Don’t Try to Sue Uncle Sam Over Lost Interest

Q: On Sept. 13 the Resolution Trust Corp. and American Savings took control of Columbia Savings, where I had a certificate of deposit paying 9.3% interest. On that date, the RTC liquidated my account and cut a check to me for $99,528.58. The check was mailed the following Monday from Irvine and took until Sept. 20 to arrive at my Beverly Hills home. I figure I lost about $25 per day in interest while the check was “in the mail.” I want to take the RTC to Small Claims Court for $175. Please advise. --H. G.

A: Anyone can take anyone else to Small Claims Court for the cost of the filing fee. The real question is whether you have much of a case. Our legal experts doubt it.

Your savings account was liquidated and its proceeds returned to you under a provision of law that allows an acquiring savings institution to exclude certain accounts from the assets it takes over from the defunct thrift. Under this provision, your account was valued as of the date of the acquisition and was immediately liquidated. As soon as the account was liquidated, it ceased to exist and stopped earning interest. So the fact that your account didn’t earn interest while the check was “in the mail” is irrelevant. Your account was closed.

On a broader measure, there’s no doubt that you have been inconvenienced and perhaps even “cheated” by Columbia’s default and subsequent takeover by the government and American Savings. But you have little recourse.

Perhaps there might be some comfort in knowing that you are not alone and that literally thousands of depositors just like you are being forced to pay for the sins of highflying savings and loan operators who have fallen on their faces and taken their institutions down with them. Across the nation, depositors at seized savings and loans are being forced to either accept dramatically lower interest rates for their accounts from the new operators selected by the government--or move their accounts entirely. In some cases, like yours, there isn’t even a choice; the account is simply liquidated and the depositor must invest it on his own. This is especially annoying in today’s interest rate environment, where it is difficult to find any insured investment paying more than 6% to 7% to substitute for the accounts that had been paying 9%, 10% or even more.

But let me stress that the regulations guiding the Resolution Trust Corp., the federal agency in charge of disposing of the failed thrifts, permit an acquiring institution to cancel the contracts between the depositors and the failed thrift and start anew. We, the depositors and the taxpayers, have no choice and little say in all this. We are only being asked to pay for it.

By the way, the RTC says you are among the fortunate Columbia Savings depositors whose accounts were liquidated. You got your account’s proceeds within a week; some depositors, the RTC says, are still waiting for their checks. And their funds haven’t earned any interest since Sept. 13!

Q: When is the money rolled over into an individual retirement account--when the broker gets the check or when the mutual fund is opened by the broker? My 60-day rollover period expired while the brokerage was allowing the IRA check from the bank to clear, and the mutual fund wasn’t actually opened until the 64th day. What can I expect from the IRS? --D. R. W.

A: Don’t worry. Our experts say you should be safe from scrutiny by the Internal Revenue Service. According to these sources, the critical date is the one on which you established your relationship with your account trustee--in other words, the day you opened your account at your broker. It doesn’t matter when the mutual fund got your money and opened your account there. Your arrangement is with the trustee, your broker. So if you opened that account within the 60-day rollover period, you should be safe.

Q: I will roll over my company pension savings plan when I retire shortly. My account has my own contributions as well as employer contributions in the form of company stock and a sizable amount of accumulated interest that has not been taxed. If I were to change ownership of the company stock to community property, would the stock be entitled to a full step-up in value upon the death of either my wife or me? --E. C. H.

A: What you propose would be a nifty trick if the tax code allowed it. But Uncle Sam saw that potential loophole long ago and eliminated it. No matter how you hold title to your pension account, to the extent that you, your wife or your heirs withdraw funds that were deposited on a pretax basis into the account, those disbursements will be taxable. If these withdrawals are made after your death, the disbursements are considered “income in respect to a decedent” and no matter who collects it, it is taxable. Remember, the deposits into this pension savings account--and the interest they have generated over the years--have not been taxed, and Uncle Sam isn’t about to let anyone withdraw this money without paying him his due.