Compliance September 16, 2008

GAO Calls for Simplified IRA Rules

A Congressional watchdog agency has recommended the Internal Revenue Service (IRS) simplify its individual retirement account (IRA) rules so more people can take advantage of the tax-sheltered savings vehicle.
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Specifically, the Government Accountability Office (GAO) suggested the IRS clarify the rules under which taxpayers can make a combined contribution to a regular and a Roth IRA and that the IRS work with other federal agencies to pursue ways to help taxpayers comply with the required minimum distribution rule (taxpayers over age 70세 are required to take minimum distributions from traditional IRAs or face a 50% penalty on the required distribution amount). GAO also suggested the tax agency pursue ways to give taxpayers more general guidance

GAO researchers say many taxpayers are hamstrung in their ability to take maximum advantage of their IRA because of the rule confusion. “As partly shown by taxpayer misreporting to IRS, taxpayers face challenges in figuring how much they can contribute, navigating the various distribution rules, and rolling over their IRAs between custodians,” the GAO said.

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Complexity of IRA rules was cited by IRS officials, IRA custodians, and financial planners as the overarching contributor to challenges facing taxpayers in complying with IRA rules, the GAO said.

On the basis of the most recent research results available, the IRS estimated that in 2001, nearly 15% of those who made traditional IRA contribution deductions misreported their deductions on their tax returns, and nearly 15% of taxpayers who took taxable distributions from traditional IRAs misreported this information.

The GAO said older taxpayers make mistakes in determining when they must start distributions and calculating the correct amount and said the IRS could develop a Web-based calculator to figure out the required minimum distribution. Other options to reduce the complexity of IRA rules, such as eliminating income limits on eligibility, pose tradeoffs and could be considered in the context of broader tax reform, the GAO said.

The GAO’s report is available here.

Deals & People September 15, 2008

Bank of America Buys Merrill Lynch

Bank of America Corporation has agreed to acquire Merrill Lynch&Co., Inc. in a $50 billion all-stock transaction.
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The deal combines Merrill’s global wealth management, capital markets and advisory company with the largest consumer and corporate bank in U.S. By adding Merrill Lynch’s more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets.

Under terms of the transaction, expected to close in the first quarter of 2009, Bank of America would exchange .8595 shares of Bank of America common stock for each Merrill Lynch common share. The price is 1.8 times stated tangible book value. It has been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals. Under the agreement, three directors of Merrill Lynch will join the Bank of America Board of Directors.

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“Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,’ Bank of America Chairman and CEO Ken Lewis said in the company announcement. “Together, our companies are more valuable because of the synergies in our businesses.’

“Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms,” said John Thain, chairman and CEO of Merrill Lynch, in a news release.

The acquisition brings global scale in investment management, Bank of America noted, including an approximately 50% ownership in BlackRock, which has $1.4 trillion in assets under management. Bank of America has $589 billion in assets under management.

Bank of America said Merrill Lynch both enhances its current strengths and creates new ones, particularly outside of the United States. Merrill Lynch adds strengths in global debt underwriting, global equities and global merger and acquisition advice.

Further, after the acquisition, Bank of America said it would be the number one underwriter of global high-yield debt, the third largest underwriter of global equity, and the ninth largest adviser on global mergers and acquisitions based on pro forma first half of 2008 results.

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