice 89-25. Accordingly, we conclude that distributions in accordance with that method will qualify as being part of a series of substantially equal periodic payments (not less frequently than annually) made for the joint life expectancy of Individual A and his designated beneficiary, within the meaning of section 72(t)(2)(A)(iv) of the Code.
This ruling is based on the assumption that distributions from the IRA will not be modified from the method of distribution described hereinabove in violation of section 72(t)(4) of the Code.
A copy of this ruling is being sent to your authorized representative pursuant to a power of attorney on file in this office.
Joyce E. Floyd
Chief, Employee Plans
Notice of Intention to Disclose
Deputy Assistant Chief Counsel
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