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IRS may have bad news for double-dippers

TALLAHASSEE — A new twist emerged this week in the debate over "double-dipping."

Some Florida officials collecting both a pension and a salary could be facing federal tax problems, possibly even the repayment of thousands of dollars.

IRS regulations prohibit employees who have not reached normal retirement age from collecting retirement benefits unless they are bona fide retirees and have terminated employment with no anticipation of continuing to work at the same job, according to a Washington tax lawyer who advises Florida pension officials.

That could present a problem for those Florida double-dippers who have taken advantage of a loophole in the law that has allowed them to "retire," stay away from their jobs for 30 days and then return, collecting their salary and a monthly pension.

It would not affect people who retired from one job and later went to work at a different job.

The issue arose this week as a bill that would ban double-dipping was passed by a Senate committee. Officials at the State Board of Administration, the agency that invests Florida's pension money, consulted tax attorneys about the bill's implications.

Ron Poppell, a senior program officer at the board, raised the issue after a conversation with David Powell, a Washington tax lawyer with the Groom Law Group, a firm that advises Florida pension officials on tax laws.

In a memo to Poppell this week, Powell said IRS regulations forbid anyone not of retirement age from leaving his job, collecting a pension and returning to the same job. If the IRS found the "retirements" to be in violation of federal law, Powell said, those who collected pensions and other benefits could be forced to repay them, with interest and a penalty. The memo did not address whether there would be any tax liability for those individuals.

The state could be penalized for violating federal regulations and lose its tax exempt status, according to Powell.

Sara Beth Snuggs, director of Florida's Division of Retirement, said she does not believe her agency is covered by the regulations Powell discussed.

But Powell, in his memo to Poppell, said the IRS' long-standing view has included plans like Florida's. Some other state pension plans have issued rules that require prospective retirees to sign a notarized statement swearing that they have not made arrangements with the same employer to continue in the job they are leaving.

That has not happened in Florida. Instead, retiring state employees must terminate their employment for 30 days before they can receive a benefit.

The approximately 220 elected officials who are double-dipping — judges, sheriffs, state attorneys, tax collectors, circuit clerks, property appraisers and others — quietly "retired" after winning re-election, stayed away for 30 days to comply with state pension rules, and returned to the same job.

In most cases, the officials made no public announcement of their retirement, leaving voters unaware that they were collecting both pensions and salaries, until the St. Petersburg Times published their names last year.

Altogether, the elected officials are collecting $936,755 a month in addition to salaries totaling $15.5 million a year and deferred benefits totaling $35.2 million.

A number of senior management officials and university professors also have "retired" with agreements to return to the same jobs.

At the University of Florida, a former medical school dean has identified several professors who had written agreements allowing them to return to their jobs when they "retired." The agreements are part of an ongoing internal investigation ordered by UF trustees.

Sen. Mike Fasano, R-Port Richey, sponsor of the Senate bill banning double-dipping, said that elected officials who retired and returned after 30 days may not be "bona fide" retirees eligible for benefits.

"The elected official may have to pay back the pension and lump sum along with penalties," Fasano said, "and the FRS (Florida Retirement System) may be responsible for penalties as well."

Lucy Morgan can be reached at lmorgan@sptimes.com or (850) 224-7263.

IRS may have bad news for double-dippers 04/02/09 [Last modified: Wednesday, April 29, 2009 11:14am]

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