The taxation of the pension fund annuity has a consequence to those who had taken the lump-sum pension. According to papers prepared by Robert Smith the pension fund recovery period should be reduced as a consequence of the lump-sum. However, on reading the tax publication 575 I am unable to establish that the recovery period reduces for the lump-sum, but that the pension fund cost should reduce instead. To clarify this matter I have independently written to the IRS and await their reply. In the interim I am pleased to share this letter with you Download Irs_lumsum formula for UN pensions.
Existing staff in UNICEF/UN New York may wish to consult AFICS on this matter.
UPDATE ON 4/23/2009
I received a letter from the IRS saying that my inquiry does not qualify for Taxpayer Advocate Service. Apparently Taxpayer Advocate Service handles significant hardship issues and inquiries that have not been resolved using normal channels. As this is a busy time for the IRS, I will have to wait until the summer to check on another source. John Northcut will also try to help.
Update 4/28/2009:
Our UN Canadian, John Northcut has communicated with the IRS authorities in the USA and received an e-mail response confirming that when you take a pension lump sum (say 1/3rd or less) as a direct payment before you became a US resident (and did not roll it over into a IRA) that you have effectively and immediately reduced your duration of cost recovery. For instance if the IRS tables determine that your pension recovery for a joint tax return is 360 months then you can only recover you pension cost for 240 months if you took a 1/3rd lump sum. John’s e-mail text and IRS response can be viewed in the attached pages UN Pension - taxation of balance annuity after lump sum .
CFAIS will be including this message in a letter than John is drafting to the Canadian tax authorities (John has already discussed verbally with them the contents of the letter).
Disclaimer:
These notes are for education purposes only. Please consult a tax professional for final application in your personal situation.
Finally I wish you all a happy New Year, family happiness, everything goes well!
Posted by: Chanel 12 | February 10, 2011 at 02:18 AM