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MONEY TALK

Depositors Aren't Liable for S&L

January 23, 1986|Debra Whitefield

QUESTION: I have been told that in a mutual savings and loan association, the depositors are the owners of the company. If this is true, are the depositors liable for the debts of the association in the event it goes broke?--G. W. U.

ANSWER: No. Depositors in a mutual savings and loan do become equity owners of the association--but only to the extent of their actual deposits. And because their deposits are insured by a government agency up to $100,000, depositors lose nothing when the S&L is liquidated--unless they have allowed their account to exceed the $100,000 insurance limit. In that case, they would receive $100,000 plus a pro-rated share of the remaining assets, if there are any.

By the way, that is no different from what happens at a stock association--so-called because it issues stock and distributes its profits to the owners of that stock. Mutuals, conversely, have no stock and no stockholders. Instead, profits are distributed to depositors. But despite the equity ownership that this implies, effective control of the S&L is in the hands of trustees or management and depositors are not responsible for the association's debts.

The Federal Savings and Loan Insurance Corp., which regulates savings and loans of all types, says it treats failed mutuals and stock associations just the same. (At least three of the 10 S&L failures that the FSLIC handled last year were failed mutuals.) That is true both when it arranges for a buyer and when it liquidates the S&L.

Q. I decided long ago to help put my granddaughter through college. I won't charge her any interest, and she will repay the principal when she can. I'm writing because a friend told me the other day that there is a new law that penalizes people like me who are just trying to help family members through some tough financial times. Can that be true?--D. S.

A. Some people make such loans more to cut their tax bills than to help someone in a bind. And because of these abuses, Congress has been cracking down on the use of interest-free and below-market loans.

To root out such abuses, Congress now requires individuals who give money through such loans to figure out how much interest they would have received if the loan had been made at going market rates. They are then taxed on the difference between what they would have received and what they actually received.

But before you ditch your plans, read on. There are some very large loopholes.

For starters, if the amount of principal outstanding on this interest-free loan to your granddaughter is never going to exceed $10,000 and if she is indeed going to use the money to pay for her education and not to make more money (by buying rental properties or stocks, for example) then your gift won't trigger the so-called imputed interest rules.

If there is some likelihood that the balance will eventually exceed $10,000, you may still have cause for hope. If your granddaughter has net investment income--that is, income, after expenses, from investment properties--of $1,000 or less, then there will be no imputed interest payments as long as the aggregate balance of all your loans to her do not exceed $100,000. If she does have annual investment profits exceeding $1,000, then the imputed interest is limited to the amount of that profit.

As you can see, once the size of the gift exceeds $10,000, the rules become very complicated and a tax specialist should be contacted.

But as long as the balance does not exceed $10,000 and the money is not used for income-producing purposes, you can help your granddaughter without risking a big tax bill on interest she never pays and you never receive.

Q: We are confused by part of your reply in a column two weeks ago on the tax requirements for cars driven on the job. Since we have had an ongoing discussion with our corporate legal counsel over this same matter for a year now, would you mind clarifying one point? Are high-level employees who drive company cars now entirely exempt from certain tax-reporting rules? Or, conversely, are they subject to more stringent rules than lower-level employees provided with company cars?--T. C. B.

A: You have every right to be confused. The column's use of the word "exempt" in differentiating between high-level executives and lower-level employees was a poor choice of words and left several readers confused.

Your second choice is the correct one: Company officers, directors and anyone else with an interest of 1% or more in the equity, capital or profits of the company in question are subject to more rigid rules than lower-level employees. They are not--as the column seemed to suggest--exempt from reporting as taxable income the value of their commutes to and from work.

As Commerce Clearing House points out in reviewing the newest automobile tax-reporting rules, such high-level "control employees" are prohibited from using a flat $3 as the value of a round-trip commute. That blanket value is only available to lower-level, "non-control employees."

So-called control employees must instead calculate the exact value of their commute and report that as the taxable value of their fringe benefit.

As you can tell, the new tax rules for commuters with company cars are more complex than ever--the government's purported interest in simplying the tax laws notwithstanding. They get worse once you get down to the nitty-gritty: Figuring out, for example, what employees are required to do if they even occasionally drive their company cars on personal trips.

So, if you commute in a company car, you would be well-advised to seek help from a tax specialist who is well-versed in the new rules.

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