Monday, August 22, 2016

The End to Discounts for Transfers of Interests in Family Business Entities

By Henry C. T. (Tip) Richmond, III

One year ago in this space I advised that although talked about for years but never accomplished, the IRS was expected to issue new rules under Section 2704 of the Internal Revenue Code late this summer that would cause certain restrictions to be disregarded in determining the value of a transfer (during lifetime or at death) of an interest in a family-controlled business entity (e.g., an LLC, partnership or corporation). The ability to use restrictions to reduce the value of an interest in a family business for lack of marketability and/or control for gift, estate and generation-skipping transfer tax purposes has been a significant tool for estate planners for years. These regulations, if and when final, would limit, if not end, this highly effective strategy. The message to clients then was to make their gifts of interests in family-controlled business entities sooner rather than later.

Well, that eagerly awaited day has come! The IRS released proposed regulations on August 2nd. There is a 90 day comment period and a public hearing scheduled for December 1st of this year. The regulations are proposed to be effective 30 days after the date the Treasury Department publishes them as final in the Federal Register. In light of expected significant written comments and lively discussion at the December 1st hearing, most experts do not believe the regulations will become final until sometime in 2017.

A more detailed summary of the regulations will be found in a DW Client Alert that you are encouraged to forward to your clients and prospective clients who could be negatively impacted by these very significant changes in the transfer tax laws. Of course, lawyers in the tax and trusts and estates practice groups stand ready to assist you and your clients.

For more information, please contact Henry C. T. (Tip) Richmond, III in our Lexington, Ky. Office at 859-899-8712.

Monday, August 15, 2016

Reporting Foreign Bank Accounts

By William Elwood

The IRS has signaled its intention to tighten the thumb screws a bit further on the reporting of foreign bank accounts, in recently published Announcement 2016-27. Under the so-called FATCA (Foreign Account Tax Compliance Act) regulations, to avoid imposition of a 30% US withholding tax, the IRS generally requires complying foreign financial institutions to either register directly with the Treasury, but such institutions may alternatively register with their national authorities if their government has entered into an IGA (inter-governmental agreement) with the US. Because such agreements take time to negotiate, the IRS had rules in Notice 2013-43 that a jurisdiction that has signed, but not yet brought into force, an IGA could be treated as if it had brought the agreement into effect so long as that country was taking steps necessary to bring the IGA into force within a reasonable period of time. This allowed complying financial institutions in over 50 countries to register on the Treasury website and certify to withholding agents that withholding was not required because they were an applicable institution in a jurisdiction covered by an IGA.

Now, in the Announcement, the IRS has signaled impatience with the pace countries are implementing IGAs and held that a country that is treated as though its IGA were in effect and wishes to continue that treatment must provide the Treasury Department detailed additional information by the end of 2016 including why the country has not yet brought its IGA into force and must provide a step-by-step plan that it intends to follow in order to bring the IGA into force. Failure will result in “de-listing” and financial institutions within a de-listed country will face a choice of direct resignation with the Treasury or being subject to FATCA withholding.

For more information, please contact William Elwood in our Washington, D.C. office at 202-659-6972.

Monday, August 8, 2016

645 Election

By John Dawson

Increasingly, more and more individuals are seeking the benefits of a Revocable Living Trust. One of the benefits of the revocable living trust, among others, is the avoidance of probate. However, the avoidance of probate can create an unfavorable tax result because of how Trusts are required to file and report their income to the IRS. The use of a 645 Election can avoid this unfavorable tax result. While living, the income of a revocable living trust is taxed to the Grantor of the trust. Upon the death of the Grantor, the revocable living trust becomes irrevocable, and the trust is required to file a separate income tax return (Form 1041). Trusts are required to use a calendar year-end. For example, if a decedent who had some of all of their assets in a revocable living trust, died on October 15, 2015, a 1040 tax return is filed for the decedent for the period of January 1 to October 15, 2015. If the 645 Election is not made, then the Trust would file a 1041 tax return for the period from October 16 to December 31, 2015. If the 645 Election is made, then the Trust can file on a fiscal year, with a year-end of September 30.

As a further example, if the 645 Election is not used and the beneficiaries received a taxable distribution on December 21, 2015, the distribution would be taxable to the beneficiary in 2015, and the tax attributable to the distribution would be payable by April 2016. On the other hand, if a 645 Election is made and the taxable distribution takes place in December 2015, the beneficiary will have until April 2017 to file a tax return that would include the income.

To make a timely 645 Election, the Trustee must file the election on IRS Form 8855. This form must be filed with the IRS by the due date, including extensions, if any, of the Form 1041, for the first tax year of the Trust.

For more information, please contact John Dawson in our Las Vegas, Nev. office at 702-550-4463.

Monday, August 1, 2016

Marketplace Notice…to Appeal or Not?

By Cynthia Moore

Employers may have received a notice from the Health Insurance Marketplace recently. The notice indicates that an employee has reported to the Marketplace that he or she did not have an offer of affordable, minimum value health coverage form the employer and, therefore, qualifies for advance payment of the premium tax credit (APTC) or cost-sharing reductions (CSRs) in 2016 and has enrolled for coverage in the Marketplace. The notice indicates that an employer can appeal the Marketplace’s decision as to the employee’s eligibility for APTC or CSRs.

If the employer is an applicable large employer (50 or more full-time employees), the employer is potentially subject to an employer-level penalty under Section 4980H of the Internal Revenue Code if it either:

a)    failed to offer health coverage to substantially all full-time employees; or

b)    offered coverage that was not affordable or did not provide minimum value

AND at least one full-time employee enrolls for coverage in the Marketplace and qualifies for premium tax subsidies or cost-sharing reductions.

Importantly, the notice from the Marketplace does not necessarily mean that an applicable large employer is liable for a penalty. Only the IRS can assess a penalty under Code Section 4980H.

An employer does not need to appeal the Marketplace’s decision if the statements in the notice are accurate. For example, if the employer did not make an offer of coverage because the employee is a part-time employee and was ineligible for coverage, there is no need to appeal.

However, if an applicable large employer did make an offer of affordable, minimum value health coverage to the employee, the employer should consider appealing. First, such an offer of coverage will mean that the employee is not eligible for APTC and CSRs and an earlier determination by the Marketplace will reduce the employee’s responsibility to repay the IRS for the premium subsidy. Second, the Marketplace’s determination that the employee is ineligible for APTC and CSR may result in no penalty assessment to the employer by the IRS.

Any appeal should be filed within 90 days after the date of the Marketplace notice. The appeal form can be found at: https://www.healthcare.gov/downloads/marketplace-employer-appeal-form.pdf.

If you have any questions about how to respond to a Marketplace notice, please contact Cynthia Moore in our Troy, Mich. office at 248-433-7295 or any other member of the employee benefits team.

Monday, July 25, 2016

IRS Warns of Scams

By Jeff Ammons

The IRS recently renewed its warning that citizens need to be diligent when it comes to responding to telephone and email requests for payment from people claiming to represent charities and/or the IRS itself. There are several tell-tale signs of IRS phone scams. As a reminder, the IRS will never:

  1. call to demand immediate payment, nor will it call about taxes owed without first having mailed you a bill;
  2. demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe;
  3. require you to use a specific payment method for your taxes, such as a prepaid debit card;
  4. ask for credit or debit card numbers over the phone; or
  5. threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
For more information, feel free to contact Jeff Ammons in our Troy, Mich. office at 313-223-3122.

Monday, July 18, 2016

Tips on Filing an Amended Tax Return

By Grace Trueman

You may discover you made a mistake on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return to claim a tax credit or deduction. Here are tips from the IRS on amending your return:

1. When to amend. You should amend your tax return if you need to correct filing status, the number of dependents or total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

2. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS will make corrections, such as math errors, for you. If you didn’t include a required form or schedule, for example, the IRS will mail you a notice about the missing item.

3. Form 1040X. Use Form 1040X to amend a federal income tax return that you filed before. You must file it by paper; you cannot file it electronically. Make sure you check the box at the top of the form that shows which year you are amending. Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

4. When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.

5. Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.

If you have any questions, please contact Grace Trueman in our Troy, Mich. office at 248-433-7583.

Monday, July 11, 2016

IRS Confirms Tax Treatment of Wellness Programs

By Eric Gregory

Many employers provide incentives and rewards to employees to encourage participation in wellness programs: programs designed to improve employee health. In a recent IRS Chief Counsel Memorandum (CCM 201622031), the IRS confirmed that employer wellness program incentives provided to employees are generally taxable.

Examples of wellness incentives include cash incentives, gym club memberships, raffles, and prizes.

In the Memo, the IRS ruled that any cash wellness plan incentive is considered taxable to the employee. Certain fringe benefits, however, would be considered de minimis and thus would not give rise to income to those employees. The IRS used a t-shirt as an example of a de minimis benefit. The tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan.

If you should have any questions about this tax tip or would like to discuss it further, please contact Eric Gregory in our Troy, Mich. office at 248-433-7669 or any other member of the Employee Benefits group.