QUESTION: I have a variable-rate mortgage. My loan papers indicate that the rate fluctuates based on "the weekly average yield on United States Treasury securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board." Where is this information published and how do I get it?--L.B.
ANSWER: You have two choices. Call the Federal Reserve Bank of San Francisco (or, if you live outside California, the Federal Reserve bank or Fed branch office nearest you) for a weekly update of the rates or ask to be put on the Federal Reserve Board's mailing list to get these rates regularly.
In California, the Federal Reserve Bank of San Francisco's research library updates each week the weekly and monthly rates on several financial instruments to which variable-rate mortgages are tied. These rates, taken from a weekly statistical report published by the Federal Reserve's Board of Governors, are available by calling a taped telephone message at the Federal Reserve Bank. The phone number for that message is 415-974-2859.
It would be far cheaper, however, to call the Board of Governors in Washington and ask to be put on the mailing list for the Federal Reserve's statistical publication H15, titled Selected Interest Rates. The number to call is 202-452-3244. Once you get the publication, turn to Table 1.35 for the information on Treasury rates.
In addition to showing the one-year Treasury Constant Maturity Rate (which was 9.05% for the week ended Jan. 18), the table displays the rates on six-month Treasury bill auction averages, on securities adjusted to three- and five-year constant maturities and on one-month certificates of deposit.
The cost-of-funds index, to which some variable-rate mortgages are tied, is available by calling the Federal Home Loan Bank of San Francisco at 1-800-824-6560. This monthly index is also published Saturday at the bottom of the Key Rates table in the business section of The Times.
Q. In your column last week, you said money in an IRA does not have to be included for federal estate tax purposes in the estate of an IRA account-holder who dies. I was under the impression that this exclusion was repealed by the Tax Reform Act of 1984 and that IRA funds are now covered by federal estate taxes.--R.B.W.
A. You are correct. Until this year, up to $100,000 of IRA benefits could be excluded from a deceased person's estate. But, as you say, last year's tax-law revisions eliminated that exclusion, effective Jan. 1.
The IRA benefits of anyone who dies after Dec. 31, 1984, are included in his or her estate for federal estate-tax purposes. (As is usually the case in estate-tax law, there are a few exceptions. So, overseers of such estates or beneficiaries of IRA accounts should consult a lawyer specializing in such matters.)
If the IRA money is left to the deceased's spouse, the change in the law amounts to little more than a technicality. Because of the way that the federal estate-tax laws are structured, spouses almost never have to worry about paying estate taxes on their husband's or wife's estate anymore. But if the beneficiary is someone other than the spouse, he or she is likely to pay more in estate taxes because of the IRA provision change by the Tax Reform Act of 1984.
Q. I, like thousands of shareholders in American Telephone & Telegraph Co., received a share of the "new" AT&T; plus a share of each of the seven regional telephone companies for every 10 shares of AT&T; stock I owned before the breakup. Those of us who had fewer than 10 "old" AT&T; shares or were entitled to fractional shares received a check for the fractional shares. I recently received the Form 1099 for sale of fractional shares and I'm not sure how this income is to be reported. Neither AT&T; nor the IRS has been able to help me. Do I account for this income as a capital gain? And, if so, what is my basis in and holding period for the stock?--H.S.
A. Only if part of the cash stems from the sale of Pacific Telesis Group stock do you even need to consider reporting the money as income for tax purposes.
The IRS ruled that the stock distribution that accompanied the Bell System breakup a year ago was tax free, cash from fractional shares included. But, as so often is the case when dealing with tax rulings, there was an exception: Pacific Telesis.
AT&T; and the IRS are involved in a dispute over the tax consequences of the stock distribution of Pacific Telesis, the Bell System operating company that serves California and Nevada. AT&T; argues that the entire transaction should be tax free.
Conversely, the IRS contends that AT&T; shareholders should be taxed on the portion of Pacific stock that AT&T; acquired in 1982.
Central to the IRS argument is a tax law requiring a minimum holding period of five years before tax-free treatment applies. AT&T; bought the small portion of what was then Pacific Telephone Co. that it did not already own in 1982 and made the stock distribution in 1984.
The dispute involves 7% of the value of PacTel stock given to AT&T; shareholders on Jan. 1, 1984, or less than 39 cents per Pacific Telesis share.
If Pacific Telesis stock is involved in your situation, you will have to decide for yourself--or consult with your tax adviser--whose position you want to take.
If you choose to side with AT&T;, simply ignore the dividend and, for tax purposes, the distribution has no 1984 consequences. At worst, you would have to pay tax on the dividend--and, perhaps, some interest on that amount--if AT&T; later loses this dispute.
If you side with the IRS, you must report as dividend income an amount equal to 7% of the value of the Pacific Telesis stock (or cash from fractional shares) as of Jan. 1, 1984. Like all dividend income, it will be taxed as ordinary income--not as capital gains, which get a more favorable tax treatment.
Even if you fundamentally disagree with the IRS position, you may benefit by taking it. Paying a dividend on the stock will increase the tax basis used to determine your gain when you sell the stock. The higher the basis, the less gain and the less tax you will pay on the gain.
Moreover, because each taxpayer is permitted to exclude from taxable income the first $100 of dividends, you may be able to report the Pacific Telesis distribution as a taxable dividend and not pay a single cent more in taxes.
Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Business Section, The Times, Times Mirror Square, Los Angeles 90053.