Monday, December 5, 2016

ACA Tax Reporting Alert


By: Cyndi Moore


Summary
 
  • In Notice 2016-70, the IRS has extended the date on which to furnish copies of the 2016 Form 1095-B or Form 1095-C to employees to MARCH 2, 2017.  
  • The IRS has also extended the "good faith" transition relief from penalties for 2016. 
 
Extension of Date to Furnish 2016 Form 1095-B and Form 1095-C
 

Recognizing that employers and insurers need additional time to prepare Forms 1095-B and 1095-C, the IRS has extended the deadline to furnish copies of the Forms to employees and other covered individuals from January 31, 2017 to March 2, 2017.   

Importantly, the IRS has not extended the deadline to file Forms 1094-C and 1095-C with the IRS.  The Forms must be filed with the IRS by:
 
  • If filing hard copies (less than 250):  February 28, 2017
  • If filing electronically (250 or more):  March 31, 2017
 
As in 2015, employees may rely on other information received from their employer or insurer in preparing and filing their individual Form 1040 income tax return, including confirming that they had minimum essential coverage in 2016.  Employees do not need to wait to receive Form 1095-C or 1095-B before filing their federal income tax returns. 
 

Extension of Good Faith Transition Relief from Penalties for 2016

 
Continuing with its protocol of providing short-term penalty relief for new filing requirements, the IRS has also decided to extend the "good faith" transition relief from penalties under Sections 6721 and 6722 of the Internal Revenue Code for 2016.  The transition relief is available to employers who can show that they have made good faith efforts to comply with the ACA reporting requirements, both as to furnishing Forms to employees and filing with the IRS.  Like the transition relief provided in 2015, the relief is only available for incorrect or incomplete information reported on the Forms.  This would include missing and inaccurate tax identification numbers, dates of birth and other information required on the Forms.  No relief is provided to an employer who fails to file the Forms with the IRS or fails to furnish Forms 1095-C to employees by the due dates. 

 

For more information, please contact Cyndi Moore in the Troy, Michigan office at 248-433-7295.

Monday, November 28, 2016

The Times They Are a-Changin’ – Potential U.S. Tax Reform Implications of the 2016 Elections

By: Var Lordahl


As a result of the United States federal elections on November 8, 2016, Donald J. Trump is the president-elect, and the House of Representatives and Senate both will consist of Republican majorities.  As a result, it is nearly assured that significant changes to the United States Tax Code will be forthcoming over the next two years, and perhaps as soon as early 2017.

 

President-elect Trump’s tax plan contemplates an overhaul of the federal income tax, and a complete repeal of the federal estate, gift, and generation skipping transfer taxes.  Trump has proposed reducing ordinary income tax rates to three brackets – 12%, 25%, and 33%, respectively, and reducing capital gains brackets to 0%, 15%, and 20%, respectively. 

 

The proposal contemplates increasing the standard deduction amounts for individuals, repealing personal exemptions, strictly limiting and capping itemized deductions, repealing the alternative minimum tax, and repealing the 3.8% net investment income tax.  Trump further proposes reducing the corporate tax rate to 15% (while presumably retaining taxation of shareholder dividends) and eliminating deductions for most corporate tax expenditures other than research and development.  Additionally, contributions of appreciated property to private foundations may trigger capital gains under the Trump plan.  The Republican House also released a comprehensive tax “blueprint” on June 24, 2016 with similar proposed changes to the tax code.

 

From a planning perspective, nobody can predict what the law will look like in the near future.   Even if the estate, gift, and generation skipping transfer taxes are repealed, the President-elect has proposed various alternatives at various times, including a “carryover basis” scheme and a capital gains tax at death (subject to various applicable credits).  Further, many business owners who have recently begun to engage in various sale or gifting arrangements to take advantage of apparently expiring valuation discounts may wish to rethink or retool their strategy. As your tax and legal advisors, we will be monitoring upcoming tax changes, and we will be forming new strategies to best serve you and your needs.  If you have any questions about the future, please reach out to one of us and we can discuss your specific situation and how it may be affected in the coming months and years.

 


For more information, please contact Var Lordahl in our Las Vegas, Nevada office at 702-550-4466.

Monday, November 21, 2016

IRS Relaxes Section 83(b) Filing Requirements

 
A taxpayer who makes a Section 83(b) election to accelerate the income taxation date of certain transferred property is no longer required to file a copy of the Section 83(b) election with his or her tax return for the year in which the election is made.  A taxpayer is still required to file a copy of the executed Section 83(b) election with the IRS and the employer within 30 days of the property transfer date.  The relaxed filing requirement is effective for property transferred after January 1, 2016.  The reason for the change in IRS position is to facilitate electronic filing of individual tax returns.

 

In general, a Section 83(b) election is a tool a taxpayer can use to pay tax at an earlier date than otherwise required under IRS rules.  The advantage of making such an election is to pay tax based on a lower property value and to lock in capital gains treatment.  One common scenario is a start-up company which awards restricted stock to attract and incentivize key employees.  Assume the restricted stock vests on the three year anniversary of the grant date.  Under IRS rules, the key employee is taxed on the fair market value of the stock on the vesting date, at which point the start-up company’s stock has presumably increased in value thereby requiring a larger out-of-pocket tax payment by the key employee.  If the key employee instead makes a Section 83(b) election within 30 days of the grant date, and he files the election with the IRS and the employer, the key employee will only owe tax on the grant date value of the stock.  The other advantage is that the holding period for capital gains treatment starts on the grant date rather than three years later on the vesting date.

 

Please note that Section 83(b) elections only apply to a transfer of property.  A Section 83(b) election is not available for stock option, phantom stock or deferred compensation awards since they do not represent a transfer of property under IRS rules.

 


For more information, please contact Roberta Granadier in our Troy, Michigan office at 248-433-7552.




 
 
 
 
 
 

 

Monday, November 14, 2016

SIGNIFICANT CHANGE IN CRA POLICY HARMS CANADIAN INVESTORS IN US LLPs AND LLLPs


Earlier this year the Canada Revenue Agency (“CRA”) announced its new administrative position that limited liability partnerships (“LLPs”) and limited liability limited partnerships (“LLLPs”) formed under the laws of Delaware and Florida are properly viewed as corporations for Canadian income tax purposes. It is widely expected that LLPs and LLLPs formed in other jurisdictions will receive similar treatment.  LLPs and LLLPs, and the Canadians who invest in them, should determine the impact of this change in CRA policy and, if necessary, evaluate their alternatives to mitigate the potentially adverse income tax results.
Significant tax inefficiencies can result from LLPs and LLLPs being treated as transparent in the U.S. and opaque in Canada.  Under the new regime, Canadian members of a LLP or LLLP will continue to be subject to U.S. taxation on their allocated share of partnership income; however, because the CRA now considers the U.S. tax to be paid by a corporation, the member’s ability to claim a foreign tax credit in Canada may be deferred until earnings are distributed, or otherwise restricted.  This mismatch may lead to double taxation.  The new policy can also create additional compliance obligations and critical changes to the way that investments in LLPs and LLLPs are taxed in Canada.
 
As an administrative concession, the CRA is providing transitional relief where a LLP or LLLP converts to either a general partnership or a limited partnership before 2018. The following conditions must be satisfied to qualify for this relief:
 
·        the entity was formed and began to carry on business before July 2016;
·        the entity and its members clearly intended for the entity to be treated as a partnership for Canadian income tax purposes; and
·        neither the entity nor any member of the entity has taken the position that the entity is anything other than a partnership for Canadian income tax purposes;
 
If these conditions are satisfied, (1) the entity will be treated as a partnership for Canadian income tax purposes from the time of its formation, and (2) depending on the circumstances, including applicable domestic law, the conversion from a LLP or LLLP to an entity which CRA recognizes as a partnership may occur on a tax-free basis.
 
With tax expertise on both sides of the border, Dickinson Wright is able to help LLPs, LLLPs and their Canadian members manage this important change in CRA policy.
For more information, please contact Ted Citrome in our Toronto office at 416-646-4609. 


 

Monday, November 7, 2016

Franchisees & Self-Employment Taxes


By: Ralph Levy, Jr.

In a recent Chief Counsel Advice (CCA 201640014, issued 9/30/2016), the Office of Chief Counsel (“OCC”) of the Internal Revenue Service found that all of a franchisee’s share of earnings from a partnership that operating several restaurants is subject to self-employment taxes when the franchisee, an individual, served as the manager, President and CEO of the partnership. In reaching this conclusion, the OCC overruled the argument of the franchisee that the income derived from the partnership should be divided into two components, one that represented an investment return on contributed capital (exempt from self-employment tax) and another as compensation for services rendered by the individual to the partnership (subject to self-employment tax).

By asserting the argument that the franchisee’s income from the partnership should be “split” into two streams (one subject to self-employment tax and another not subject to self-employment tax), the individual tried to distinguish the activities of the restaurant partnership from Renkemeyer, Campbell & Weaver, LLP, a 2011 Tax Court case in which the Tax Court determined that even though the attorneys who provided legal services for a law firm that was operated as a partnership were limited partners of the law firm partnership, their income from the partnership was subject to self-employment tax.
The CCA found that for the same reasons adopted in the Renkemeyer case, all of the individual franchisee’s income from the restaurant partnership was subject to self-employment income and not just the guaranteed payments made by the partnership to the individual who was the principal owner of the partnership.
Despite the franchisee’s delegation of a portion of the services required by the partnership to operate the franchised restaurants to an executive management team, the individual’s entire distributive share of the partnership income should be treated as compensation for services rendered by the individual as president, chief executive officer and manager of the partnership. As a result, the income paid to the individual was not exempt from self-employment income tax under IRC §1402(a)(13) (exemption of limited partner’s distributive share of income).

The main lesson to be learned from the CCA is that with proper planning, a portion of the franchisee’s income could have been structured so as to be exempt from self-employment taxes.  For example, in the CCA, the franchisee had acquired the restaurants from a third party owner and then contributed the assets to the partnership.  If the purchase transaction had been structured as a direct purchase by the partnership using a combination of funds contributed by the franchisee as paid-in capital and a loan by the franchisee to the partnership, the interest and principal payments on the partnership loan would not be subject to self-employment income taxes.


For more information, please contact Ralph Levy in the Nashville, Tennessee office at 615-620-1733.

Monday, October 31, 2016

Substantiation of Charitable Donations

By Emily Dorisio

As we enter the giving season and begin making charitable contributions it is important to remember that some gifts require more than just the act of giving to qualify for a charitable tax deduction. For monetary contributions made by cash, check, credit card or other electronic funds transfer, the donor must obtain and keep a bank record or a written communication from the done organization. If the monetary donation is $250 or more, the donor must obtain and keep a contemporaneous written acknowledgment from the done organization.

Gifts of property other than cash or marketable securities with a value of $5,000 or more must be substantiated by a “qualified appraisal” prepared by a “qualified appraiser.” The Treasury Regulations contain very detailed requirements for what constitutes a “qualified appraisal” and “qualified appraiser” and failure to meet those requirements can result in disallowance of the charitable tax deduction.

Taxpayers must include an appraisal summary on Form 8283 with their income tax return and if the gift is $500,000 or more they must attach a copy of the appraisal to their return. The IRS interprets the qualified appraisal and appraiser requirements very narrowly and frequently denies charitable deductions on the basis of very technical or slight inefficiencies in appraisals. These denials have been challenged in court and in a number of cases the courts have ruled in favor of the IRS. Compliance with these requirements is necessary to receive the benefit of the charitable tax deduction so it is important to have an understanding of the requirements.

If you need any assistance in this area, please contact Emily Dorisio in our Lexington, Ky. office at edorisio@dickinsonwright.com or 859-899-8714.

Monday, October 24, 2016

Entities that are subject to the Affordable Care Act’s Nondiscrimination Rules must post notice by October 17, 2016 and implement other procedures

By Deb Grace

In May, the Department of Health and Human Services (“HHS”) published a final rule implementing Section 1557 of the Affordable Care Act (“ACA”). The rule prohibits discrimination on the basis of race, color, national origin, sex, age, or disability, by any health program or activity, any part of which receives federal funding or assistance. These regulations impose additional administrative requirements on covered entities that receive funding from HHS for the operation of a health program or activity.

Covered Entities – A “covered entity” is any entity that operates any health program or activity any part of which receives federal financial assistance from HHS. The term “health program or activity” includes all of the operations of an entity principally engaged in providing or administering health services or health insurance coverage. Entities such as a hospital, health clinic, community health center, group health plan, health insurance issuer, physician’s practice, nursing facility, or residential or community-based treatment facility would be a covered entity.

In addition, the preamble to the regulations provides that a group health plan is an entity primarily engaged in health coverage, and therefore a type of health program or activity. If a plan sponsor receives funding from HHS, a primary objective of which is to fund its group health plan, then the group health plan must not discriminate with respect to the benefits provided. Retiree drug subsidy payments from the Center for Medicare & Medicaid Services are payments from HHS.

Conduct Prohibited – To the extent an entity meets the definition of a “covered entity,” discrimination on the basis of race, color, national origin, sex, age, or disability is prohibited by Section 1557. Discrimination by a group health plan can take the form of discriminatory benefit design, coverage carve-outs, limits on health coverage, benefit claim denial, denial or refusal to issue or to renew a health insurance plan or coverage, discriminatory marketing, or the imposition of additional cost sharing.

It is important to note that Section 1557’s prohibition against “sex discrimination” includes gender identity discrimination. The regulations specifically reinforces that lesbian, gay, bi-sexual and transgender (LGBT) individuals cannot be discriminated against in receiving health care services or group health care coverage or health insurance based on their sex, including their gender identity and their nonconformity with sex stereotypes. Discrimination against LGBT people or against any other protected persons under Section 1557 can take the form of refusal of treatment, harassment, delivery of different care, or denial of access to facilities. Specifically, a covered entity may not categorically exclude all health services related to gender transition, but it may still determine whether a particular health service is medically necessary or meets applicable coverage requirements in any individual case.

Administrative Requirements – Covered entities must post a notice (either at the workplace or on a website) indicating:

  1. The entity’s nondiscrimination policy;
  2. The availability of auxiliary aids and services where necessary, at no cost;
  3. Translation and language assistance services;
  4. How to receive these supplemental services;
  5. The name and contact information of the compliance person;
  6. Complaint and grievance procedures; and
  7. How to file a discrimination complaint with OCR.
This notice, and all other significant publications targeted to beneficiaries or the public, must include a nondiscrimination tagline alerting limited English proficiency individuals that language assistance services are available. This tagline must be posted in at least the top 15 non-English languages spoken in the state in which the entity is located or conducts business. One approved list of languages is available here: http://www.hhs.gov/sites/default/files/resources-for-covered-entities-top-15-languages-list.pdf. The notice should be posted by October 17, 2016.

In addition, covered entities must institute a grievance procedure for resolution of Section 1557 complaints and must designate a compliance coordinator, who is required to maintain records of all grievances. Finally, the regulations include other requirements such as enhanced language assistance for people with limited English proficiency.

For more information about these nondiscrimination rules, call Deb Grace in our Troy, Mich. office at 248-433-7217 or Eric Gregory at 248-433-7669.