OSHA Documents – 5 years

·        Log of all occupational illnesses/accidents

·        Other OSHA records

IRS/SSA/FUTA documents – 4 years

·        Duplicate copies of tax returns/tax deposits

·        Returned copies of Form W-2

·        Canceled/voided checks

·        Employee’s name/address/occupation/social security number

·        Amount/date of payments for wages, annuities, pensions, tips; fair market value of wages-in-kind

·        Record of allocated tips

·        Amount of wages subject to withholding

·        Taxes withheld (and date if different from pay date)

·        Copies of Form W-4 (for at least four years after the date the last return was filed using the information on the Form W-4)

·        Agreements to withhold additional amounts

·        Dates when employee was absent due to injury and received payments; amount/rate of such payments (by employer or third party)

·        Copies of Forms 941, 940, W-2, W-3, Schedule A, Schedule B, and other returns filed on magnetic media

FLSA/INRCA Record Retention – 3 years

·        Name of employee/address/occupation/birth date/sex

·        Hours worked each day/week

·        Amount and date of payment

·        Amounts earned for straight time and overtime/additions to and deductions from wages

·        Collective bargaining agreements

·        Sales and purchase records

·        Immigration Reform and Control Act, Form I-9-three years after date of hire or one year after date of termination (whichever is later)

FAMILY AND MEDICAL LEAVE Record-Keeping Requirements - 3 years

The following records must be kept for at least three years, in any format, and made available no more frequently than once every 12 months for Department of Labor inspection.

·        Name, address, occupation rate of pay, daily and weekly hours worked per pay period

·        Additions to and deductions from wages, total compensation

·        Dates of FMLA leave (or hours if taken in increments of less than one day)

·        Copies of written notices of intention to take FMLA leave provided by employee

·        Copies of general and specific notices provided to employees

·        Plan descriptions/policies and procedures dealing with unpaid and paid leaves

·        Premium payments for employee benefits

·        Records of any disputes

SUPPLEMENTAL RECORD RETENTION – 2 years

·        Time cards

·        Wage rate tables

·        Work time schedules

·        Order/shipping/billing records

·        Records of additions to or deductions from wages

On July 1, President Trump signed into law a sweeping, bipartisan IRS reform bill called the Taxpayer First Act ( P.L. 116-25). This legislation aims to broadly redesign the IRS for the first time in over 20 years.

On July 1, President Trump signed into law a sweeping, bipartisan IRS reform bill called the Taxpayer First Act ( P.L. 116-25). This legislation aims to broadly redesign the IRS for the first time in over 20 years.

Reworked IRS Reform Bill

The Senate approved the Taxpayer First Act by voice vote on June 13. The measure was unanimously approved in the House on June 10.

The reworked IRS reform bill, originally introduced in the last Congress, was revised in early June after the House passed a prior version in April. However, the original House-approved bill (HR 1957) was quickly doomed in the Senate because of controversy surrounding the IRS’s Free File program.

The provision codifying the IRS’s Free File program was removed from the original bill, and the measure was reintroduced as HR 3151. Congress then quickly sent it to the president’s desk.

Taxpayer First Act Provisions

The Taxpayer First Act aims to reform the IRS into a more taxpayer-friendly agency. It requires the IRS to develop a comprehensive customer service strategy, as well as a plan to redesign the IRS’s structure, modernize its technology, and enhance its cyber security.

The measure also:

• codifies and enhances an independent Office of Appeals within the IRS;
• waives the application fee for an offer in compromise (OIC) by a low-income taxpayer;
• sets new electronic filing requirements;
• clarifies information available about low-income taxpayer clinics (LITCs);
• codifies the Volunteer Income Tax Assistance (VITA) Program;
• requires notice regarding the closure of taxpayer assistance centers (TACs);
• improves the IRS whistleblower program;
• modifies the private debt collection program;
• clarifies procedures for equitable relief from joint liability;
• establishes new safeguards on seizing funds believed to be structured to avoid the $10,000 financial reporting requirement; and
• modifies procedures for the issuance of summons and notice of third-party contacts by the IRS.

Hill Reaction

"This signing is the culmination of a lengthy, bipartisan process undertaken by the [House] Ways and Means Committee to implement pro-taxpayer reforms at the IRS for the first time in more than 20 years," Senate Finance Committee (SFC) Ron Wyden, D-Ore., said in a July 1 statement. "New protections for low-income taxpayers, practical enforcement reforms, and upgraded assistance for taxpayers and small businesses will all now go into place."

Additionally, the House’s top Republican tax writer issued a statement after Trump signed the IRS reform legislation. "I’m proud that after three years of thoughtful bipartisan work, our bold package of reforms to the Internal Revenue Service are the law of the land," Ways and Means ranking member Kevin Brady, R-Tex., said on July 1. "Thank you to President Trump for signing this historic legislation, which is the biggest and boldest step in over 20 years to redesign and restructure the IRS into an agency with a singular mission – quality taxpayer service."

The House has approved a bipartisan repeal of the Affordable Care Act’s (ACA) so-called "Cadillac"excise tax on certain high-cost insurance plans.

The House has approved a bipartisan repeal of the Affordable Care Act’s (ACA) so-called "Cadillac"excise tax on certain high-cost insurance plans.

ACA Cadillac Tax Repeal

The Middle Class Health Benefits Tax Repeal Bill (HR 748) cleared the House on the evening of July 17 by a 419-to-6 vote. The bipartisan bill would repeal the 40 percent excise tax under the ACA known as the "Cadillac tax" on certain high-cost employer-sponsored health care plans.

Congress has repeatedly delayed the ACA’s "Cadillac" tax, which is currently set to go into effect in 2022. However, HR 748 would fully repeal the tax.

Although the measure has bipartisan support in the Senate, as for when it will get its legs in the upper chamber remains to be seen. Lately, Senate Majority Leader Mitch McConnell, R-KY., has been viewed on Capitol Hill as focusing more on moving nominations than considering tax bills.

HR 748’s Large Price Tag May Signal Hope for Tax Extenders

Notably, HR 748 dodged House Democrats’ "pay as you go" rules for tax legislation, thus carrying with it a large price tag with no offsets. The nonpartisan Congressional Budget Office (CBO) has estimated that the bill would cost the federal government more than $196 billion over 10 years.

Senate Finance Committee (SFC) Chairman Chuck Grassley, R-Iowa, has signaled that Democrats’ support for repealing the ACA’s "Cadillac"tax without pay-fors may signal a newly opened door for tax extenders. Grassley has consistently expressed that he is focused on addressing the previously and soon to be expired tax breaks known as tax extenders but has been waiting for the Democratic controlled House to send such a bill, noting that tax legislation must originate in the House.

However, House Democrats’ tax extenders bill, the Taxpayer Certainty and Disaster Tax Relief Bill of 2019 (HR 3301) would offset its costs by causing the GOP tax law’s increase in estate tax exemption amounts to sunset early at the beginning of 2023. Under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), the estate tax provisions would expire at the start of 2026.

The bill cleared the House Ways and Means Committee last month but has not yet reached the House floor. Senate Republicans have called any proposal to repeal provisions under the TCJA a "nonstarter."

The IRS has released final regulations that clarify the employment tax treatment of partners in a partnership that owns a disregarded entity.

The IRS has released final regulations that clarify the employment tax treatment of partners in a partnership that owns a disregarded entity.

The Treasury Department and the IRS had issued the temporary regulations ( T.D. 9766) to clarify that the rule that a disregarded entity is treated as a corporation for employment tax purposes does not apply to the self-employment tax treatment of any individuals who are partners in a partnership that owns a disregarded entity. The temporary regulations continued to explicitly provide that the owner of a disregarded entity who is treated as a sole proprietor for income tax purposes is subject to self-employment taxes. A notice of proposed rulemaking ( REG-114307-15) cross-referencing T.D. 9766was published on the same day.

The final regulations adopt the proposed regulations as amended. The corresponding temporary regulations are removed.

Disregarded Entity

These regulations affect partners in a partnership that owns a disregarded entity, and contain amendments to 26 CFR part 301. Generally, under Reg. §301.7701-2(c)(2)(i) and except as otherwise provided, a business entity that has a single owner and is not a corporation under Reg. §301.7701-2(b)is disregarded as an entity separate from its owner (a disregarded entity). However, Reg. §301.7701-2(c)(2)(iv)(B) treats a disregarded entity as a corporation for purposes of employment taxes imposed under Subtitle C of the Internal Revenue Code. This exception to the treatment of disregarded entities does not apply to taxes imposed under Subtitle A of the Code, including self-employment taxes.

Effective Date

These regulations are effective on July 2, 2019.

Final regulations allow employers to voluntarily truncate employees’ social security numbers (SSNs) on copies of Forms W-2, Wage and Tax Statement, furnished to employees. The truncated SSNs appear on the forms as IRS truncated taxpayer identification numbers (TTINs). The regulations also clarify and provide an example of how the truncation rules apply to Forms W-2.

Final regulations allow employers to voluntarily truncate employees’ social security numbers (SSNs) on copies of Forms W-2, Wage and Tax Statement, furnished to employees. The truncated SSNs appear on the forms as IRS truncated taxpayer identification numbers (TTINs). The regulations also clarify and provide an example of how the truncation rules apply to Forms W-2.

Why Truncate?

The Protecting Americans from Tax Hikes (PATH) Act of 2015 ( P.L. 114-113) amended Code Sec. 6051(a)(2) by replacing the requirement that employers include employees’ SSNs on copies of Forms W-2 furnished to employees with a requirement to use an "identifying number for the employee."Because the SSN was no longer required to appear on Forms W-2 furnished to employees, the IRS published proposed regulations in 2017 to allow employers to truncate employees’ SSNs on those Forms W-2 ( REG-105004-16). The amendments were intended to aid employers’ efforts to protect employees from identity theft.

The final regulations adopt the proposed regulations without substantive changes to the content of the rules.

SSN Truncation on Forms W-2

The final regulations permit employers to truncate employees’ SSNs on copies of:

• Forms W-2 furnished to employees to report wages paid, employment taxes withheld, etc.;
• Forms W-2 furnished to employees to report wages paid in the form of group-term life insurance;
• Forms W-2 furnished to payees to report third-party sick pay; and
• Forms W-2c furnished to correct errors on Forms W-2.

The regulations do not apply to any other forms. Also, truncation is not mandatory; the regulations permit truncation but do not require it.

Under the general truncation rules, a TTIN cannot be used on a statement or document if a statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions:

• specifically requires use of an SSN, IRS individual taxpayer identification number (ITIN), IRS adoption taxpayer identification number (ATIN), or IRS employer identification number (EIN); and
• does not specifically permit truncation.

For instance, an employer cannot truncate an employee’s SSN on copies of Forms W-2 filed with the Social Security Administration.

The IRS intends to incorporate the revised regulations into forms and instructions.

Effective Date; Applicability Date

The final regulations are effective on July 3, 2019, but when they apply varies. Reg. §31.6051-1, Reg. §31.6051-3, and Reg. §1.6052-2, as amended, apply for statements required to be filed and furnished under Code Sec. 6051 and Code Sec. 6052 after December 31, 2020. Reg. §31.6051-2, as amended, applies on July 3, 2019. Reg. §301.6109-4, as amended, applies to returns, statements, and other documents required to be filed or furnished after December 31, 2020.

IRS final regulations provide rules that apply when the lessor of investment tax credit property elects to pass the credit through to a lessee. If this election is made, the lessee is generally required to include the credit amount in income (50 percent of the energy investment credit). The income is included in income ratably over the shortest MACRS depreciation period that applies to the investment credit property. No basis reduction is made to the investment credit property.

IRS final regulations provide rules that apply when the lessor of investment tax credit property elects to pass the credit through to a lessee. If this election is made, the lessee is generally required to include the credit amount in income (50 percent of the energy investment credit). The income is included in income ratably over the shortest MACRS depreciation period that applies to the investment credit property. No basis reduction is made to the investment credit property.

Partners and S shareholders who receive the credit (i.e., are the ultimate credit claimants) must make income inclusions in proportion to their share of the credit.

No Basis Increase for Partners and S Shareholders

The regulations resolve a contentious issue against taxpayers. They provide that a partner’s income inclusions are not treated as an item of partnership income under subchapter K. A similar rule applies to S corporations. Therefore, basis adjustment rules that would increase a partner’s outside basis or S shareholder’stock basis if the income inclusion amounts were treated as items of income do not apply. The IRS says its interpretation is appropriate because the investment credit and limitations on the investment credit are determined at the partner and S shareholder level.

Coordination With Recapture Rules

If a recapture event occurs an adjustment is made to the lessee’s (or ultimate claimant’s) gross income to account for any difference between the amounts that were included in income and the credit that is allowed after recapture. Special rules are provided when the amount of the unrecaptured credit exceeds the income inclusions and when the income inclusions exceed the unrecaptured credit.

Election to Accelerate Income Inclusion Upon Lease Termination

The lessee (or ultimate claimant) may make an irrevocable election to include in gross income any remaining income inclusion amounts in the tax year in which a lease terminates or is otherwise disposed of. If a partner or S shareholder disposes of its partnership or S corporation interest, the partner or S shareholder may also make an irrevocable election to include remaining inclusion amounts in income in the year of disposition. These elections may only be made if the recapture period has expired and a recapture event had not occurred during the recapture period.

Effective Date

The final regulations are effective on July 17, 2019 and apply to investment credit property placed in service on or after September 19, 2016.

Effective July 17, 2019, the list of preventive care benefits that can be provided by a high deductible health plan (HDHP) without a deductible or with a deductible below the applicable minimum deductible is expanded. The list now includes certain cost effective medical care services and prescription drugs for certain chronic conditions.

Effective July 17, 2019, the list of preventive care benefits that can be provided by a high deductible health plan (HDHP) without a deductible or with a deductible below the applicable minimum deductible is expanded. The list now includes certain cost effective medical care services and prescription drugs for certain chronic conditions.

HDHPs and Health Savings Accounts

Individuals covered by an HDHP generally may establish and deduct contributions to a Health Savings Account (HSA). To qualify as an HDHP, a plan may not provide benefits for any year until the minimum deductible for that year is satisfied. However, an HDHP is not required to have a deductible for preventive care.

Current Rule for Chronic Conditions

Under the existing rule, preventive care generally does not include any service or benefit intended to treat an existing illness, injury, or condition. As a result, the cost barriers for care have resulted in some individuals diagnosed with certain chronic conditions failing to get effective and necessary care that would prevent making the chronic condition worse. Failure to address chronic conditions can lead to amputation, blindness, heart attacks, and strokes that require considerably more extensive medical intervention.

Treatments for Chronic Care as Preventive Care

The following medical care services are now classified as preventive care for someone with that chronic condition:

• angiotensin converting enzyme (ACE) inhibitors for individuals diagnosed with congestive heart failure, diabetes, or coronary artery disease;
• anti-resorptive therapy for individuals diagnosed with osteoporosis or osteopenia;
• blood pressure monitor for individuals diagnosed with hypertension;
• peak flow meter for individuals diagnosed with asthma;
• inhaled corticosteroids for individuals diagnosed with asthma;
• glucometer for individuals diagnosed with diabetes;
• hemoglobin A1c testing for individuals diagnosed with diabetes;
• insulin and other glucose lowering agents for individuals diagnosed with diabetes;
• retinopathy screening for individuals diagnosed with diabetes; and
• statins for individuals diagnosed with heart disease and/or diabetes.

The continuity safe harbor placed-in-service date deadlines for the investment tax energy credit (Code Sec. 48) and the renewable electricity production credit (Code Sec. 45(a)) may be tolled if a construction delay is caused by national security concerns raised by the Department of Defense (DOD).

The continuity safe harbor placed-in-service date deadlines for the investment tax energy credit (Code Sec. 48) and the renewable electricity production credit (Code Sec. 45(a)) may be tolled if a construction delay is caused by national security concerns raised by the Department of Defense (DOD).

Background

In general, the energy credit may only be claimed if construction on a qualified facility begins before January 1, 2022. In the case of the production credit, construction must begin before January 1, 2017 (January 1, 2020 for a wind facility). Once construction begins, taxpayers are required to make continuous progress toward completion under either a continuous construction test or a continuous efforts test. These tests are deemed satisfied under the continuity safe harbor if the facility is placed in service within four calendar years after the calendar year in which construction begins.

Tolling Requirements

A construction deadline in the continuity safe harbor is tolled if all of the following requirements are satisfied:

• one or more necessary government permits or approvals for construction have been issued;
• construction has begun;
• the DOD provides written notice that the construction plan should be modified in the interest of national security;
• the plan is modified in a way that is acceptable to the DOD to mitigate the national security concerns; and
• as a result of the plan modification, new or additional permits or licenses must be obtained which will delay the placed-in-service date of the facility or energy property.

Tolling Period

The tolling period of the continuity safe harbor begins on the day the DOD provides written notice that the plan of construction requires modification to meet national security concerns.

The tolling period ends when one of the following events occurs:

• all new or additional permits or licenses are obtained;
• written confirmation is received that all of the required new or additional permits or licenses will not be issued; or
• the relevant federal or state authorities are notified in writing that the modification to the plan will no longer be pursued.

The maximum length of the tolling period is four years.

No Rulings

The IRS will not issue private letter rulings or determination letters regarding the application of the tolling provision or the beginning of construction requirement.

Modified Rulings

Notice 2013-29, 2013-1 C.B. 1085, Notice 2013-60, 2013-2 C.B. 431, Notice 2014-46, 2014-2 C.B. 520, Notice 2015-25, 2015-13 I.R.B. 814, Notice 2016-31, 2016-23 I.R.B. 1025, Notice 2017-4, 2017-4 I.R.B. 541, and Notice 2018-59, 2018-28 I.R.B. 196, are modified.

The Treasury and IRS have issued proposed regulations on provisions dealing with passive foreign investment companies (PFICs). Proposed regulations published on April 25, 2015, also have been withdrawn ( NPRM REG-108214-15).

The Treasury and IRS have issued proposed regulations on provisions dealing with passive foreign investment companies (PFICs). Proposed regulations published on April 25, 2015, also have been withdrawn ( NPRM REG-108214-15).

U.S. persons who own interests in PFICs are subject to rules that limit deferral on passive income earned by foreign corporations ( Code Sec. 1291– Code Sec. 1298). In general, a PFIC is a foreign corporation that in any given year:

• has income that is 75 percent or more passive income (income test); or
• owns, on average, assets that are 50 percent or more passive-income-producing (asset test).

The proposed regulations provide general guidance regarding PFICs, and guidance on the PFIC insurance exception. Specifically, the proposed regulations cover:

• the determination of ownership in a PFIC, and the treatment of certain income received or accrued by a foreign corporation and assets held by a foreign corporation under Code Sec. 1297;
• rules for determining whether a U.S. person that directly or indirectly holds stock in a PFIC is treated as a PFIC shareholder, and whether a foreign corporation is a PFIC; and
• whether a foreign insurance company is a qualifying insurance company (QIC) under Code Sec. 1297(f), and the amounts of income and assets that a QIC can exclude under the PFIC insurance exception.

General Guidance

The proposed regulations specify that, in applying the asset test, the period over which the average percentage is calculated is at least quarterly. However, taxpayers are allowed to use a shorter period, such as a monthly of daily measurement of asset values.

The proposed regulations address attribution of ownership under the look-through subsidiary rules of Code Sec. 1297(c) for determining PFIC status. These rules treat a foreign corporation (FC1) that owns 25 percent or more of another foreign corporation (FC2) as owning and earning a proportional amount of the other foreign corporation’s income and assets. The proposed regulations allow attribution from FC2 to FC1, if FC1 has a greater than 50 percent ownership interest in FC2.

The proposed regulation also provide a partnership look-through rule for the treatment of a partnership interest owned by a foreign corporation, for purposes of determining whether the foreign corporation is a PFIC. Under the rule, the same 25 percent ownership threshold applies to partnership interests as is applied to interests in corporations.

PFIC Insurance Exception

The income of a QIC derived in the active conduct of a trade or business is not treated as passive income for purposes of determining whether a corporation is a PFIC. The QIC test is based on the ratio of the foreign insurance company’s "applicable insurance liabilities" to total assets. Applicable insurance liabilities are the smallest of:

• insurance liabilities on the company’s most recent applicable financial statement (AFS);
• liabilities required by local law or regulation; or
• as provided under Treasury regulations.

Current law allows a foreign corporation to use a local AFS if it does not do financial reporting based on the rigorous and widely-accepted U.S. generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS).

The proposed regulations provide a special rule for foreign corporations that change their method of preparing their AFS by ceasing to prepare this statement under either U.S. GAAP or IFRS without a non-federal tax business purpose for the change. The foreign corporation must continue to prepare its AFS under either U.S. GAAP or IFRS. Failing to do so will mean the foreign corporation has no applicable insurance liabilities for the QIC test.

Additionally, if an AFS is prepared under local accounting standards that do not require discounting unpaid losses and other loss reserves on an economically reasonable basis, AFS insurance liabilities must be reduced under U.S. GAAP or IFRS discounting principles.

Applicability Date

The proposed regulations are proposed to apply to tax years of U.S. persons that are shareholders in certain foreign corporations beginning on or after the date of publication of the Treasury Decision adopting these regulations as final regulations in the Federal Register.

Until the regulations are final:

• taxpayers may choose to apply the proposed regulations (other than Proposed Reg. §1.1297-4and Proposed Reg. §1.1297-5) for open tax years;
• U.S persons and shareholders in certain foreign corporations may apply Proposed Reg. §1.1297-4 and Proposed Reg. §1.1297-5, for tax years beginning after December 31, 2017; and
• taxpayers may rely on Notice 88-22, 1988-1 CB 489, providing guidance on the income and asset tests.

Comments

Written or electronic comments and requests for public hearing must be received by September 9, 2019. Send submissions to: CC:PA:LPD:PR (REG-105474-18), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-105474-18), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-105474-18).

Proposed regulations would provide an exception to the unified plan rule for multiple employer plans (MEPs). The purpose is to reduce the risk of plan disqualification due to noncompliance by other participating employers. The regulations would apply on or after the publication date of final regulations in the Federal Register. They cannot be relied upon until then. Comments and requests for a public hearing must be received by October 1, 2019.

Proposed regulations would provide an exception to the unified plan rule for multiple employer plans (MEPs). The purpose is to reduce the risk of plan disqualification due to noncompliance by other participating employers. The regulations would apply on or after the publication date of final regulations in the Federal Register. They cannot be relied upon until then. Comments and requests for a public hearing must be received by October 1, 2019.

Multiple Employer Plans

A MEP is a single plan with adopted by multiple unrelated employers. Multiple employer plans under Code Sec. 413(c) can be structured either as:

• an open MEP where an organization with employees takes the lead by establishing the plan for its own employees, and has other unrelated employers join the plan as co-sponsors;
• a closed MEP in which a group or association of employers that meets a commonality requirement takes the lead in establishing the plan, and members are free to adopt it.

Open MEPs are often established by organizations that specialize in providing benefits for smaller employers (typically, 401(k) plans). Note that MEPs are distinct from union multiemployer plans governed by Code Sec. 413(b), but share some of the same rules.

Under the unified plan rule in the current regulations for both MEPs and multiemployer plans, a qualification or operational failure by one employer can result in a total plan failure for all participating employers. The administration is trying to change that, to encourage MEP participation.

Proposed Exception

Under the proposed regulations, an eligible defined contribution MEP would qualify for an exception to the unified plan rule. The exception turns on the ability of the MEP plan administrator under the terms of the plan to spin off the assets and account balances attributable to employees of a noncompliant participating employer into a separate plan and then termination of that plan. A spinoff could be either a spinoff initiated by the unresponsive participating employer and implemented by the plan administrator, or a spinoff-termination implemented by the plan administrator.

The exception would be available if the participating employer is responsible for a qualification failure that it is unable or unwilling to correct. It would also be available if the participating employer is nonresponsive to the plan administrator’s reasonable and timely requests for information or for action.

Exception Requirements

Under the proposed exception, a defined contribution MEP would not be disqualified on account of a participating employer failure if the following conditions are satisfied:

• the MEP satisfies certain eligibility requirements, including established practices and procedures to promote compliance and a requirement to adopt relevant plan language;
• the MEP plan administrator provides notice and an opportunity for the unresponsive participating employer to take remedial action;
• the administrator implements a spinoff in the event the unresponsive participating employer fails to take appropriate remedial action; and
• the administrator complies with any information request by the IRS or a representative of the spun-off plan made in connection with an IRS examination of the spun-off plan, including an information request related to the unresponsive participating employer’s participation in the MEP for years prior to the spinoff.

Participating employer failures would include known compliance failures, as well as failure to provide information to the MEP plan administrator so that the administrator can determine whether there is an actual plan or operational failure.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

Individual mandate

Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the "individual mandate."

Employer reporting

Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.

Marketplace coverage

Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).

Medicare, Medicaid and other government coverage

Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.

Exemptions

Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:

• Short coverage gap
• Religious conscience
• Federally-recognized Native American nation
• Income below income tax return filing requirement

The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.

The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.

Shared responsibility payment

All other individuals - individuals without minimum essential coverage and who are not exempt - must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.

The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.

Code Sec. 36B credit

Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.

All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.

A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.

IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.

Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.

Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.

Tax extenders

Every two years, like clockwork, the same scenario seems to play-out in Congress. Many popular but temporary tax incentives expire and lawmakers debate whether to extend them, make them permanent or abolish them. This year is no exception. The new filing season is fast approaching and many tax breaks are, at this time, unavailable because they expired after 2013.

The expired tax breaks are known as "tax extenders." Included within this catch-call category are a variety of tax incentives for individuals and businesses. Some are widely-claimed and are often inadvertently believed by taxpayers to be permanent...they are not. Individuals who claimed the state and local sales tax deduction, higher education tuition deduction, residential energy property credit, and others, in past years cannot claim them on their 2014 returns, unless the incentives are extended. The same is true for many business tax breaks, such as bonus depreciation, enhanced Code Sec. 179 small business expensing and the research tax credit. All of these incentives expired after 2013.

Congressional logjam

The last extension of the extenders was in the American Taxpayer Relief Act of 2012. At that time, many lawmakers wanted to discontinue the practice of renewing the extenders every two years and make some permanent while eliminating others. However, the House and Senate have taken different approaches. The Senate Finance Committee approved the EXPIRE Act (S. 2260) earlier this year. The bill extends the expired tax breaks two years. The House, on the other hand, has voted to make permanent only some of the extenders, such as bonus depreciation and Code Sec. 179 expensing.

It is unclear how lawmakers will proceed before year-end. The EXPIRE Act, while approved by committee, has yet to get a vote on the Senate floor. House GOP leaders, who endorsed the piece-meal approach to making permanent some of the extenders, have not said if they will support another comprehensive temporary extension like the EXPIRE Act. It is possible that lawmakers will punt the extenders to the new Congress that meets in January. In that case, a delayed start to the filing season is almost guaranteed. Our office will keep you posted of developments.

More tax bills

Some stand-alone tax-related bills could be passed before year-end. The ABLE Act (S. 313) enjoys bipartisan support. The ABLE Act would create new tax-free savings accounts for individuals with disabilities. Funds in the accounts could be used for qualified medical, transportation, housing, and education expenses. The Don’t Forget Our Fallen Public Safety Heroes Act (S. 2912) passed the Senate in September and could be approved by the House before year-end. The bill would exclude from income certain benefits paid to the family of a public safety officer who dies in the line of duty.

IRS funding

The federal government, including the IRS, is currently operating under a stop-gap spending bill. The temporary spending bill is scheduled to expire in December. The lame-duck Congress is expected to approve an omnibus spending bill to keep the government open. Earlier this year, appropriators in the House and Senate reached very different conclusions on funding for the IRS in 2015. House appropriators voted to cut funding; Senate appropriators voted to increase funding. The IRS has been operating under tight budgetary restraints for several years and that pattern is expected to continue into 2015.

Tax technical corrections

Congress may also take up a package of tax technical corrections. These bills are not new tax laws but are corrections to language in existing laws. For example, lawmakers may have intended that a certain language be included in a final bill and that language was left out. Frequently, these corrections are clerical. These corrections are intended to facilitate the administration of law.

If you have any questions about the extenders or year-end tax legislation, please contact our office.

In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.

In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.

Closely-related to the start of work

The move must be closely-related to the start of work at a new location. Moving for non-work related reasons is not relevant. The closely-related requirement encompasses both a time threshold and a place threshold. The IRS has explained that closely-related in time generally means an individual can consider moving expenses incurred within one year from the date he or she first reported to work at the new location as closely related in time to the start of work. Closely-related in place generally means that the distance from the individual's new home to the new job location is not more than the distance from his or her former home to the new job location.

Distance

An individual's move satisfies the distance test if his or her new main location is at least 50 miles farther from his or her former home than the old main job location was from the former home. Note that the distance test takes into account only the location of the individual's former home. An individual's main job location is the location where he or she spends most of his or her working hours. Individuals may have more than one job. In that case, the IRS has explained that an individual's main job location depends on the facts in each case. Among the factors to take into account are the total time the individual spends at each place; the amount of work performed at each place and the amount of wages earned at each place. If an individual previously had no employment, or had experienced a period of unemployment, the new job location must be at least 50 miles from the individual's old home.

Time

Time for purposes of the moving deduction looks at an individual's hours of work and where that work is performed. An individual who is a wage earner (employed by another) must work full-time for at least 39 weeks during the first 12 months immediately following his or her arrival in the general area of the new job location. Self-employed individuals must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following their arrival in the general area of the new work location.

Special rules apply to members of the U.S. Armed Forces as well as employees who are seasonal workers, individuals who have temporary absences from work, and others.

If you have any questions about the moving deduction, please contact our office.

The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").

The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").

Note. A TTIN typically appears as XXX-XX-1234 or ***-**-1234.

Identity theft/refund fraud

The IRS has more than 3,000 employees working identity-theft related issues. They are investigating refund fraud and assisting taxpayers - both individuals and businesses - that have been victims of identity theft. The IRS has also upgraded its filters that screen tax returns for indications of refund fraud. Between 2011 and 2014, the IRS reported that it prevented more than $50 billion in fraudulent refunds.

Protecting personal information from disclosure is one important tool in the IRS's toolshed to fight identity theft. IRS data systems contain personal information, such as SSNs, EINs, individual taxpayer identification numbers (ITINs) and adoption taxpayer identification numbers (ATINs) on millions of taxpayers. To thwart potential identity thieves, the agency launched a pilot program in 2009 to allow the use of TTINs. The goal of the pilot program was to reduce the risk of identity theft that could result from the inclusion of a taxpayer's entire identifying number on a payee statement or other document.

Proposed regulations

The IRS viewed the pilot program as a success and issued proposed regulations in 2013. Under the proposed regulations, TTINs would be available as an alternative to using a taxpayer's SSN, ITIN, or ATIN. The proposed regulations also permitted the use of TTINs to electronic payee statements as well as paper payee statements.

Expanded use

In July, the IRS announced that it was finalizing the proposed TTIN rules. The final rules also expand the use of TTINs to:

• Employer identification numbers. The final rules allow the use of abbreviated employer identification numbers (EINs) in certain cases.
• More documents. The final regulations permit the use of TTINs on any federal tax-related payee statement or other document required to be furnished to another person unless specifically prohibited.

Voluntary

The IRS encourages the use of TTINs but did not make use of TTINs mandatory. The IRS also explained that use of a TTIN will not result in any penalty for failure to include a correct taxpayer identifying number on any payee statement or other document.

Limitations

The final regulations (officially known as TD 9765) place some limits on TTINs. A TTIN may not be used on a return filed with the IRS. This includes Form 1040, U.S. Individual Income Tax Return. A TTIN also may not be used if a statute or regulation specifically requires use of an SSN, ITIN, ATIN, or EIN. Additionally, employers cannot use a TTIN on an employee's Form W-2, Wage and Tax Statement.

If you have any questions about TTINs or identity theft/refund fraud, please contact our office.

U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.

U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.

A U.S. taxpayer must report the account not only if the taxpayer has a financial interest in the account, but also if the taxpayer has signature authority over the account. The account must be reported even if it produces no income, and whether or not the taxpayer receives any distributions from the account.

FinCEN

Reporting is required by the Bank Secrecy Act (BSA), not by the Internal Revenue Code. Taxpayers submit the proper form to Treasury's Financial Crimes Enforcement Network (FinCEN), not the IRS. The form is not submitted with a tax return. However, FinCEN has delegated FBAR enforcement authority to the IRS.

New Form 114

In the past, taxpayers reported their accounts on Form TD F 90-22.1. However, effective for 2014 and subsequent years, taxpayers must report their accounts on new FinCEN Form 114. The June 30 deadline is firm; there is no extension for filing the form late. However, persons who belatedly discover the need to file an FBAR for a previous year can file on Form 114.

In the past, too, taxpayers reported their accounts on a paper form, but Form 114 is only available online, through the BSA E-Filing System website. Paper Form TD F 90-22.1 has been discontinued. This BSA E-Filing System allows the taxpayer to designate the year being reported, so taxpayers may use the same form to file late reports for a prior year. In addition, persons can now authorize a tax professional, such as an attorney, CPA, or enrolled agent, to file on their behalf, by designating an agent on BSA Form 114a.

If two persons jointly maintain an account, each must file an FBAR. However, spouses now qualify for an exception, and can file only one FBAR, provided the nonfiling spouse only owns accounts jointly with the filing spouse. The couple can complete a Form 114a, to authorize one spouse to file for the other, because the electronic system only accepts one signature for an FBAR.

Signature authority

Signature authority is authority to control the disposition of assets held in a foreign financial account. A person with a power of attorney over a foreign account must file an FBAR, even if the person never exercises the power of attorney.

FinCEN has considered amending the rules regarding signature authority. In the meantime, because there is some uncertainty about the meaning of signature authority, FinCEN has deferred FBAR filing by certain individuals that only have signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity. FinCEN Notice 2011-1 first provided an extension for these persons. In Notice 2013-1, FinCEN extended the due date for these persons to file, to June 30, 2015, while FinCEN further considers changes to the rules.

One of the most complex, if not the most complex, provisions of the Patient Protection and Affordable Care Act is the employer shared responsibility requirement (the so-called "employer mandate") and related reporting of health insurance coverage. Since passage of the Affordable Care Act in 2010, the Obama administration has twice delayed the employer mandate and reporting. The employer mandate and reporting will generally apply to applicable large employers (ALE) starting in 2015 and to mid-size employers starting in 2016. Employers with fewer than 50 employees, have never been required, and continue to be exempt, from the employer mandate and reporting.

Employer mandate

The employer mandate under Code Sec. 4980H and employer reporting under Code Sec. 6056 are very connected. Code Sec. 4980H generally provides that an ALE is required to pay a penalty if it fails to offer minimum essential coverage and any full-time employee receives cost-sharing or the Code Sec. 36B premium assistance tax credit. An ALE would also pay a penalty if it offers coverage and any full-time employee receives cost-sharing or the Code Sec. 36B credit.

To receive the Code Sec. 36B credit, an individual must have obtained coverage through an Affordable Care Act Marketplace. The Marketplaces will report the names of individuals who receive the credit to the IRS. ALEs must report the terms and conditions of health care coverage provided to employees (This is known as Code Sec. 6056 reporting). The IRS will use all of this information to determine if the ALE must pay a penalty.

ALEs

Only ALEs are subject to the employer mandate and must report health insurance coverage under Code Sec. 6056. Employers with fewer than 50 employees are never subject to the employer mandate and do not have to report coverage under Code Sec. 6056.

In February, the Obama administration announced important transition rules for the employer mandate that affects Code Sec. 6056 reporting. The Obama administration limited the employer mandate in 2015 to employers with 100 or more full-time employees. ALEs with fewer than 100 full-time employees will be subject to the employer mandate starting in 2016. At all times, employers with fewer than 50 full-time employees are exempt from the employer mandate and Code Sec. 6056 reporting.

Reporting

The IRS has issued regulations describing how ALEs will report health insurance coverage. The IRS has not yet issued any of the forms that ALEs will use but has advised that ALEs generally will report the requisite information to the agency electronically.

ALEs also must provide statements to employees. The statements will describe, among other things, the coverage provided to the employee.

30-Hour Threshold

A fundamental question for the employer mandate and Code Sec. 6056 reporting is who is a full-time employee. Since passage of the Affordable Care Act, the IRS and other federal agencies have issued much guidance to answer this question. The answer is extremely technical and there are many exceptions but generally a full-time employee means, with respect to any month, an employee who is employed on average at least 30 hours of service per week. The IRS has designed two methods for determining full-time employee status: the monthly measurement method and the look-back measurement method. However, special rules apply to seasonal workers, student employees, volunteers, individuals who work on-call, and many more. If you have any questions about who is a full-time employee, please contact our office.

Form W-2 reporting

The Affordable Care Act also requires employers to disclose the aggregate cost of employer-provided health coverage on an employee's Form W-2. This requirement is separate from the employer mandate and Code Sec. 6056 reporting. The reporting of health insurance costs on Form W-2 is for informational purposes only. It does not affect an employee's tax liability or an employer's liability for the employer mandate.

Shortly after the Affordable Care Act was passed, the IRS provided transition relief to small employers that remains in effect today. An employer is not subject the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. Special rules apply to multiemployer plans, health reimbursement arrangements, and many more.

Please contact our office if you have any questions about ALEs, the employer mandate or Code Sec. 6056 reporting.

The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.

The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.

Required and elective changes

There is a lot of work ahead for most taxpayers to comply with the new rules. There are three categories of changes under the regulations:

• Changes that are required and are retroactive, with full adjustments under Code Sec. 481(a), in effect applying the regulations to previous years;
• Required changes with modified or prospective Code Sec. 481(a) adjustment beginning in 2014; and
• Elective changes that do not require any adjustments under Code Sec. 481.

Required changes with full adjustments include unit of property changes, deducting repairs (including the routine maintenance safe harbor), deducting dealer expenses that facilitate the sale of property, the optional method for rotable spare parts, capitalizing improvements and capitalizing certain acquisition or production costs. Elective changes can include capitalizing repair and maintenance costs of they are capitalized for financial accounting purposes.

Rev. Proc. 2014-16

The IRS issued Rev. Proc. 2014-16, granting automatic consent to taxpayers to change their accounting methods to comply with the final regulations. Rev. Proc. 2014-16 applies to all the significant provisions in the final regulations, such as repairs and improvements; materials and supplies, including rotable and temporary spare parts; and costs that have to be capitalized as improvements. Rev. Proc. 2014-16 supersedes Rev. Proc. 2012-19, which applied to changes made under the temporary and proposed repair regulations issued at the end of 2011.

There are 14 automatic method changes provided by Rev. Proc. 2014-16 for the repair regulations. Taxpayers may file for automatic consent on a single Form 3115, even if they are making changes in more than area. The normal scope limitations on changing accounting methods do not apply to a taxpayer making one or more changes for any tax year beginning before January 1, 2015. Scope changes would normally apply if the taxpayer is under examination, is in the final year of a trade or business, or is changing the same accounting method it changed in the previous five years.

Filing deadlines

For past years, taxpayers can apply the 2011 proposed and temporary (TD 9564) regulations or the 2013 final regulations to either 2012 or 2013, and can do this on a section-by-section basis. Taxpayers that decide to apply the final or temporary regulations to 2013 must file for an automatic change of accounting method (Form 3115) by September 15, 2014. Taxpayers applying the regulations to 2014 must file for an automatic change by September 15, 2015. (Both dates apply to calendar-year taxpayers.) The government has indicated it is unlikely to postpone the effective date of the regulations.

Dispositions

Rev. Proc. 2014-16 does not apply to dispositions of tangible property. The government issued reproposed regulations in this area (NPRM REG-110732-13). Although these regulations may not be finalized until later in 2014, the IRS expects to issue Rev. Proc. 2014-17 before then to allow taxpayers to make automatic accounting method changes under the proposed regulations. The procedure will provide some relief by allowing taxpayers to revoke general asset account elections that they made under the temporary regulations. No comments were submitted on these proposed regulations; it is likely the final regulations will not have any significant changes.