Plan Document Restatements Are Here

(Retirement Planning Solutions, By Nathan O. Carlson; October 2015)

All plan documents MUST be periodically rewritten to reflect changes in ERISA law. The timetable varies based upon the type of plan document. Usually they must be rewritten once every six years. Most common plan documents must be rewritten by 4/30/2016.

  1. Deadline does not include: Governmental, Church, ESOPs, 403(b), and individually designed retirement plans.
  2. Does include: Master & Prototype, and volume submitter plan documents.
  3. It is a good time to make sure all historical documents are in place and properly signed and dated. If not, submit to Voluntary Correction Program. If audited by the IRS or DOL and the error is found, the fine is considerable.

For questions, call BiggsKofford at 719-579-9090 or visit RPS here.

(Five Minute Tax Briefing, Thompson Reuters; Published October 2016)

The IRS can levy property owned by taxpayers who owe back taxes [IRC Sec. 6331(a) ]. Furthermore, under IRC Sec. 6331(h)(1) , with regards to certain specified payments, including SSA disability insurance payments, the IRS can levy (withhold) up to 15% of the payment each month until the debt is paid. Nevertheless, in a memo to its Collection staff, the IRS’s Small Business/Self-Employed (SB/SE) Division announced a new policy decision under which it will no longer levy SSA disability insurance payments beginning with payments payable after 10/3/15.

IRS Releases Final 2015 ACA Reporting Forms and Instructions

On September 16th, the Internal Revenue Service (IRS) published final Forms 1094-B and 1095-B, Forms 1094-C and 1095-C, and corresponding form instructions for tax year 2015. Forms 1094-C and 1095-C will be used by employers to report offers of health insurance coverage made to their full-time employees. The final forms did not include any major changes from the prior draft versions; however, the final instructions provide some clarification on reporting.

Background
Internal Revenue Code (IRC) Section 6056 under the Affordable Care Act (ACA) requires applicable large employers (ALEs) to report to the IRS whether they offer their full-time employees and their employees’ qualified dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan.  An ALE is an employer that employed (any combination of workers within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Employees are considered full-time in any month that they are credited with at least 30 hours of service per week, on average, or 130 hours of service in the month.

Form 1094-C is the transmittal report which accompanies and summarizes Forms 1095-C.

Form 1095-C will identify each employee who was full-time for one or more months, and report for each month the details of any health care coverage offered. For self-insured plans, Form 1095-C will also be provided to covered individuals. The first Forms 1095-C must be furnished to employees by January 31, 2016 (covering 2015), and must be filed with the IRS in accordance with existing deadlines for Forms W-2. Electronic filing is required if at least 250 forms are filed.

Form 1095-B generally identifies each covered individual (including any spouse and qualified dependents) and their respective months of coverage. Insurers and other providers of health care coverage, including multiemployer plans, will file and furnish Forms 1095-B to report details of all individuals with insured health coverage to the IRS, as required by IRC Section 6055. Self-insured ALEs will issue and file a combined Section 6055/6056 report using Form 1095-C, Part III.

The ACA information on Form 1095-C is arranged in three rows of coded information, by month, for each full-time employee.

  • The first row (Line 14) on the form identifies whether the ALE offered minimum essential coverage (MEC) to the employee and any spouse and qualified dependents, and whether such coverage provided minimum value.
  • The second row (Line 15) reports the employee’s share of the lowest-cost monthly premium for self-only minimum value coverage.
  • The third row (Line 16) includes any information needed to determine whether the employer may be liable for a shared responsibility payment. For example, codes are entered to identify employees who were not employed or who were not full-time during a month, or who enrolled in coverage offered. Other codes identify transitional or “safe-harbor” relief (e.g., employees in limited non-assessment periods or coverage meeting affordability safe-harbor tests).

Revisions to Form Instructions
Using Multiemployer Arrangement Interim Guidance – The final instructions for Form 1095-C clarify that Codes 1H (no offer of coverage) and 2E (multiemployer interim rule relief) can be used on Lines 14 and 16, respectively, without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan for 2015. In future years, ALE members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Reporting on Offers of COBRA – These final instructions removed the requirement to report an offer of COBRA on Form 1095-C made to a former employee upon termination, even when the employee enrolled in that coverage.  The requirement remains to report an offer of COBRA that is made to an active employee due to a reduction in hours.

Total Employee Count for ALE Member – A fifth option was added to the instructions for ALE members to use when calculating their total employees on a monthly basis for Form 1094-C, Part III, Column (c).  The option to use the 12th day of each month is now permitted in addition to the existing methods of using the first or last day of each month,  the first day of the first payroll period that starts during each month, or the last day of the first payroll period that starts each month.

Applicable Large Employer (ALE) Definition – The definition of ALE was updated with regards to determining whether or not an employer is an ALE for a given year and therefore subject to IRC Section 4980H. Instructions clarify that employers may disregard an employee for any month in which the employee has coverage under a plan described in Section 4980H(c)(2)(F) – generally, TRICARE or Veterans Administration coverage.  However, if an employer qualifies as an ALE, such employees are treated as any other employee;  e.g., they should be included in full-time employee determinations, and subject to reporting on Forms 1095-C, etc.

Reporting Health Reimbursement Arrangements (HRA) as Minimum Essential Coverage (MEC) – The final instructions provided direction on when an HRA should be reported as MEC.  An ALE member with a self-insured major medical plan and an HRA is required to report the coverage of an individual enrolled in both types of MEC under only one of the arrangements.   An ALE member with an insured major medical plan and an integrated HRA is not required to report the HRA coverage, if the individual is eligible for the HRA because the individual enrolled in the insured major medical plan.  An ALE member with an HRA must report coverage under the HRA on Form 1095-C, Part III for any individual that is not enrolled in a major medical plan of the ALE member (for example, if the individual is enrolled in a group health plan of another employer, such as spousal coverage).

For more information on the changes discussed, please review the 2015 Instructions for Forms 1094-C and 1095-C at http://www.irs.gov/pub/irs-pdf/i109495c.pdf.

ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.

ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.

For a complete infographic chart provided by ADP, click the following: ACA Reporting Requirements Infographic

For questions, call BiggsKofford at 719-579-9090. 

(IRS Newswire, Issue IR-2015-86; Published June 2015))

WASHINGTON—The Internal Revenue Service today reminded all taxpayers with an FBAR filing requirement to report their foreign assets by the June 30 deadline. FBAR filings have risen dramatically in recent years as FATCA phases in and other international compliance efforts have raised awareness among taxpayers with offshore assets.

The IRS encourages taxpayers with foreign assets, even relatively small amounts, to check if they have a filing requirement. Separately, certain taxpayers living abroad may also have to file the FATCA-related Form 8938 with their tax returns by the June 15 deadline. (Domestic filers may also be required to file Form 8938, which would have been due by April 15 with their tax returns.)

“The vast majority of taxpayers pay their fair share. The FBAR and FATCA filing requirements make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”

FBAR Requirements

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, that must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department. The form must be filed electronically and is only available online through the BSA E-Filing System website.

Who needs to file an FBAR? Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 generally must file. For more on filing requirements, see Current FBAR Guidance on IRS.gov. Also see the one-hour webinar explaining the FBAR requirement.

The FBAR filing requirement is not part of filing a tax return. The FBAR Form 114 is filed separately and directly with FinCEN.

FBAR filings have surged in recent years, according to data from FinCEN. FBAR filings exceeded 1 million for the first time in calendar year 2014 and rose nine of the last 10 years from about 280,000 back in 2005.

FATCA Requirements

FATCA refers to the Foreign Account Tax Compliance Act. The law addresses tax non-compliance by U.S. taxpayers with foreign accounts by focusing on reporting by U.S. taxpayers and foreign financial institutions.

In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938 Statement of Special Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions of this form for details.

The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114.  A brief comparison of the two filing requirements is available on IRS.gov.

U.S. Income Tax Obligations

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, may have a U.S. tax liability and a filing requirement in 2015.

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their returns explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

More Information Available

Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers landing page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools assemble or group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information.

Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit the Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad page.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.

The IRS has launched new online videos and has expanded other online resources to help taxpayers, especially those living abroad, meet their U.S. tax obligations. For details see IR-2015-85 issued on June 4, 2015.

(IRS Newswire, Issue Number IR-2014-99; Published 2014)

Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.  Highlights include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.

Below are details on both the adjusted and unchanged limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2014, by 1.0178.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2015 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,500 to $18,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $260,000 to $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,050,000 to $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $115,000 to $120,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,500 to $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $2,500 to $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $385,000 to $395,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $550 to $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,000 to $12,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $17,500 to $18,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $210,000 to $215,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2015 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,000 to $36,500; the limitation under Section 25B(b)(1)(B) is increased from $39,000 to $39,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $60,000 to $61,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,000 to $27,375; the limitation under Section 25B(b)(1)(B) is increased from $29,250 to $29,625; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,000 to $45,750.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,000 to $18,250; the limitation under Section 25B(b)(1)(B) is increased from $19,500 to $19,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,000 to $30,500.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $96,000 to $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $60,000 to $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $181,000 to $183,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $181,000 to $183,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $114,000 to $116,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,084,000 to $1,101,000.

For questions, contact BiggsKofford at (719) 579-9090.

Business owners who work for their company typically have expense accounts; the same usually is true for many employees. If your company has what the IRS calls an accountable plan, everyone can benefit from the tax treatment. The company gets a full deduction for its outlays (a 50% deduction for most dining and entertainment expenses), while the employee reports no taxable compensation.

A company expense plan judged to be nonaccountable, on the other hand, won’t be as welcome. It’s true that the company can deduct 100% of the payments it makes for meals and entertainment, but it also will have to pay the employer’s share of payroll taxes (FICA and FUTA) on the expense money paid to employees. The employees, meanwhile, will report those payments as wages, subject to income and payroll taxes.

In that situation, the employee can include employee business expenses (minus 50% of those for 4 meals and entertainment) with other miscellaneous itemized deductions, but only miscellaneous deductions that exceed 2% of adjusted gross income can be subtracted on a tax return. Taxpayers who owe the alternative minimum tax can’t get any benefit from their miscellaneous deductions.

Key factors

In order for expense accounts to get favorable tax treatment, they should pass the following tests:

Business purpose. There should be an apparent reason why the company stands to gain from this outlay. An employee might be going out of town to see a customer or a prospect, for example.

Verification. Employees should submit a record of their expenses, in order to be reimbursed. Lodging expenses require a receipt, as do other items over $75.

In order to reduce the effort of dealing with multiple receipts, employers are allowed to give employees predetermined mileage and per diem travel allowances. Substantiation of other elements besides amounts spent (time, place, business purpose) is still required.

If the amounts of those allowances don’t exceed the amounts provided to federal employees, the process can be considered an accountable plan. (Excess allowance amounts are taxable wages.) Per diem rates can be found at www.gsa.gov/portal/category/104711.

Example: XYZ Corp. asks a marketing manager, Jill Matthews, to take a two-day business trip to Atlanta to demonstrate new products. The federal rate for Atlanta (lodging, meals and incidentals) on the federal per diem website is $189 per day. As required by the XYZ accountable plan, Jill accounts for the dates, place, and business purpose of the trip. XYZ reimburses Jill $189 a day ($378 total) for living expenses; her expenses in Atlanta are not more than $189 a day. In this situation, XYZ does not include any of the reimbursement on her Form W-2, and Jill does not deduct the expenses on her tax return.

Refunds. Employees must return any amounts that were advanced or reimbursed if they were not spent on substantiated business activities.

Timeliness. Substantiation and any required refunds should be made within a reasonable amount of time after the expense was incurred. Those times vary, but IRS publications indicate that substantiation should be made within 60 days, and any employee refunds should be made within 120 days.

For a plan to be accountable, reimbursements and allowances should be clearly identified. They can be paid to employees in separate checks. Alternatively, expense payments can be combined with wages if the distinction is noted on the check stub.

Phishing Remains on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

Phishing-Malware: English | Spanish | ASL

WASHINGTON — The Internal Revenue Service today warned taxpayers to watch out for fake emails or websites looking to steal personal information. These “phishing” schemes continue to be on the annual IRS list of “Dirty Dozen” tax scams for the 2015 filing season.

“The IRS won’t send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise,” said IRS Commissioner John Koskinen. “I urge taxpayers to be wary of clicking on strange emails and websites. They may be scams to steal your personal information.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or find people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Stop and Think before Clicking

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.

As of this writing, the status of equipment expensing and bonus depreciation for 2014 is unclear. The ongoing uncertainty on these issues may have an impact on your year-end plans to acquire business equipment.

Section 179 of the tax code allows certain types of equipment to be expensed: the purchase price is fully tax deductible when the item is placed in service, rather than deducted over a multi-year depreciation schedule. New and used equipment qualify for this tax benefit, with some exceptions (such as real estate).

In recent years, Congress has consistently expanded the reach of Section 179. By 2013, up to $500,000 of purchases of equipment eligible for the deduction could be expensed; a business could buy up to $2 million worth of eligible equipment that year before losing any of this benefit.

Example 1: In 2013, DEF Corp. bought $2,085,000 of business equipment eligible for the Section

179 expense deduction and elected to not take bonus depreciation on the equipment. This was $85,000 over the Section 179 limit, so DEF could deduct only $415,000 (the $500,000 ceiling minus $85,000) as an expense in 2013 under Section 179. DEF must recover the other $1,670,000 of the costs of its 2013 purchases through depreciation methods.

The $500,000 and $2 million limits for Section 179 expired after 2013. Under current law, the 2014 limit for expensing is $25,000 worth of purchases (plus an inflation adjustment) with a phase-out beginning at $200,000 worth of purchases.

Similarly, bonus depreciation was available for new equipment until expiration after 2013. This provision allowed a 50% depreciation deduction on purchases of new equipment, before using an extended schedule to depreciate the balance. Currently, bonus depreciation is not permitted in 2014.

Dealing with doubts

Both houses of Congress have indicated interest in restoring an expanded Section 179 deduction as well as bonus depreciation for 2014. However, any updates probably won’t be announced until late in the year. If that’s the case, how should business owners and self-employed individuals proceed?

Start by acquiring any equipment that your company truly needs for current and future profitability. If your business needs the item now, buy it now, and deduct the cost as the tax law permits.

If the timing isn’t urgent, consider limiting purchases to those that will bring 2014 acquisitions up to $25,000, which will be the Section 179 ceiling if no extension is passed. Contact our office in late November or early December for an update on relevant legislation.

Keep in mind that equipment must be placed in service by the end of 2014 to qualify for depreciation deductions (if reinstated) or expensing this year, so merely paying for equipment in 2014 does not entitle you to a deduction. However, this also means that you can get the 2014 tax benefits for equipment placed in service in 2014 even if you defer payment for the equipment until 2015.

 

Update 12/19/2014: The President signed the Tax Extender Bill into law today, which extends over 60 tax breaks until yearend.

 

For questions, contact BiggsKofford at (719) 579-9090.

As more incidents of aggressive telephone scams continue throughout the country, the IRS unveiled a new YouTube video with a renewed warning to taxpayers not to be fooled by imposters posing as tax agency representatives. In a News Release, the IRS reminds taxpayers of actions that scammers often do but the IRS will not do, such as calling to demand immediate payment and asking for credit or debit card numbers over the phone.

[Note: Practitioners should remind clients that the IRS does not call about tax debts owed without first having mailed them a notice.] The video is available at www.youtube.com/watch?v=0y5z0kWgBcM.

(AccountingToday, By Daniel Hood; Published October 2014)

The federal government brought in $3.02 trillion in tax and other revenues in fiscal 2014 – its highest take ever.

Year-end data from the September 2014 Monthly Treasury Statement of Receipts and Outlays revealed that the government brought in:

  • $1.39 trillion in individual income taxes;
  • $320.7 billion in corporate income taxes; and,
  • $1.03 trillion in social insurance and retirement receipts.

The remainder came from excise, estate and gift taxes, and other miscellaneous receipts.

Spending for the same period, meanwhile, totaled $3.504 trillion, relatively flat compared to 2013.

The administration was quick to point out that the combination of stable outlays and higher receipts meant that the federal deficit had declined to $483 billion, a 29 percent drop from the previous year, and its lowest level since 2008.

More details and statistics are available in the Treasury release.

(Forbes, By Robert W. Wood; Published September 2014)

You may think the IRS pursues all taxes equally but they don’t. The IRS is especially vigorous in going after payroll taxes withheld from wages that are not promptly paid to the government. This is trust fund money that belongs to the government and was withheld from wages.

That makes any failure to pay—or even late payment—much worse. In fact, that’s so regardless of how or why the employer or its principals use the money. Using the money to pay suppliers and keep the business open isn’t a good reason in the IRS view.

When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have ownership in or signature authority over the company and its payables. The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person” under Section 6672(a). You can be liable even if have no knowledge the IRS is not being paid.

Being an officer or director can land you in the hot seat. If you’re a responsible person the IRS can pursue you personally for payroll taxes if the company fails to pay. The 100% penalty equals the taxes not collected. The penalty can be assessed against multiple responsible person, allowing IRS to pursue them all to see who coughs up the money first. Responsible means officers, directors, and anyone who makes decisions about who to pay or has check signing authority.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck while another who is even more guilty may get off scot-free.

Meanwhile, the government will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again. The government can move to shut down the business so the situation doesn’t get worse. In extreme cases the government may seek criminal penalties.

More commonly, the government may seek to enjoin this behavior. If the government thinks the situation is getting worse, it can seek an injunction. The idea is to stop the bleeding so the government gets its tax money. Where a business gets deeper and deeper into tax debts, the practice is sometimes referred to as pyramiding.

If a company is making minimal payments of tax debts, the IRS may try to induce voluntary compliance. In some cases, the Justice Department will seek an injunction to require timely deposits and payments of all withheld employment taxes and to timely file all employment tax returns. Whatever your situation, try to steer clear of these issues. Get help early.

For that matter, if you can, stay ahead of payroll taxes. Consider using a payroll service that doesn’t allow you the choice whether to use the payroll tax money for something else.

(AccountingWeb, By Terry Sheridan; Published June 2014)

Employers who figure they’ll pay workers upfront for health insurance on the state or federal exchanges rather than provide coverage themselves are going to run smack into the Internal Revenue Service juggernaut.

The agency made clear in its Notice 2013-54 that such maneuvers, considered employer payment plans, are tantamount to an end run around the intent of the Affordable Care Act (ACA).

In a recently updated Q&A advisory, the IRS said that these employer payment plans generally don’t include arrangements where employees either can have an after-tax amount applied to health coverage or can take that amount in cash. These plans are considered group health plans subject to the market reforms under the ACA. Those reforms ban annual limits on essential health benefits and require that certain preventative measures, such as mammograms, are free.

And employers’ group plans can’t merge with individual coverage to satisfy the ACA provisos.

The upshot is a fine of $100 per day excise tax per employee, or $36,500 a year per employee under Section 4980D of the Internal Revenue Code.

The Department of Labor (DOL) issued Technical Release 2013-03 that is almost identical to the IRS notice, and the Department of Health and Human Services (HHS) is expected to release a similar proviso.

Andrew R. Biebl, a partner at accounting firm CliftonLarsonAllen in Minneapolis, Minn., told the New York Times late last month that the IRS ruling could upend tactics used in many businesses.

“For decades, employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs,” Biebl said. “The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.”

Here are highlights from the IRS notice about employer payment plans and reimbursement accounts. (The ruling also covers flexible spending accounts.)

  • According to Ruling 61-146, an employer who pays an employee’s premiums for non-employer sponsored insurance must exclude the payments from the employee’s gross income. Same goes if the payments are made to the insurer.
  • Employers can forward post-tax employee wages to an insurer at the employee’s direction without establishing a group health plan, if certain DOL regulations are met.
  • The IRS, DOL and HHS will amend three regulations to allow that benefits under an employee assistance program will be considered excepted benefits—only if the program doesn’t provide benefits like medical care and treatment. Excepted benefits aren’t subject to the ACA’s market reforms and aren’t considered minimum essential coverage. Until final rules are in place and likely through the remainder of this year, the agencies will consider employee assistance plans to mean excepted benefits only if they don’t provide medical care or treatment. It’s up to employers to use a “reasonable, good faith interpretation” of whether their plans provide that care or treatment.
  • An employer’s health reimbursement account (HRA) can’t be merged with individual coverage or with the employer’s individual policies. So, an HRA used to buy individual coverage violates the ACA’s ban on annual dollar limits.

(CCH News Staff, By Stephen K. Cooper, Published July 08, 2014)

House lawmakers on July 10 will vote on a bill to make permanent the Code Sec. 168(k) bonus depreciation provision that allows companies to deduct 50 percent of the cost of capital investments in their first year. Introduced by Rep. Pat Tiberi, R-Ohio, and approved by the House Ways and Means Committee along party lines on May 29 (TAXDAY, 2014/05/30, C.1), HR 4718 would cost $262.9 billion over 10 years, according to a Joint Committee on Taxation estimate (JCX-63-14). A separate provision in the bill would allow companies to accelerate alternative minimum tax (AMT) credits in lieu of bonus depreciation. The JCT estimates that the AMT provision would cost $24.9 billion over a decade.

Democrats on the Ways and Means Committee have repeatedly criticized the legislation because its cost is not offset by spending cuts or other tax increases. They said the bonus depreciation provision was enacted to help speed the nation’s economic recovery and should not be permanently extended. The bill would be effective after December 31, 2013.

Employment Law:

Protect Yourself from Employee Retaliation    

 

Our Guest Speaker:

Joan Rennekamp
Human Resources Consultant
Lewis Roca Rothgerber LLP

 

What will be discussed?

  • Litigation and legislation update from 2013 – state and nationwide
  • Proposed legislation that you should prepare for
  • Overtime exemption and independent contractor updates
  • Unemployment insurance requirements and much more

 

Thursday, March 20, 2014

7:30 – 9:00 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200