But the Trust Company wasn't keeping those records, and the customers
kept complaining they couldn't get the information for their annual
Forms 5500.
3: Paragraph 34 A second aspect of the problem was that Hutton Trust
had about a dozen "collective funds" that were like mutual funds in that
the assets from a lot of separate pension plans would be pooled and
invested, and the profits would be prorated among the participating
plans. Those were perfectly legal entities, authorized by the Internal
Revenue Code and called "pooled income funds," and they're tax-exempt,
but they have to file information tax returns every year so the IRS can
make sure they're complying with all the applicable ERISA and tax laws.
But Hutton had never filed any tax returns for any of its collective
funds because neither Hitchcock nor anyone else at Hutton knew they were
supposed to.
3: Paragraph 35 The third part of the problem didn't appear until we
started doing personal trusts, and that was that non-pension trusts have
to file tax returns every year and pay taxes on their profits. So just
as any individual or corporate taxpayer has to, a non-ERISA trust has to
keep track of its tax basis for assets and report not only its income
from its investments but also its capital gain on the sale of those
assets. And Hitchcock hadn't activated the fields to keep track of the
tax basis and fair market value of trust assets, because that
information didn't appear in the brokerage firm's computer.
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