The Internal Revenue Service announced last week additions to its Fresh Start program for struggling taxpayers. The new features include penalty relief for the unemployed and expanded installment-payment options. The agency began the Fresh Start program in 2008.

The penalty relief for unemployed taxpayers is for “failure to pay” levies, which the IRS says are one of the biggest expenses financially distressed taxpayers face on a tax bill.

The relief grants a six-month grace period to pay taxes to those who have been unemployed for at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 filing deadline. The same grace period applies to self-employed workers whose business income fell 25% or more in 2011.

Taxpayers who qualify for this break do not have to pay tax owed for 2011 until Oct. 15, 2012. Ordinarily, payments this year are due by April 17, with unpaid balances subject to a penalty.

The relief isn’t available to joint filers whose income exceeds $200,000 or single filers with income greater than $100,000. The 2011 balance due of income tax can’t exceed $50,000. To get the benefit, taxpayers must file Form 1127A (
www.irs.gov/form1127
).

The IRS also is allowing more taxpayers to qualify for a “streamlined” installment agreement in an effort to make it easier to catch up on back taxes.

The ceiling for such agreements has been doubled, to $50,000, with no financial statement required. Taxpayers who owe $50,000 or less may enter into an installment agreement to pay the IRS over a series of months or years; the maximum term is now six years, up from five. Penalties are reduced, although interest continues to accrue on any outstanding balance. A taxpayer must agree to monthly direct debit payments, and he or she will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F).

—Laura Saunders

Total Return Blog

WSJ.com

Lower Fees

The Obama administration announced last week another initiative to allow more homeowners to refinance, this time by dropping fees on federally insured mortgages that have prevented some borrowers from taking advantage of ultralow interest rates over the past year.

The latest changes will reduce fees to refinance loans backed by the Federal Housing Administration through what’s known as a “streamline” refinance.

Those refinances are reserved for FHA borrowers who are refinancing into another FHA-backed mortgage, and they don’t require borrowers to verify income, employment and credit. They also don’t require a new appraisal, which means underwater borrowers can refinance.

But many borrowers who took out FHA-backed loans several years ago haven’t been able to do a streamline refinance because FHA insurance premiums have increased sharply over the last two years. As a result, while interest rates have dropped to a level that would normally spur lots of refinancing, the higher FHA premiums have offset those savings and many borrowers haven’t taken advantage.

The latest changes seek to address that problem. The FHA will drop upfront insurance premiums that borrowers must pay from 1% of the loan balance to .01%. The FHA also will drop annual premiums from 1.15% of the loan balance to 0.55%.

There is one catch: The new streamline refinance fees only apply to borrowers who took out loans before June 1, 2009.

—Nick Timiraos

Developments Blog

WSJ.com

Maximize Capital Gains

If you’re a stock or mutual-fund investor, you probably know that investments held for more than a year and sold for a profit are subject to lower tax rates as long-term capital gains.

But what you might not realize is that more than just stock and mutual-fund shares are eligible for favorable capital-gains tax treatment. Among them:

Securities options held as personal investments.

Stock of closely held corporations.

Collectibles held as personal investments, such as baseball cards, stamps, rare coins and art.

Personal residences (including vacation homes). In this case, the 15% maximum rate generally applies to gains beyond what you can exclude (not pay tax on) under the $250,000/$500,000 home-sale gain exclusion. But a 25% maximum rate applies to gains triggered by certain depreciation deductions claimed against your property.

Vacation time-share interests.

Personal-property items (not collectibles), such as jewelry, furniture, lawn mowers.

Rental real estate owned by an individual, partnership, limited-liability company or S corporation.

Land held as an investment by an individual, partnership, limited-liability company or S corporation.

The right of a tenant to receive a lease-cancellation payment when the tenant is an individual, partnership, limited-liability company or S corporation. This applies if you were renting property and the landlord cancelled your lease.

— Bill Bischoff

SmartMoney.com

The Aggregator, edited by Cristina Lourosa-Ricardo, features news and commentary from The Wall Street Journal and other publications. Email: cristina.lourosa@wsj.com

By GEORGETTE JASEN

More than 50 million Americans have invested some $3.64 trillion in 401(k) and 403(b) retirement savings plans, more than half of it in mutual funds. Chances are, few of them know how much they’re paying in fees and expenses.

It isn’t easy to find that information, yet those fees can amount to hundreds of dollars a year or more and significantly reduce what you’ll have when you retire. An AARP survey of plan participants 25 and older found that seven of 10 didn’t know they were paying any fees at all.

“Investors today are increasingly responsible for their own retirement, so it’s critical that they have all the information they need to plan,” says Jean Setzfand, AARP vice president of financial security. “Fees are often hard to read and understand even when you know you are paying them.”

That will change this summer when new disclosure requirements from the Department of Labor take effect.

James Steinberg

Mutual-fund companies and other plan administrators must provide detailed information to employers by July 1. Employers must deliver that information to plan participants by Aug. 30 and annually thereafter, in a clear and readable format. Most plans will be subject to the new rules, although there are a few exceptions, such as 403(b) plans established or maintained by government employers for federal, state and local government employees.

“It will be the first time that all participants [in covered plans] will have access to comparable information about all the investments in a plan,” says David Abbey, senior counsel for pension regulation at the Investment Company Institute, the mutual-fund trade group in Washington, D.C.

Here are some things you need to know:

What are all these fees I might be paying?

There are investment-related fees and fees for administering the plan itself.

Investment-management fees tend to be the largest component of costs, and usually are assessed as a percentage of assets. In the case of variable annuities, there are also charges for the insurance element of these products, which typically provides the return of at least your original investment in case of your death.

With both funds and annuities, there can be charges that help compensate a financial adviser who was involved in selling the plan to your employer and who may provide continuing assistance to the employer and/or individual employees.

Fees for the administration of the plan cover such things as record keeping, accounting, and legal services to ensure regulatory compliance. Individual participants may also be charged fees for specific transactions, such as taking a plan loan.

How are the investment and other fees charged?

Most investment-related fees are automatically subtracted from fund and annuity assets, and the quoted returns on those holdings are generally net of those charges. When sales commissions are paid, there can also be upfront commissions—or redemption fees when funds or annuities are sold within a certain number of years since purchase.

Participants can be charged for plan-level costs in a couple of ways. There can be explicit fees, expressed either as dollar amounts or a percentage of assets. Or these expenses can be bundled into the investment options: For instance, the plan could use a particular class of fund shares that includes a half-percentage-point fee to cover administrative costs.

How much do these fees add up to?

The fees can vary enormously among plans, depending on the number of participants, the amount invested overall and the number and type of investment options. Plans with more participants and higher average balances typically have lower fees because some costs can be spread over a larger group. In some cases, employers pay all or part of the administrative costs.

In a recent ICI study of 525 defined-contribution plans, Deloitte Consulting LLP calculated that the 10% of plans with the lowest costs had “all-in” fees of less than 0.87% a year, which includes plan administration, record keeping, investment management, and consulting or financial advice for plan sponsors and sometimes, educational programs and financial advice for participants. Fees were more than 1.8% for the 10% with the highest costs. More than half the plans in the survey were small, reflecting the 401(k) universe as a whole. There are many more participants in larger plans, which typically have lower costs. Thus, the median participant pays “all-in” fees of 0.78%, according to Deloitte’s calculations. That would be $140 on what the Employee Benefit Research Institute and ICI say is the median 401(k) account balance of about $18,000, or $78 for every $10,000 invested.

How much you pay now in fees can make a big difference in how comfortable you’ll be in retirement. Tim Courtney, chief investment officer for Burns Advisory Group in Oklahoma City, estimates that a 23-year-old who invests $5,000 a year in a 401(k) plan returning 8% a year before fees, on average, would have more than $1.3 million when he turns 65 if fees are just 0.5%. Raise those fees by one percentage point, to 1.5%, and the account would have $317,136 less, or just over $1 million.

Where can I look now to see what I’m paying?

Quarterly and annual statements from your plan may include some information about fees. If you invest in mutual funds, you can find information about fees and other expenses in each fund’s prospectus. Many plans also include fund fact sheets that include things like returns and fees, although that and the prospectus usually come only with the initial investment. Expense and return information is also available on websites including The Wall Street Journal’s WSJmarkets.com and morningstar.com.

Information about fees for administering the plan itself should be available from your employer, but you usually have to ask. Some employers include it on quarterly or annual statements.

AARP has a free online tool, with registration, a 401(k) fee calculator (www.aarp.org/ 401kfees) that estimates fees associated with individual plans and approximates in dollars the potential impact on the balance at retirement age. The tool was developed with BrightScope Inc., a financial-information company that publicly rates more than 40,000 401(k) and 403(b) plans. BrightScope also offers fee information if you register on its website, BrightScope.com.

What will change with the coming disclosure rules?

Employees will get a multipage document listing all the investment options in their plan, with one-, five- and 10-year returns compared with their benchmarks, as well as fees and expenses for each and a description of what those fees are for. It will be sent to all employees eligible to participate, not just to those who have already invested.

Besides mutual funds, the list will include investments such as guaranteed investment contracts, stable-value funds and annuities, if they are offered by the plan. The form will also include a Web address to get additional information, such as updated returns, about each investment.

Employers “have been polishing up their plans in anticipation of fee disclosure, making sure the fees are appropriate,” says David Wray, president of the Plan Sponsor Council of America. He says nearly two-thirds of 401(k) plans changed their investment lineup last year, and 57% did so the year before, compared with a “normal number” of about 10%.

To be sure, fees shouldn’t be your only consideration when making an investment decision. “You have to take a holistic view, [consider] the objective of the fund and its performance relative to its benchmark as well,” says Larry Goldbrum, general counsel of the Spark Institute, a Simsbury, Conn., trade group for the retirement-plan industry. That information will be part of the required disclosures.

Ms. Jasen is a writer in New York. Email her at reports@wsj.com.

Corrections & Amplifications

The new 401(k) disclosure rules from the Labor Department don’t require employers to list investment choices by asset class, although most will probably do so. An earlier version of this article implied that an asset-class breakdown is required.

A version of this article appeared April 5, 2012, on page C19 in some U.S. editions of The Wall Street Journal, with the headline: Inspect the Fees in Your 401(k).

By ROBIN SIDEL

Jim Stein no longer has to worry when one of his shareholders dies or gets divorced.

As chief executive of Bank of Houston, Mr. Stein used to fret about tripping a regulation that required the community bank to register with the Securities and Exchange Commission if it has more than 500 shareholders. The bank, a unit of BOH Holdings Inc., carefully maintained its shareholder count at 350 because it wanted to avoid the cost and hassle of registering. But the level was always at risk of rising.

“One shareholder could turn into four through unexpected consequences,” Mr. Stein said.

Now, Mr. Stein and other small-bank CEOs can stop counting shareholders as closely and turning potential investors away at the door. The JOBS Act signed into law this month includes a provision that raises the number of shareholders at which small banks must register with the SEC to 2,000. The JOBS Act aims to increase jobs by reducing regulations on companies.

The change means that small banks are free to raise capital by attracting new investors without taking on regulatory burdens that are associated with the SEC filings. It also could breathe some new life into bank mergers and acquisitions, which last year stood at the second-lowest level since 1980.

“This will create opportunities for us that didn’t exist before,” said Mr. Stein. The 7-year-old bank, which has six branches, wants to expand in the Houston area and potentially find a merger partner.

The new rule comes at a time when community institutions are struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations. Returns on assets at institutions with $1 billion or less in assets was a third less than the industry average in 2011, according to the Federal Deposit Insurance Corp.

The move potentially could affect hundreds of community banks around the country. Just 16% of the nation’s roughly 7,400 banks and thrifts are publicly traded, according to research firm SNL Financial. Many of those are thinly traded, but most are required to file quarterly and annual financial reports with the securities agency.

The JOBS Act also makes it easier for small banks to deregister with the SEC, permitting them to do so with 1,200 shareholders, compared with the current threshold of 300.

Many banks aren’t likely to raise their shareholder base; community banks are often closely held among a small group, especially those that are family-run institutions. Some, however, are eager to attract more capital and investors, especially if they can now avoid the expense, which could be as much as $200,000 a year, of filing quarterly and annual financial reports with the SEC.

Maintaining the shareholder numbers game has been tough for Roland Williams, who monitors the 492 holders at Post Oak Bank in Houston. As chief executive of the seven-branch bank, a unit of Post Oak Bancshares Inc., he already had resigned himself to breaking through 500 shareholders this year because the bank is planning to raise up to $20 million of capital.

“You just can’t have enough capital,” he said.

The new rule isn’t expected to threaten the safety and soundness of the community-bank industry; banks of all sizes must regularly file financial data with the FDIC and submit to examinations from national and state regulators.

Industry consultants say the raising of the 500-shareholder rule could fuel new life in the strapped sector by giving banks flexibility to build new branches or pursue growth through mergers and acquisitions. Some industry observers have long said that the U.S. banking system would be more efficient with fewer institutions even though the number of commercial banks and thrifts already has dropped 60% since 1985.

Several bank executives said the 500-shareholder barrier prevented them from pursuing mergers because they didn’t want to issue new shares.

The 500-shareholder bar “has been something on the mind of every board in every merger discussion,” said Curtis Carpenter, managing director at Sheshunoff & Co., an Austin, Texas, investment firm that focuses on the banking industry.

The new threshold also is likely to trigger a wave of community-bank stock offerings, according to Mindi McClure, managing principal at Bear Cos., an investment firm in Arlington, Va., that specializes in community banks.

“Having an additional way for banks to get more shareholders is a real positive,” she said.

Jack Hartings, chief executive at Peoples Bank Co. in Coldwater, Ohio, already had warned his 465 shareholders that the bank might have to pursue a reverse stock split in order to avoid tripping the 500-shareholder barrier. Mr. Hartings, whose bank is a unit of Peoples Holding Co., also dissuaded potential investors from buying stock, telling them, “We appreciate your confidence in the bank, but right now we are not seeking new shareholders.”

Mr. Hartings said the bank has no immediate plans to expand its shareholder base as a result of the law even though “everyone likes to own a piece of a company that they see in town.”

“We have willing buyers, but not many willing sellers,” he said.

Write to Robin Sidel at robin.sidel@wsj.com

A version of this article appeared April 23, 2012, on page C1 in some U.S. editions of The Wall Street Journal, with the headline: A Freer Hand for Small Banks.

By ANNA PRIOR

As companies continue to lay off workers, here’s another reason for people to worry about joining the ranks of the unemployed: They may find a smaller severance package than they expect.

The unemployment rate fell to 9.4% last month, but 247,000 jobs were still lost in that period. And the more people laid off by companies, the larger the chunk of change being paid out in the form of severance pay, continued health benefits, retraining and other services. So companies are beginning to put such payments under the microscope.

Smaller severance packages will add to the financial strain of laid-off workers. And state unemployment benefits only get you so far. People who have been jobless for an extended period — a max of as many as 79 weeks in some states — will soon face the end of their state benefits.

“There is less money on the table and people are essentially doing the least that they have to do in terms of taking care of exiting employees,” says Wendi Lazar, an employment lawyer and partner at Outten & Golden in New York. “We used to see benefits where companies would pay for [the continuation of health coverage at group rates under] Cobra or give the employee six months to a year of health care, and we aren’t seeing that anymore.”

Separate surveys of several hundred companies, conducted within the past few months by consulting firms Mercer and Hewitt Associates, show that many employers say they don’t plan to modify severance policies, if they have one.

Still, consultants and employment lawyers say anecdotal evidence suggests that some cuts in severance packages should be expected and negotiating better terms is becoming harder to do.

Meantime, a few companies have turned to more fundamental changes in the way they compensate laid-off employees. Media company Gannett, for instance, is now offering supplemental unemployment benefit plans, which allow the company to share part of the cost of severance pay with the states.

On the Chopping Block

Tim Foley

In this economic environment, the first thing to likely get cut back is employer-paid continuation of medical benefits, says Ed Rataj, managing director of compensation consulting at CBIZ Human Capital Services.

Instead of providing benefits such as health insurance for the same length of time as severance payments, as has traditionally been done, says Lori Wisper, a senior consultant at Hewitt, some companies are looking to either share the cost of continued coverage or shift the full cost of coverage to the former employee. Health benefits under Cobra typically cost about $400 per month for an individual and more than $1,000 per month for a family. (A federal subsidy that covers 65% of Cobra premiums is available for those who have lost or who will lose their jobs between Sept. 1, 2008 and Dec. 31, 2009.)

There also could be changes to the cash side of a severance package, usually the most expensive part of a deal, Ms. Wisper says. For instance, two weeks of pay for every year of service might fall to one week of pay for every year worked.

In addition, some maximums for how many weeks of severance pay an employee can receive are shrinking to 26 weeks, from highs of 40 to 52 weeks.

The one area still holding steady, says Mr. Rataj, is outplacement services — mostly because it’s the cheapest thing to provide.

The amount of services offered tends to vary based on employment level. People in senior-level positions usually get access to full services provided by an outplacement firm, such as an office to use while job hunting, résumé preparation and administrative assistance. Lower-level employees are typically given résumé preparation and access to group seminars on job-search skills, says Ms. Wisper.

These services “provide goodwill among employees,” says Mr. Rataj. “It can create a good public image at a pretty low cost.”

What’s Negotiable

Tim Foley

Given the tighter purse strings, negotiating the terms of a severance package is becoming an even more awkward dance these days. This is especially true when a company has widespread layoffs, says Scott Hill, a financial adviser and senior vice president at Kanaly Trust, a wealth-management and financial-planning provider in Houston.

In the past, a rank-and-file employee could expect employers to be open to negotiating higher severance pay, extended health benefits or compensation for unused vacation days. “An employer would be open to trying to make it a palatable and amiable exit,” Ms. Lazar says.

But now, she says, “a lot of companies are taking a hard line.” They say, “this is the package — take it or leave it.”

Still, negotiating isn’t a complete waste of time. If you are leaving a senior-level post, you could have some leeway, especially if you’re asked, as a condition of the package, to sign a noncompetition agreement or nondisparagement clause.

By signing such an agreement, “you are giving the company something of value,” says Mr. Hill. That means you may be able to squeeze out something of value for yourself in return.

As for lower-level employees, they should think of things that can be of value to them, says David Cashdan, an employment lawyer and vice president of public policy for the National Employment Lawyers Association.

Some examples: flexibility in choosing an outplacement services firm, assurance that a person will be placed on a rehire list, a letter of recommendation and assurance that nothing negative will be said about the person to a prospective employer.

And if such things don’t cost the company a lot of money, that’s another plus.

In the end, take your time reviewing any package. Typically, companies will give you a deadline. But “take no more than half of that time to come back with some sort of counter proposal, says Mr. Hill, “because the company will want some time to consider that deal as well.”

Also, Ms. Lazar recommends having a lawyer look at the package to ensure you aren’t waiving any rights that could make it difficult for you to find another job or prevent you from suing the company for an existing claim.

Write to Anna Prior at anna.prior@wsj.com

By TOM HERMAN

Q: Suppose I sell my home this year and have a $100,000 capital gain. Is it correct that I would report it as income for this year? How would it be taxed?

—L.P.,

West Valley City, Utah

A: You haven’t given me enough details to respond to your specific situation. But most people who sell their primary residence for a profit wind up having to pay little or no tax on their gain.

Here are the general rules:

Let’s assume that the home you’re asking about is your primary residence, and that you purchased it several years ago. If you sell it this year, you typically would be eligible for highly favorable tax treatment enacted during the Clinton administration.

Taxpayers typically can exclude as much as $500,000 of the gain on the sale of their primary residence if they’re married and filing a joint federal income-tax return. For singles, the maximum exclusion is $250,000.

This is a generous provision. After all, these exclusion amounts refer to your profit, not the sale price.

To qualify for the full exclusion, taxpayers typically must have owned the home—and used it as their primary residence—for at least two of the five years prior to the sale.

If you can’t meet these tests, you still might be eligible to exclude some, or all, of your gain, depending on other factors—including how long you lived in that home and why you sold it.

For example, you might qualify for a reduced exclusion if the primary reason for selling your main home is “a change in place of employment,” or for health reasons, or certain “unforeseen circumstances,” such as the death of your spouse, according to Internal Revenue Service Publication 523 (www.irs.gov).

There is even more fine print. See Publication 523 for details or consult a tax pro.

Write to Tom Herman at tom.herman@wsj.com

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