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State and Local Tax Alert - September 2017

Wed, 09/20/2017 - 12:00am
Virginia Department of Taxation Issues Guidelines for the Virginia Tax Amnesty Program Summary During its 2017 legislative session, the Virginia General Assembly enacted legislation authorizing the Virginia Department of Taxation (“Department”) to administer a Virginia Tax Amnesty Program.  On September 5, 2017, the Department issued Ruling of Commissioner, P.D. 17-156, which sets forth the details of the amnesty program, including taxpayer eligibility criteria, eligible taxes, amnesty benefits, and a “post- amnesty penalty.”  The Virginia Tax Amnesty Program will begin September 13, 2017, and end November 14, 2017.
  Details Eligibility
Individuals and businesses may participate in the amnesty program to satisfy tax bills and file delinquent returns for taxes that are administered or collected by the Department, including sales and use taxes, income taxes, bank franchise tax, pass-through entity information returns, and a number of other state taxes. Local taxes, such as the business and professional license tax, are not eligible taxes. To qualify, a tax bill must be related to an amnesty eligible period and have an assessment date on or before June 15, 2017, while returns must be applicable to an eligible period.

Amnesty-eligible periods depend on the type of tax and are set forth in detail in P.D. 17-156. For example, the amnesty-eligible period for individual and corporate income taxes and pass-through entity information returns is taxable year 2015 and prior, while the amnesty-eligible period for Retail Sales and Use Tax is the month of April 2017 and prior. P.D. 17-156 must be consulted to determine the applicable amnesty-eligible periods, as they vary for a range of different Virginia taxes.

Any tax liability that is attributable to an issue that is the subject of a decision of a Virginia court rendered on or after January 1, 2016, is not eligible for the Virginia Tax Amnesty Program. P.D. 17-156 provides that the following issues are not eligible for amnesty:
  • The claim of “Exception 1” to the addition to income relating to intangible expenses under Va. Code § 58.1-402.A.8., which was at issue in Kohl’s Department Stores, Inc. v. Dept. of Taxation, No. 760CL 12-1774 (City of Richmond Cir. Ct., Feb. 3, 2016) (and recently affirmed by the Virginia Supreme Court, in Kohl’s Department Stores, Inc. v. Dept. of Taxation, No. 160681 (Aug. 31, 2017)); and
  • The denial of a request for an alternative method of allocation and apportionment under Va. Code § 58.1-421, which was at issue in Corporate Executive Board v. Dept. of Taxation, No. CL13-3104 (Arlington Cty. Cir. Ct., Nov. 30, 2015), dismissed by the Virginia Supreme Court (June 9, 2016).
In addition, taxpayers under criminal investigation or prosecution for filing fraudulent returns or failing to file a return with the intent to evade tax are not eligible. All obligations of a taxpayer with an active jeopardy or fraud assessment are not eligible.

Amnesty Benefits
In exchange for filing delinquent tax returns and paying all tax due, one-half of the interest due and all penalties will be waived. Amnesty benefits are granted on a bill-by-bill or return-by-return basis. Thus, if a taxpayer has three tax bills due and three delinquent returns, but can only afford to pay some of the tax and half of the interest due, the taxpayer may still participate in amnesty and satisfy some of the amnesty-eligible bills and/or delinquent returns. However, the unpaid amounts will be subject to the “post-amnesty penalty.” 

The payment of amnesty-eligible tax bills must be postmarked by November 14, 2017. All relevant tax returns and associated documentation must be filed within the amnesty period. Taxpayers that underreported income or overstated exemptions or deductions must file amended returns during the amnesty period. Payments of tax must accompany the returns.

Post-Amnesty Penalty
Any tax liability that was eligible for the Virginia Tax Amnesty Program but that remains unpaid at the conclusion of the amnesty will be subject to a 20 percent penalty. The penalty applies to unpaid taxes only and not to any outstanding balances of penalties and interest. The penalty is also in addition to any other penalties that are applicable to the unpaid tax liability.     
  BDO Insights
  • Virginia is the latest state, in addition to New Jersey and Oklahoma, to announce the start of tax amnesty or voluntary disclosure programs.  These programs present an opportunity for taxpayers to come into compliance with their tax obligations, and reduce related accounting reserves, if any.
  • P.D. 17-156 provides a number of other details about the Virginia Tax Amnesty Program, including special situations, and should be consulted.
  • Taxpayers considering participating in the Virginia Tax Amnesty Program should consult with their financial statement auditor and tax advisor to evaluate and determine the potential financial statement implications with respect to income taxes under ASC 740, including the impact on current and deferred taxes, uncertain tax benefits, and disclosures, as well as with respect to sales/use and indirect taxes under ASC 450, including impact on reserves and accruals.  
 
For more information, please contact one of the following practice leaders: 

  West:     Southeast: Rocky Cummings
Tax Partner
      Scott Smith
Tax Managing Director
  Paul McGovern
Tax Managing Director
      Tony Manners
Tax Managing Director
      Northeast:     Southwest: Janet Bernier
Tax Principal
      Tom Smith
Tax Partner
  Matthew Dyment
Tax Principal
      Gene Heatly
Tax Managing Director
      Central:     Atlantic: Nick Boegel
Tax Managing Director
      Jonathan Liss
Tax Managing Director
  Joe Carr
Tax Partner
      Jeremy Migliara
Tax Managing Director
  Mariano Sori
Tax Partner
      Angela Acosta
Tax Managing Director
  Richard Spengler
Tax Managing Director

Federal Tax: Hurricane Harvey and Hurricane Irma Relief

Wed, 09/20/2017 - 12:00am
The IRS announced on September 12, 2017, that victims of Hurricane Irma on September 4, 2017, in parts of Florida and elsewhere may qualify for relief from certain filing deadlines and tax payments.  This follows the IRS announcement that victims of Hurricane Harvey on August 23, 2017, impacting the state of Texas may qualify for relief from certain filing deadlines. 
  Hurricane Harvey Relief Current through September 5, 2017, individuals who reside in or businesses with their principal places in the following counties may qualify for relief:  Aransas, Austin, Bastrop, Bee, Bexar, Brazoria, Burleson, Calhoun, Chambers, Colorado, Dallas, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Madison, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tarrant, Travis, Tyler, Victoria, Walker, Waller, Washington, and Wharton.  Taxpayers not in the covered disaster area but whose records that are needed to meet a covered deadline and that are located in the covered disaster area will be considered in the covered disaster area and entitled to relief.
 
As a declared disaster area, IRS is permitted to postpone certain deadlines falling on or after August 23, 2017, and before January 31, 2018.  This includes taxpayer with valid extensions to file their 2016 tax returns that were due to run out on October 16, 2017, as well as quarterly estimated income tax payments originally due September 15, 2017, and January 15, 2018, and quarterly employment and excise tax returns due October 31, 2017.  Penalties on employment and excise tax deposits due on or after August 23, 2017, and before September 7, 2017, will be abated as long as the deposits were made by September 7, 2017.
 
For acts specifically postponed in a disaster area, see Rev. Proc. 2007-56 (August 20, 2007).  Unless postponement is specifically mentioned in Rev. Proc. 2007-56, postponement of information returns such as W-2 and 1099 generally are not covered.  While employment and excise deposits also generally are not covered, penalties on deposits due on or after August 23, 2017, and before September 7, 2017, as noted above, will be abated as long as the deposits are made by September 7, 2017.
  Hurricane Irma Relief IRS relief for Hurricane Irma victims parallels the relief granted to the victims of Hurricane Harvey.  Individuals and businesses in all Florida counties may qualify for relief: Alachua, Baker, Bay, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Martin, Miami-Dade, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, Walton, Washington counties.  The IRS will also work with any taxpayer who lives outside the disaster area but whose records necessary to meet a postponed deadline are located in the affected area.
 
Those affected individuals and businesses will have until January 31, 2018, to file tax returns and make certain payments.  While employment and excise deposits are not covered acts, the IRS will waive penalties on those deposits due on or after September 4, 2017, but deposited by September 19, 2017.  For additional information and clarification of the extension, the IRS has provided further guidance in its news release IR 2017-150.  The IRS newsroom continues to have updated information regarding the available relief and extension.  We are also gathering information at the state level.  Please do not hesitate to contact your BDO professional with any questions or concerns regarding the relief available to you.
  For Further Information: The IRS disaster hotline is at 866-562-5227.
 
The IRS announcement regarding Hurricane Harvey is at https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-harvey-in-texas.
 
The IRS’s Hurricane Harvey Information Center is at https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey.
 
The IRS announcement regarding Hurricane Irma is at https://www.irs.gov/newsroom/irs-gives-tax-relief-to-victims-of-hurricane-irma-like-harvey-extension-filers-have-until-jan-31-to-file-additional-relief-planned.
 
The IRS’s Hurricane Irma Information Center is at https://www.irs.gov/newsroom/help-for-victims-of-hurricane-irma.
 
Rev. Proc. 2007-56 is at https://www.irs.gov/irb/2007-34_IRB/ar13.html.
    BDO Disaster Response In an effort to help to those impacted, government agencies have announced relief measures, from tax extensions and hardship distributions to tax-exempt employer assistance, and even guidance on cyber threats related to hurricane relief.
  Learn More

R&D Tax Alert - September 2017

Mon, 09/18/2017 - 12:00am
New Guidance for Non-Certified PEO Payroll Credit Claims Summary Under the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, eligible small businesses may elect to utilize up to $250,000 of the Research Tax Credits they generate under Internal Revenue Code section 41 after 2015 (“RTCs”) against their portion of payroll taxes, i.e., Federal Insurance Contributions Act (“FICA”) taxes. The Internal Revenue Service (“IRS”) has recently provided further guidance for non-certified PEO claims.
  Details The IRS recently confirmed that a non-certified Professional Employer Organization (“PEO”) that pays wages to employees on behalf of a taxpayer pursuant to a service agreement may claim the RTC against the taxpayer’s payroll tax on the taxpayer’s behalf.
 
In order for the Non-Certified PEO to claim the credit on behalf of a client, the client must be a qualified small business and must elect to apply the RTC against payroll tax liability by attaching Form 6765 to its timely-filed business income tax return.
  Three Steps for PEOs to Claim RTCs To claim the RTC on behalf of a taxpayer, PEOs must:
  • Step 1: Claim the Qualified Small Business Payroll Tax Credit for Increasing Research Activities on a Form 941 filed under PEO’s EIN.
  • Step 2:
    • Complete and attach Schedule R (Form 941) listing its clients for whom it is electing to claim the RTC against payroll tax.
    • Report the corresponding credits and all other amounts allocated to the listed clients.
    • Do not check either box for “Type of filer” at the top of the Schedule R.
    • Enter the total wages and taxes paid for all other clients not separately listed on Schedule R and for the PEO’s own employees on line 13 of Schedule R, so that the totals shown on line 14 match the amounts reported on the corresponding lines on Form 941.
  • Step 3: The PEO must complete and attach to its Form 941, a separate Form 8974 for each client listed on Schedule R (Form 941).
  BDO Insights With the new guidance, taxpayers and non-certified PEOs now have clearer guidance for how to utilize RTCs to offset payroll tax. Allowing small businesses and startups to benefit from the RTC regardless of whether they are currently paying regular income taxes frees up private capital and enables investment in resources to facilitate new or improved technologies.
 
For more information, please contact one of the following regional practice leaders: 
  Chris Bard
National Leader
Los Angeles
    Jonathan Forman
Principal
New York
    Jim Feeser
Managing Director
Woodbridge
    Chad Paul
Partner
Milwaukee
    Patrick Wallace
Managing Director
Atlanta
    David Wong
Partner
Los Angeles
    Laura Morris
Managing Director
San Francisco
    Brad Poris
Managing Director
Long Island
    Joe Furey
Managing Director
Chicago
    Sanjiv Gaitonde
Managing Director
Houston
      Gabe Rubio
Managing Director
Los Angeles    

 

State and Local Tax Alert - September 2017

Mon, 09/18/2017 - 12:00am
Illinois Enacts Legislation to Revive the Edge Act Program
Summary Illinois Governor Bruce Rauner has signed Illinois House Bill 162, which revives the Economic Development for a Growing Economic (“EDGE”) income tax credit with a new expiration date of June 30, 2022.  The credit program has a number of changes including eligibility, credit calculation and recapture provisions.
  Details Eligibility for the Credit
For applicants with more than 100 Illinois employees:
  1. Make a minimum capital investment of at least $2.5M and
  2. Creates the lesser of 50 new, full-time jobs or 10 percent of the number of full-time employees employed on a world-wide basis.
For applicants with less than 100 Illinois employees:
  1. There is no capital investment requirement and
  2. Creates the lesser of 50 new, full-time jobs or five percent of the number of full-time employees employed on a world-wide basis.
 
The overall eligibility for this incentive has not changed, in that a company must provide evidence of satisfying the State’s “but for” provision.  That is, providing evidence that if not for the EDGE credit, the expansion project would not have occurred in Illinois.  To satisfy the “but for” provision, the Illinois Department of Commerce and Economic Opportunity (“DCEO”) will accept cost differential details showing Illinois as the higher-cost option when comparing project and operating costs of an alternative state.  Further, for projects involving retained jobs, the applicant must provide evidence that at least one other state is being considered for the site of the project and the Applicant has created the minimum number of new jobs under the EDGE program.

Amount of the Credit
The annual EDGE credit can generally be earned and utilized each year for a 10-year period.  The calculation of the credit is limited to the lesser of:
  • 50 percent of the personal income taxes of the new employees and
  • 10 percent of qualified training costs for the new employees or
  • 100 percent of the personal income taxes of the new employees
For projects located in “underserved areas,” the credit will be calculated as the lesser of:
  • 75 percent of the personal income taxes of the new employees and
  • 10 percent of qualified training costs for the new employees or
  • 100 percent of the personal income taxes of the new employees
 
 “Underserved areas” are defined as geographic areas that meet one or more of the following conditions:
  1. The area has a poverty rate of at least 20 percent (according to the latest federal decennial census);
  2. 75 percent or more of the children in the area participate in the federal free lunch program;
  3. At least 20 percent of the households in the area receive assistance under the Supplemental Nutrition Assistance Program (“SNAP”); or
  4. The area has an average unemployment rate (as determined by the IL Department of Employment Security) that is more than 120 percent of the national unemployment average (as determined by the U.S. Department of Labor for a period of at least two consecutive calendar years preceding the date of application).
 
In addition, projects involving qualified job retention that also meet the required number of new employees under the program may be eligible for an additional credit equal to 25 percent of the personal income taxes for the retained employees.
 
Public Disclosure and Recapture
All approved EDGE applications will be required to have public disclosure of application details such as the name of applicant, location of the project, estimated value of the credit, and the number of new/retained jobs pledged.

If a company receives approval for an EDGE credit and ceases operations at the project site, the entire credit amount received shall be paid back to the State of Illinois. 
  BDO Insights
  • With the reintroduction of the EDGE credit, the State of Illinois is now better equipped to compete for competitive expansion projects across the Midwest.
  • Companies applying for EDGE credits will need to be prepared to meet the annual compliance reporting requirements in order to fully utilize the credit.
  • BDO’s Credit and Incentives team has years of experience working with DCEO and the EDGE credit program from the first day it was introduced.  We have successfully supported a number of client’s application efforts in securing EDGE credits, and we have also assisted with the implementation of the EDGE credits.  Please call BDO’s national Credits and Incentives practice leader, Tim Schram (312-730-1276), with any program questions.
 
For more information, please contact one of the following practice leaders: 
  Mariano Sori-Marin
Partner   Janet Bernier
Principal   Tanya Erbe
Managing Director   Taryn Goldstein
Managing Director   Tim Schram
Managing Director    

Federal Tax Alert - September 2017

Fri, 09/15/2017 - 12:00am
Guidance Issued Regarding Certain Stock Distributions by REITS and RICS

Download PDF Version

Summary On August 11, 2017, the Internal Revenue Service (“IRS”) issued Revenue Procedure (“Rev. Proc.”) 2017-45. The Rev. Proc. provides guidance regarding certain stock distributions by real estate investment trusts (“REITs”) and regulated investment companies (“RICs”).  In particular, if a Publicly Offered REIT or Publicly Offered RIC (as defined by the Rev. Proc.) distributes stock in a transaction meeting the requirements of the Rev. Proc., the IRS will treat the distribution of stock as a distribution of property to which Section 301 of the Internal Revenue Code (“Code”) applies by reason of Section 305(b).  Therefore, the distribution will be treated as a dividend to the extent of the REIT’s earnings and profits and be eligible for the dividends paid deduction (“DPD”).  The Rev. Proc. requires that shareholders must be able to elect to receive cash or stock and provides that the amount of cash to be distributed cannot be less than 20 percent of the aggregate declared distribution.  The Rev. Proc. is very detailed and contains many definitions and requirements that must be met in order to comply with the guidance.

Rev. Proc. 2017-45’s guidance is similar to the temporary guidance issued in previous Rev Procs., and in numerous private letter rulings.[1]  Unlike the guidance in these previous Rev. Procs., the guidance in Rev. Proc. 2017-45 does not have an expiration date.  The guidance in the Rev. Proc. is effective for distributions declared on or after August 11, 2017.
   Details Law
Generally, gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock.[2]  However, the general rule does not apply to a distribution by a corporation of its stock if the distribution is at the election of any of the shareholders and payable either in its stock or in property.[3]  The general rule also does not apply to a distribution by a corporation of its stock if the distribution has the result of the receipt of property by some shareholders and an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation.[4]  In such cases, the distribution is treated as a distribution of property to which Section 301 applies and will be included in gross income and treated as a dividend to the extent of the corporation’s earnings and profits.

If any shareholder has the right to an election or option with respect to whether a distribution is to be made either in cash or any other property, or in stock or rights to acquire stock of the distributing corporation, then, with respect to all shareholders, the distribution of stock is treated as a distribution of property to which Section 301 applies regardless of (1) whether the distribution is actually made in whole or in part in stock or in stock rights, (2) whether the election or option is exercised or exercisable before or after the declaration of the distribution, (3) whether the declaration of the distribution provides that the distribution will be made in one medium unless the shareholder specifically requests payment in the other, (4) whether the election governing the nature of the distribution is provided in the declaration of the distribution or in the corporate charter or arises from the circumstances of the distribution, or (5) whether all or part of the shareholders have the election.[5]

Treasury Regulation Section 1.305-1 (b)(2) provides that, if a corporation that regularly distributes its earnings and profits, such as a RIC, declares a dividend pursuant to which the shareholders may elect to receive either cash or stock of the distributing corporation of equivalent value, the amount of the distribution of the stock received by any shareholder electing to receive stock will be considered to equal the amount of the cash which could have been received instead.  The regulation does not specifically mention REITs.

Rev. Proc. 2017-45
If a Publicly Offered REIT or a Publicly Offered RIC makes a distribution of stock in a transaction that complies with the Rev. Proc., then the IRS will treat the distribution of stock as a distribution of property to which Section 301 applies by reason of Section 305(b). The value of the stock received by any shareholder in lieu of cash will be considered to be equal to the amount of cash for which the stock is substituted.

The Rev. Proc. also states that if a shareholder participates in a dividend reinvestment plan (“DRIP”), the stock received by that shareholder pursuant to the DRIP is treated as received in exchange for cash received in the distribution.

A Publicly Offered REIT is defined as a real estate investment trust that is required to file annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934.[6]  A Publicly Offered RIC is defined as a regulated investment company the shares of which are (i) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended, (ii) regularly traded on an established securities market, or (iii) held by or for no fewer than 500 persons at all times during the taxable year.[7]

The Publicly Offered REIT or Publicly Offered RIC must make a distribution to its shareholders with respect to its stock and each shareholder must have a cash-or-stock election (as defined by the Rev. Proc.) with respect to all or part of the distribution. The existence of a cash-or-stock election does not affect the federal income tax treatment of the portion, if any, of the declared dividend that is not subject to the election. The percentage of total cash distributed cannot be less than 20 percent of the total distribution.

Every shareholder that does not elect to receive more than the cash limitation percentage must receive cash equal to the shareholder's elected cash amount.  If the aggregate of all shareholders' elected cash amounts does not exceed the cash limitation amount, then each shareholder who elected to receive cash greater than the cash limitation percentage receives cash equal to that shareholder's elected cash amount. 

If the aggregate of all shareholders' elected cash amounts exceeds the cash limitation amount, then each shareholder who elected to receive cash greater than the cash limitation percentage receives a pro rata amount of cash that corresponds to the shareholders total entitlement under a formula described in the Rev. Proc.

The calculation of the number of shares to be received by a shareholder must be based upon a formula that utilizes the market price of the shares, is designed so that the value of the number of shares to be received corresponds as closely as practicable to the amount of cash to be received under the declaration with respect to that share, and uses data from a period of no more than two weeks ending as close as practicable to the payment date.

The entire amount of the distribution that is treated as a dividend pursuant to Section 301 is taxable to the shareholders regardless of whether the distribution is made in all stock, all cash or a combination of both.  As such, both the cash and stock portions of the distribution qualify toward the distribution requirements of the REIT or RIC.  The distribution also constitutes a DPD to the extent of the earnings and profits of the corporation.

Effective Date
The revenue procedure is effective with respect to distributions declared on or after August 11, 2017.
BDO Insights
  • Publicly Offered REITs and RICs that want to issue distributions containing a cash-or-stock election to purge C corporation earnings and profits or to retain cash no longer need to file for a private letter ruling to receive certainty of tax treatment of the distribution as long as the guidance in the Rev. Proc. is followed.  A distribution containing a cash-or-stock election could also be used to fulfill a deficiency dividend requirement.
  • The Rev. Proc. is not effective for private REITs.  Therefore, a private REIT that does not want to utilize a consent dividend must continue to file for a private letter ruling to the extent that it wants certainty as to the tax treatment of distribution containing a cash-or-stock election. 
 
For more information, please contact one of the following practice leaders:
  Julie Robins
Managing Director   Jeffrey Bilsky
Partner   [1] Rev. Proc. 2008-68 was issued as a result of the economic downturn during that period and was amplified and superseded by Rev. Proc. 2009-15, which was later extended three years by Rev. Proc. 2010-12.  These earlier Rev. Procs. required only at least 10 percent of the distribution to be in cash.  After the expiration of Rev. Proc. 2010-12 on December 31, 2011, REITs and RICs that wanted certainty as to the tax treatment of a distribution containing a cash or stock election would have had to file for a private letter ruling. [2] Section 305(a). [3] Section 305(b)(1). [4] Section 305(b)(2). [5] Regulation Section 1.305-2(a). [6] Section 562(c)(2) [7] Section 67(c)(2)(B)

Compensation & Benefits Alert - September 2017

Wed, 09/06/2017 - 12:00am
How Employers Can Assist Employees Who Are Victims of Hurricanes   Tax Free IRC Section 139 Disaster Relief Payment; Taxable Wage Continuation; Shared Leave Plans and Streamlined Access to Retirement Funds
Summary In the case of a presidentially declared disaster, such as a hurricane, an employer has several opportunities to provide assistance to affected employees that have favorable tax treatment.  
  Details Tax Free Employer Assistance under IRC 139
An employer may provide assistance to employees affected by a presidentially declared disaster that is exempt from federal income and employment taxes.[1]  The provision of assistance, whether in cash or services, is relatively straightforward and requires no substantiation from the employees, while still allowing the employer to deduct the payments.   Since there are virtually no administration requirements, employers can react very quickly to help alleviate its employees’ immediate needs.

The exclusion is provided by Internal Revenue Code (“IRC”) Section 139(a) and specifically exempts from gross income “Qualified Disaster Relief Payments” that are not compensated by insurance or otherwise. IRC Section 139(b), in part, defines a “Qualified Disaster Relief Payment” as any amount paid to, or for the benefit of, an individual to reimburse or pay reasonable and necessary expenses incurred:
  • As a result of a qualified disaster for family, living, or funeral expenses,
  • For the repair or rehabilitation of a personal residence;[2] or
  • For repair or replacement of the contents of a personal residence, to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster.
 
Revenue Ruling 2003-12 (“Rev. Rul.”) provides a particularly relevant example for employers trying to help employees affected by a hurricane. In Situation 3 of the Rev. Rul. the IRS wrote, “(p) ayments that employees receive under an employer's program to pay or reimburse unreimbursed reasonable and necessary medical, temporary housing, or transportation expenses they incur as a result of a flood are excluded from gross income under § 139.” In addition, the Rev. Rul. determined that the amounts excluded from gross income under Section 139 are not subject to information reporting requirements generally imposed by Section 6041.

Salary Continuation will be Taxable to the Employee
The most helpful benefit to employees is often for their wages to continue without interruption even though they cannot perform their expected services for the employer. Wages paid under a policy of salary continuation will continue to be subject to all of the usual income and employment tax provisions. 

Contributions of Cash by Fellow Employees to Affected Employees
Planning is required in order to avoid taxation being imposed on employees whom provide assistance to those employees affected by the disaster. An employee cannot simply redirect compensation earned from an employer to an affected employee without being taxed on the earnings under the “assignment of income” or “constructive receipt” doctrine. In order for the employee to make tax deductible contributions of cash to disaster victims, a charitable organization must be involved to secure the personal income tax deduction under IRC 170. This can be accomplished by the employer creating a private foundation (which requires time), or by utilizing an existing charitable organization that creates a fund for a specified group of victims that includes its employees. Once established, contributors can obtain an income tax deduction for their charitable contributions.

Contributions of Unused Paid Time-Off by Fellow Employees to Affected Employees
Another way that employees can assist is by sharing their unused paid time off with employees who have exhausted their earned vacation days. Under the general rules of income taxation the employee who earned the paid time off would be taxed on the value of the days if they were given away to a fellow employee.   However, under a written employer-sponsored leave sharing program for a major disaster, employees can donate unused vacation days to other employees who have been adversely affected by a major disaster, without triggering taxation to the donor for the donated time (in this scenario they would not receive a charitable deduction as the income was never recognized initially). Note that an employee is considered adversely affected if the disaster caused a severe hardship that requires the employee to be absent from work. The plan must further provide that donations of leave cannot exceed the donor’s annual accrual; can be drawn upon by other employees who have been adversely affected by a major disaster; cannot be specified by the donor for a particular recipient; and will be valued when paid at the recipients’ normal compensation rate without regard to the normal compensation rate of the donor.

Leave deposited for a particular disaster may be used by only those employees affected by that disaster and should be available only for a reasonable amount of time after the disaster has occurred. Any donated leave that is not used by recipients by the end of the specified time must be returned to the donors within a reasonable time so that the donor may use the leave, except in the event the amount is so small as to make accounting for it unreasonable or impractical. The amount of leave returned to all donors must be in the same proportion as that which was donated. A recipient may not receive cash in lieu of using the paid leave received.
 
Streamlined Access to Retirement Funds Prior to February 1, 2018
In Announcement 2017-11, the IRS relaxed procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, participants in 401(k) plans, 403(b) tax-sheltered annuities, and 457(b) deferred-compensation plans sponsored by state and local governments may be eligible to take advantage of streamlined loan procedures and liberalized hardship distribution rules designed to provide quicker access to their money. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

While IRA participants are not allowed to borrow from the IRA, they may be eligible to make IRA withdrawals under liberalized procedures.

Not only does this broad-based relief apply to victims of hurricanes, it also applies to a person who lives outside the disaster area who takes out a retirement plan loan or hardship distribution and uses it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in Announcement 2017-11.

To qualify for this relief, hardship withdrawals must be made by January 31, 2018.

Before accessing retirement funds, it is important to remember that the relaxed procedures have not changed the tax treatment of loans and distributions. Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less and hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax unless one of several exceptions is satisfied.

For Further Information
Further details are in Announcement 2017-11.  More information about other tax relief related to Hurricane Harvey can be found on the IRS disaster relief page. Information on other tax relief for Hurricane Irma will be added to the disaster relief page when available. For information on government-wide relief efforts, visit www.USA.gov/hurricane-harvey or www.USA.gov/hurricane-irma
    For more information, please contact one of the following practice leaders: 
  Joan Vines
Managing Director   Peter Klinger
Principal   Carl Toppin
Managing Director   Rob Kaelber
Managing Director   Andy Gibson
Partner       [1]In addition to a presidentially declared disaster such as Hurricane Harvey, Section 139(c) includes a disaster resulting from any event that is determined by the Secretary of the Treasury to be of a catastrophic nature, a disaster resulting from terrorist or military actions, or a disaster resulting from an accident involving a common carrier.
  [2] A personal residence can be one that is rented or owned, according to IRS Publication 3833.
 

State and Local Tax Alert - September 2017

Tue, 09/05/2017 - 12:00am
New Jersey and Oklahoma Establish Limited Time Voluntary Disclosure Initiatives; Rhode Island and Texas Announce Intentions for Amnesty Programs
Summary New Jersey and Oklahoma have established, or required their respective state taxing authorities to establish, Voluntary Disclosure Programs that will run for a limited time.  The programs will allow noncompliant taxpayers to voluntarily file and pay past-due taxes with various benefits, including limited lookback periods and waiver of penalties and/or interest.  Meanwhile, Rhode Island and Texas have also enacted legislation authorizing the future establishment of tax amnesties.
  Details New Jersey
The state of New Jersey launched a Limited Time Voluntary Disclosure Program running from August 21, 2017, through November 21, 2017, aimed at out-of-state sellers soliciting sales through referral agreements, including online advertising agreements.  Effective July 1, 2014, the state expanded the definition of “seller” subject to New Jersey sales and use tax.  The new legislation created a rebuttable presumption that retailers and service providers without a physical presence in New Jersey are subject to the state’s sales and use tax if they solicit sales through an independent contractor or other representative with physical presence in the state.  The independent contractor or other representative may solicit sales directly or indirectly.  A link on an internet website qualifies as a referral for purposes of determining if a seller is subject to this presumption of taxability.
Sellers who have never been contacted by the Division of Taxation regarding sales and use tax compliance are eligible for the program.  Participants in the Voluntary Disclosure Program will benefit from a limited lookback period.  Filings and payment will only be required for tax periods beginning January 1, 2017.  The state will close all tax periods from July 1, 2014, the effective date of the expanded “seller” definition statute, through January 1, 2017, and release the taxpayer from liability for those periods.  All penalties will be waived.  However, statutory interest will apply.

 
Oklahoma
On May 24, 2017, H.B. 2380 was enacted to require the Oklahoma Tax Commission to establish a Voluntary Disclosure Initiative (“VDI”).  See our earlier BDO State and Local Tax Alert. The Tax Commission has now issued administrative rules for the VDI, which will begin September 1, 2017, and end November 30, 2017. Participating taxpayers will be required to pay past due taxes for up to the prior three years, but not penalties or interest.

The following taxes are included in the Oklahoma VDI:
  • Mixed Beverage tax levied pursuant to Section 576 of Title 37 of the Oklahoma Statutes
  • Gasoline and Diesel tax levied pursuant to Section 500.4 of Title 68 of the Oklahoma Statutes
  • Gross Production and Petroleum Excise tax levied pursuant to Sections 1001, 1101 and 1102 of Title 68 of the Oklahoma Statutes
  • Sales tax levied pursuant to Sections 1354 of Title 68 of the Oklahoma Statutes
  • Use tax levied pursuant to Section 1402 of Title 68 of the Oklahoma Statutes
  • Income tax levied pursuant to Section 2355 of Title 68 of the Oklahoma Statutes for tax periods ending prior to January 1, 2016
  • Withholding tax levied pursuant to 2385.2 of Title 68 of the Oklahoma Statutes

Individuals and businesses are eligible to participate in the VDI as long as they have not been contacted by the State, or a third-party acting on behalf of the State, regarding the taxes that they are seeking to pay in the VDI. Payment of the tax must be made during the VDI period or a payment plan must be approved during the VDI period to ensure penalties and interest are waived. To ensure the penalties and interest are not charged in the future, the taxpayer must stay in compliance for one year after the VDI program ends.
 
Rhode Island
Rhode Island H. B. 5175, signed August 3, 2017, requires the Division of Taxation to establish a tax amnesty program for any taxable period ending on or prior to December 31, 2016.  The amnesty program will run for 75 days ending on February 15, 2018.  All taxpayers and all tax types are eligible for the tax amnesty program with the exception of any taxpayer under criminal or civil investigation or party to any court proceeding for state tax fraud pending in Federal or Rhode Island State Court.  Participants in the Amnesty Program will benefit from a waiver of all penalties and a 25 percent reduction of the interest due. 
 
Texas
Texas S. B. 1, effective September 1, 2017, requires the Comptroller of Public Accounts to establish a tax amnesty program for Texas sales and use taxes.  While a date for the amnesty program has not been announced, the legislation specifies amnesty will only be available for a limited duration.  Participants will benefit from the waiver of penalty and/or interest based on the determination of the Comptroller.
BDO Insights
  • New Jersey, Oklahoma, Texas, and Rhode Island’s Amnesty and Voluntary Disclosure Programs present an opportunity for taxpayers to come into compliance with their tax obligations, and reduce related accounting reserves, if any.
  • New Jersey, Oklahoma, and Rhode Island publish lists of their largest delinquent taxpayers.  These programs may provide an opportunity for taxpayers with large tax delinquencies to avoid tarnishing their reputation by not appearing on these lists.
  • While the criteria and period of the Rhode Island and Texas amnesty programs have not yet been established, potentially affected taxpayers should monitor future amnesty-related developments in both states or take advantage of each state’s voluntary disclosure program.
  • Taxpayers considering participating in these programs should consult with their financial statement auditor and tax advisor to evaluate and determine the potential financial statement implications with respect to income taxes under ASC 740, including the impact on current and deferred taxes, uncertain tax benefits, and disclosures, as well as with respect to sales/use and indirect taxes under ASC 450, including impact on reserves and accruals. 
 
For more information, please contact one of the following practice leaders: 

  West:     Southeast: Rocky Cummings
Tax Partner
      Scott Smith
Tax Managing Director
  Paul McGovern
Tax Managing Director
      Tony Manners
Tax Managing Director
      Northeast:     Southwest: Janet Bernier
Tax Principal
      Tom Smith
Tax Partner
  Matthew Dyment
Tax Principal
      Gene Heatly
Tax Managing Director
      Central:     Atlantic: Nick Boegel
Tax Managing Director
      Jonathan Liss
Tax Managing Director
  Joe Carr
Tax Partner
      Jeremy Migliara
Tax Managing Director
  Mariano Sori
Tax Partner
      Angela Acosta
Tax Managing Director
  Richard Spengler
Tax Managing Director

Expatriate Tax Newsletter - August 2017

Fri, 09/01/2017 - 12:00am
BDO's Expatriate Newsletter covers timely tax-related updates and regulations from countries around the globe. The August 2017 issue highlights developments in Canada, Australia, Belgium, The Netherlands, Saudi Arabia, Sweden, and The United States of America.

Topics include:
  • Australia – Global Mobility, Australia’s Changing Immigration and the Challenges to Business
  • Belgium – Manageable and Feasible Work
  • Sweden – Legislative Proposal from the Swedish Tax Agency Regarding the Implementation of the Term ‘ Economic Employer’
  Download

457A: 2017 Deadline to Pay on Certain Offshore Deferred Compensation

Thu, 08/31/2017 - 12:00am
If you have a deferred compensation arrangement with an offshore employer located in a tax haven jurisdiction, you should be aware of an upcoming deadline of December 31, 2017 for compensation earned during 2005-2008 but not yet paid to you.[1]
Background Employees of US companies who defer compensation outside of a tax-qualified plan (e.g., a 401(k) plan) enjoy the tax benefit at the expense of the employer, which must wait until the amounts are paid before claiming a corresponding deduction.  By contrast, offshore employers located in non-tax jurisdictions can provide deferred compensation to their US employees and suffer no economic consequences, since the timing of the deduction for the related compensation is not relevant when the employer does not have any tax liability.  In absence of the quid pro quo relationship among US employees and such tax-indifferent employers, Section 457A is intended to promote parity among US taxpayers by eliminating the ability to defer compensation from these offshore employers.
Development Pursuant to Section 457A, deferrals attributable to services performed after 12/31/2004 and before 1/1/2009 must be included in your US taxable income no later than 12/31/2017. Plans that initially provided for payment after 2017, should have been amended by 12/31/2011 to establish a new distribution date that conforms with Section 457A. If your plan was not timely amended by 12/31/2011 and distribution (or income inclusion) is still scheduled to be made after 2017, the deferred amount is in violation of Section 457A and subject to a 20% additional tax and premium interest charge. Upon any untimely attempt to comply with 457A by changing the distribution date to fall within this year, the same penalties would still apply, but under Section 409A instead – Section 457A’s sibling that broadly governs all nonqualified deferred compensation arrangements. Section 409A generally prohibits accelerating distributions prior to the originally scheduled payment date.

After 2008, compensation earned from an offshore employer in a non-tax jurisdiction generally cannot be deferred beyond 12 months following the end of the taxable year in which vesting occurred, otherwise Section 457A requires income inclusion on the vesting date and imposes a 20% additional tax and premium interest charge (at the underpayment rate plus one percent). Whereas, compensation paid within 12 months after the end of the employer’s taxable year in which such payment is vested is exempt from Section 457A under a short-term deferral exemption. For example, assuming the offshore entity has a fiscal year ending on December 31 and the 2016 incentive compensation was vested on 12/31/2016, such incentive compensation must be paid not later than 12/31/2017 to be exempt from Section 457A and avoid the additional 20% tax and premium interest charge. For purposes of Section 457A, vesting must be conditioned upon the future performance of substantial services only; an employee’s compensation is treated as vested if such person’s right to compensation is subject to a performance-based condition only. 
Action Items The IRS provides complex guidance (Notice 2009-8) with respect to the application of Section 457A. Parties to deferred compensation arrangements should ensure that (i) the service provider’s right to compensation is conditioned upon the future performance of substantial services (i.e., a service-based condition and not a performance-based condition); (ii) such compensation is paid within Section 457A’s 12-month short-term deferral period; and (iii) any outstanding deferrals related to services performed prior to 2009 are to be distributed by end of this year in accordance with the plan amendment adopted by 12/31/2011 to conform with Section 457A (or, if grandfathered, in accordance with the originally scheduled payment date/event).


Read Next Article, "Plan Sponsors Should Review Procedures for Hardship Withdrawals"

Return to Compensation & Benefits Newsletter - Summer 2017
 
[1] Deferred amounts that were earned and vested in a taxable year before 1/1/2005 are not subject to 457A under its grandfather provision and can be paid in accordance with the originally schedule date, provided the arrangement was not materially modified after 10/3/2004

Compensation & Benefits Newsletter - Summer 2017

Thu, 08/31/2017 - 12:00am


Download PDF Version

In the summer issue of the Compensation and Benefits quarterly newsletter, we offer insights on how to utilize recent guidance regarding issues that are important for tax planning purposes.
 
457A: 2017 Deadline to Pay Taxes on Certain Deferred Compensation  If you have a deferred compensation arrangement with an offshore employer located in a tax haven jurisdiction, you should be aware of an upcoming deadline of December 31, 2017 for compensation earned during 2005-2008 but not yet paid to you.
  Read the Full Article  
Plan Sponsors Should Review Procedures for Hardship Withdrawals On February 23, 2017, the IRS issued a memorandum to its employee plan examiners instructing them on the types of documentation that should be requested during an IRS audit to evaluate whether in-service distributions were allowed under the hardship withdrawal rules.
  Read the Full Article  
QSEHRA: A New Way for Small Employers to Help Employees Purchase Health Care Insurance Small employers with no group health plan should consider a new Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to help pay for individual health insurance policies on a
tax free basis.
  Read the Full Article  
SUBSCRIBE Subscribe to begin receiving email notifications for relevant thought leadership and webinars. 
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For more information, please contact one of the following practice leaders:
  Andrew Gibson
National Practice Leader
Compensation & Benefits   Peter Klinger
Partner
Compensation & Benefits   Joan Vines
Managing Director
Compensation & Benefits     Carl Toppin
Managing Director
Compensation & Benefits  

Plan Sponsors Should Review Procedures for Hardship Withdrawals

Thu, 08/31/2017 - 12:00am
Plan sponsors should keep records that align with the IRS’ expectations for hardship withdrawals from qualified plans as described in a February 23, 2017 IRS memorandum to its employee plan examiners. The memo provides instructions on the types of documentation that should be requested during an IRS audit to evaluate whether in-service distributions were allowed under the hardship withdrawal rules. 

401(k) plans may allow participants to withdraw from their retirement accounts prior to separation of service because of a financial hardship. To qualify for a hardship withdrawal, a participant must show the withdrawal is “necessary” (a needs test) to meet an “immediate and heavy financial need” (an events test). While the regulations do not specify the substantiation requirements, the IRS’ Employee Plans News previously provided informal guidance in 2009 and 2015. 

The 2009 guidance broadly requires a statement or verification of the employee’s hardship. The 2015 guidance indicates that the plan sponsor or administrator must obtain and preserve financial information and documentation that substantiates the need for the hardship withdrawal. Further, the practice of self-certification, whereby administrators allow participants to self-certify that they satisfy the criteria to receive a hardship distribution, is only permitted to satisfy the needs test (i.e., the distribution was the sole method of alleviating the hardship). However, self-certification is not allowed to demonstrate satisfaction of the events test. Instead, the plan sponsor or administrator must obtain documentation to show the nature of the hardship. Notably, document retention is the responsibility of the plan sponsor. 

The 2017 IRS memorandum indicates that plan sponsors and administrators should follow either of two substantiation procedures upon receiving a hardship withdrawal request: source documents or employee summary.

Source documents. The plan sponsor or administrator should request actual documents (such as estimates, contracts, bills or statements from their parties) and review those documents to verify that they support the requested hardship withdrawal.

Employee summary. If the plan relies on an employee’s summary of the information contained in source documents, the plan sponsor or administrator must first issue a notice to the participant advising the following:
  • The hardship distribution is taxable and additional taxes 
  • could apply.
  • The amount of the distribution cannot exceed the immediate and heavy financial need.
  • Hardship distributions cannot be made from earnings on elective contributions or from QNEC or QMAC accounts. 
  • The recipient agrees to preserve source documents and to make them available at any time, upon request, to the employer or administrator.
The plan sponsor or administrator must ask each participant requesting a hardship withdrawal to provide information specific to any of the six safe harbor hardship withdrawals sought (medical care, purchase of a principal residence, prevent eviction from or foreclosure of principal residence, repair of damages to principal residence, post-secondary education expenses, or burial and funeral expenses). 

The 2017 IRS memorandum contains an attachment that lists the information requests for each hardship withdrawal event. The plan sponsor or administrator must ensure the summaries are complete and contain the relevant items listed in the IRS guidance, otherwise an IRS agent may request source documents to substantiate the hardship. Further, administrators should provide a report or other data to the plan sponsor, at least annually, describing the hardship withdrawals made during the plan year.

If an IRS agent determines that all applicable requirements of the “source documents” or “employee summary” substantiation methods are complete, then the plan should be treated as satisfying the substantiation requirement for making hardship distributions. 

In-service distributions that fail to satisfy the hardship distribution rules violate the requirements for plan qualification. While the statutory penalty would be loss of tax-exempt status and immediate taxation to all plan participants, the IRS’ Employee Plans Compliance Resolution System (EPCRS) would allow the sponsor who cannot produce the required documents to the IRS examiner to salvage the plan’s tax-exempt status after paying a monetary sanction that could be substantial. EPCRS also allows plan sponsors to enter the voluntary correction program prior to notification by the IRS of an examination and pay significantly less in the form of an application fee. Therefore, it is advisable to consider a compliance review of hardship withdrawal procedures and documentation before notification of an IRS audit. 


​Read Next Article, "QSEHRA. A New Way for Small Employers to Help Employees Purchase Health Care Insurance and Frequently Asked Questions"

Return to Compensation & Benefits Newsletter - Summer 2017

QSEHRA: A New Way for Small Employers to Help Employees Purchase Health Care Insurance

Thu, 08/31/2017 - 12:00am
Small employers with no group health plan should consider a new Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to help pay for individual health insurance policies on a tax free basis. 

The Affordable Care Act (ACA) changed a long standing practice where employers reimbursed employees for premiums on their individual health care insurance coverage under an Employer Payment Plan (EPP). While this reimbursement remains nontaxable under IRC 105 and 106, the stand alone EPP is considered a health care plan that violates the ACA’s prohibition on annual dollar limits and therefore is subject to a penalty of $100 per day for each instance. This penalty effectively eliminated the EPPs, thereby limiting the tax-favorable access to healthcare coverage by employees of small employers. 

Prior to leaving office, President Obama signed the 21st Century Cures Act (the “Cures Act”) that established the QSEHRA - a new type of health reimbursement account that can serve as a replacement for EPPs for years after 2016 .
  1. How does the new QSEHRA differ from an HRA or EPP? Health Reimbursement Arrangements (HRAs) and EPPs are mechanisms under which an employer reimburses medical expenses (whether in the form of direct payments or reimbursements for premiums or other medical costs) incurred by employees up to a certain amount. A “stand-alone” HRA or EPP (one that is not integrated with an employer’s group health plan) is considered a group health plan that is subject to the group market reform provisions of the Affordable Care Act, including the prohibition on annual dollar limits and the requirement to provide certain preventive services without cost sharing. Stand-alone HRAs and EPPs fail to comply with these group market reform requirements because these arrangements, by their definition, reimburses or pays medical expenses on the employee’s behalf only up to a certain dollar amount each year and may be subject penalties of $100/day per affected employee.
Similar to HRAs and EPPs, QSEHRAs are employer-funded account-based arrangements that can reimburse employees for certain medical care expenses (including healthcare premiums) incurred by employees and their spouses and dependents. Unlike HRAs and EPPs, however, QSEHRAs are not considered “group health plans” that are subject to the group market reform provisions of the Affordable Care Act.
  2. What employers may offer QSEHRAs?  Employers that are not “applicable large employers” under the Affordable Care Act. Generally, these are employers with fewer than 50 full-time employees (including full-time equivalent employees) that do not offer group health plans.
  3. What are the benefits of offering a QSEHRA? 
  • Employer perspective: Since QSEHRAs are not considered group health plans, these “stand-alone HRAs” can be used to purchase individual market coverage and reimburse qualified medical expenses without being subject to penalties imposed under the Affordable Care Act.
     
  • Employee perspective: Employer reimbursements for individual health insurance policy premiums (and other qualified medical expenses) under a QSEHRA are excluded from an employee’s income. 
     
4. What are the requirements for offering a QSEHRA?
  • The employer cannot offer group health insurance coverage to any employee.
     
  • The QSEHRA must be provided on the same terms to all eligible employees.
     
  • Employer contributions only (no employee contributions or salary reductions permitted).
     
  • Satisfy employee notice requirements.
     
  • Satisfy reporting requirements.
     
  • An employee must maintain minimum essential coverage in order to exclude the reimbursements from income.
     
5. What employees may be excluded from offering a QSEHRA? For purposes of determining whether the employer offers the QSEHRA to all “eligible employees,” the following employees may be excluded:
 
  • Employees with less than 90 days of service
     
  • Under age 25
     
  • Part-time or seasonal employees
     
  • Union employees
     
  • Non-resident aliens
     
6. What are the QSEHRA limits? The maximum reimbursement under a QSEHRA is $4,950 for employee-only coverage, and $10,000 for family coverage. The limits are prorated for a partial year of coverage and indexed for future years.
  7. Can the amount of the reimbursements under the QSEHRA vary from employee-to-employee? Generally, the employer must offer coverage on the same terms to all eligible employees. However, the arrangement will not fail to satisfy the “same terms” requirement if the reimbursement varies on account of the price of an insurance policy, which is based on the age of the employee or family members covered or the number of persons covered.    8. What information must be included in the QSEHRA notices issued to employees?
  • Maximum amount of benefit for the year.
     
  • Employee must inform the Marketplace to which employee applies for premium tax credit assistance of the maximum amount of benefit available to the employee under the QSEHRA (notably, an employee’s eligibility for premium tax credits may be eliminated or reduced as a result of benefits available under the QSEHRA).
     
  • Reimbursements under the QSEHRA will be taxable if the employee does not maintain minimum essential coverage.
     
9. When must QSEHRA notices be issued to employees? Provide the notice not later than 90 days before the beginning of the year. Further guidance is expected to clarify if “year” refers to the calendar year or the plan year. For 2017, the 90-day notice was due March 13, 2017 (90 days after the enactment of the Cures Act). In the case of a new employee, provide the notice not later than the date the employee is eligible to participate in the QSEHRA. 
  Failure to timely provide the notice to employees can result in a penalty equal to $50 per affected employee (up to $2,500 per year).
  10. What are the reporting requirements? Employers must report the maximum amount available to the employee for the year in box 12 of the employee’s W-2, using code “FF.”
  11. Are employers required to provide a COBRA notice to terminated employees? No. QSEHRAs are not considered group health plans for purposes of COBRA continuation coverage.


Return to Compensation & Benefits Newsletter - Summer 2017

State and Local Tax Alert - August 2017

Mon, 08/28/2017 - 12:00am
Multistate Tax Commission’s Marketplace Provider Voluntary Disclosure Initiative   Summary As our recent SALT Alert surveyed, states are aggressively targeting remote sellers for sales and use tax collection, audit, and other compliance burdens.  One such area of focus is aimed at remote sellers that use “marketplace providers” or “facilitators” to make sales into states where the remote seller has no physical presence.  States, beginning with Minnesota and Washington, are contending that the presence of the marketplace provider or its inventory at another third party’s warehouse in the state constitutes a physical presence for the remote seller.  And now the Multistate Tax Commission (“MTC”) has announced its “Online Marketplace Seller Voluntary Disclosure Initiative” that it will administer on behalf of 24 states        
Details The MTC’s National Nexus Program has announced that it will offer a voluntary disclosure initiative in which the following states will participate:  Alabama; Arkansas; Colorado; Connecticut; District of Columbia; Florida; Idaho; Iowa; Kansas; Kentucky; Louisiana; Massachusetts; Minnesota; Missouri; Nebraska; New Jersey; North Carolina; Oklahoma; South Dakota; Tennessee; Texas; Utah; Vermont; and Wisconsin (the “participating states”).  Since the start of the MTC’s initiative, seven additional states have joined to participate to bring the current total number to 24.  It is possible that additional states will join.  Applications to participate must be received by the MTC from August 17, 2017 through October 17, 2017. 
 
The following eligibility criteria apply:
 
  • The taxpayer is not registered as a seller or retailer and has not filed sales and use tax returns or income/franchise tax returns with a participating state, has not made payments of such taxes to a participating state, or had any prior contact with a participating state concerning liability or potential liability for sales and use taxes or income/franchise taxes;
 
  • The taxpayer is an online seller that uses a marketplace provider or facilitator to facilitate retail sales into one or more participating states and has no physical presence of its own with the state (except for the presence of the online seller’s inventory stored in a third-party fulfillment center located in the state or “other nexus-creating activities” of the marketplace provider or facilitator);
 
  • The taxpayer timely applies electronically to one or more participating states for voluntary disclosure relief using either the online application provided at www.mtc.gov or the MTC PDF application form available on the MTC website and emailed to MTC staff at nexus@mtc.gov.  The taxpayer must state in the application that it is applying for voluntary disclosure relief under the MTC’s “Online Marketplace Seller Voluntary Disclosure Initiative,” and provide complete and accurate disclosure of the information requested; and
 
  • The taxpayer must request relief from any past sales and use taxes, including interest and penalties, and any past due income/franchise taxes (if applicable), including penalties and interest, and agree to register as a seller or retailer and begin collecting and remitting sales and use taxes and to file applicable returns on a prospective basis beginning not later than December 1, 2017.  If the taxpayer is subject to income/franchise taxes, it must agree to begin timely filing income/franchise tax returns and pay any such taxes that are due beginning with the taxable year that includes December 1, 2017.
  BDO Insights
  • Online sellers are permitted to apply for participation in the MTC’s “Online Marketplace Seller Voluntary Disclosure Initiative” on an anonymous basis and will not be required to disclose their identity until the taxpayer registers with the state and the voluntary disclosure agreement is executed.
 
  • In addition, the application can be withdrawn with respect to any participating state at any time prior to execution of the voluntary disclosure agreement.      
 
  • The MTC’s “Online Marketplace Seller Voluntary Disclosure Initiative” is a true tax amnesty.  As a result, the payment of back tax and interest for prior “lookback” periods is not required (with the exception of Wisconsin, which will require the payment of back tax liabilities and interest for the following “lookback” periods:  sales/use tax, commencing January 1, 2015 and income/franchise tax, tax years 2015 and 2016.)  
 
For more information, please contact one of the following practice leaders: 

  West:     Southeast: Rocky Cummings
Tax Partner
      Scott Smith
Tax Managing Director
  Paul McGovern
Tax Managing Director
      Tony Manners
Tax Managing Director
      Northeast:     Southwest: Janet Bernier
Tax Principal
      Tom Smith
Tax Partner
  Matthew Dyment
Tax Principal
      Gene Heatly
Tax Managing Director
      Central:     Atlantic: Nick Boegel
Tax Managing Director
      Jonathan Liss
Tax Managing Director
  Joe Carr
Tax Partner
      Jeremy Migliara
Tax Managing Director
  Mariano Sori
Tax Partner
      Angela Acosta
Tax Managing Director
  Richard Spengler
Tax Managing Director      
 

State and Local Tax Alert - August 2017

Fri, 08/25/2017 - 12:00am
Common Pitfalls in the Administration of Sales and Use Tax In the increasingly complex world of sales and use taxes, there are many traps for the unwary and the unprepared.
1) NOT MONITORING NEXUS DEVELOPMENTS  Nexus is the trigger for your company’s state tax compliance obligations. Whether developments in a company’s business activities or developments in nexus laws and policies, many companies often fail to monitor nexus.  Recently, a wave of new state economic nexus provisions have entered the nexus arena and we expect more states to follow in the near future. Are you ready? Through a nexus study, BDO can help you navigate traditional physical presence nexus, affiliate nexus, “click-through” nexus, and the recent, controversial wave of economic nexus. If on-line Marketplace sales and related fulfillment activities is causing your nexus, act now and eliminate all historical liabilities in several states through a special disclosure program that ends on October 17, 2017.
  Sales and Use Tax Nexus Decision Tree

2) AUDIT MANAGEMENT (OR MIS-MANAGEMENT)  Is the audit managing you or are you managing the audit?  Effective planning and development and execution of an audit program creates efficiency during the audit process, lowers assessment risk and improves prospective compliance. Leverage the depth of BDO’s experience to assist you with planning for and defending sales and use tax audits and developing an audit program for your sales and use tax function.
3) FAILING TO RECOVER USE TAX OVERPAYMENTS  Businesses are generally aware of their use tax obligations when vendors fail to collect sales tax, but many companies fail to take full advantage of available exemptions or request refunds within the statute of limitations.  BDO can perform a Refund Review (or “Reverse Audit”) of your company’s sales and use tax records, focusing on situations in which you overpaid tax and file refund claims to recover the taxes.  Such review can be performed at any time, but is particularly appropriate at the time of a state audit.
4) ASSESSMENT OF SALES AND USE TAX PROCESS & CONTROLS Have you taken BDO’s Sales and Use Tax Process and Controls Survey and measured your company’s process and controls against best practices (access the survey below)? 
  Take the Survey
Still unsure how your sales and use tax function measures up to compliance obligations?  With a one to two day Diagnostic Review, BDO can review your sales and use tax process and controls and provide findings and recommendations to guide your next steps toward ensuring substantive compliance.
  5) NEW DEVELOPMENTS! USE TAX NOTICE AND REPORTING REQUIREMENTS  Specifically, the failure to comply with new notice and reporting requirements, i.e., invoice notices and annual reporting to customers and or taxing authorities. For out-of-state retailers that do not have an obligation to collect sales or use tax, several states are introducing and enacting use tax notice and or reporting requirements upon the retailer. Some of these provisions are imposing per transaction fines for failure to comply.  Some of these provisions became effective on July 1, 2017.  BDO can help you understand and meet your obligations in the states in which you do business.  
For more information, please contact:
  Bill Jozaitis
Managing Director   Tom Smith
Partner   Steve Oldroyd
Managing Director   Dennis Sweeney
Managing Director  

State and Local Tax Alert - August 2017

Fri, 08/25/2017 - 12:00am
Is Illinois The New Delaware After Adopting Revised Uniform Unclaimed Property Act?
Background The Uniform Law Commission (“ULC”) finalized the Revised Uniform Unclaimed Property Act (“RUUPA”) on November 16, 2016.  The RUUPA serves as a model Act that states can either adopt in whole or in part within their statutes.  Accordingly, a handful of states have begun to enact statutes that adopt in whole or in part provisions contained in RUUPA (e.g., Delaware, Tennessee, and Utah).  While Illinois enacted SB 9, which adopts various major Illinois tax changes (See the BDO Alert), it also adopts the RUUPA for which funds exceeding $2.5M are generally required to be deposited into state pension fund on April 15 and October 15 each year.  Accordingly, SB 9 provides sweeping changes to Illinois unclaimed property reporting and administration, including: changes to record retention requirements, statute of limitations, anti-limitation provision, extrapolation, B2B exemption and other exemptions, dormancy periods, remediation guidelines, transitional provision, contingency fees, administration review and remedies, and penalties and interest. 
 
Records Retention

The Illinois RUUPA requires a holder that files an Illinois unclaimed property report to retain records pertaining to the presumed abandoned property reported for a period of 10 years after the later of the date the report was filed or the last date a timely report was due to be filed, unless a shorter period is provided by rule of the administrator. The RUUPA also sets forth the content requirements that the records must satisfy.
 
Statute of Limitations
 
The existing statute of limitations provisions bar the state from making assessments on holders more than five years after filing a report or nine years following the applicable dormancy period (e.g., generally five years for most property types equating to 14 years statute of limitations period).  While not exactly the same period as under the standard RUUPA (e.g., five-year statute of limitations after the holder filed a non-fraudulent report or otherwise a 10-year statute of limitations after the duty arose), it is close. 
 
Notwithstanding, the SB 9 in pertinent part here essentially enacts a phantom statute of limitations provision as follows:
 
“…(b) An action may not be enforced by the administrator more than 10 years after the holder specifically identified the property in a report filed or gave express notice to the administrator of a dispute regarding the property...” 
 
See generally Article 15, Sec. 15-610(b).  As written, the new statute of limitations provision applies only to property specifically identified by the holder in the report.  Thus, presumably there is no statute of limitation provision for (a) any undocumented property types in an annual report or (b) items that are determined later to have been reportable in a property type class but were not filed as part of that property type class on the original annual report.  Stated differently, filing a report does not start the statute of limitations period.  Given that the provision is limited to property reported, there is no statute of limitations protection for holders in Illinois prospectively. 
 
New Anti-Limitation Provisions
 
Under existing Illinois escheat law, there is no anti-limitation provision.  SB 9 adopts this provision in pertinent part as follows:
 
“…(a) Expiration, before, on, or after the effective date of this Act, of a period of limitation on an owner's right to receive or recover property, whether specified by contract, statute, or court order, does not prevent the property from being presumed abandoned or affect the duty of a holder under this Act to file a report or pay or deliver property to the Administrator…”
 
See generally Article 15, Sec. 15-610(a).  While these types of statutes are largely aimed at addressing cases where escheat laws are specifically circumvented as sole purpose, Illinois RUUPA doesn’t distinguish between cases of circumvention of escheat laws and normal business practice.  The interpretation of this distinction will be key for many holders who incorporate any type of “forfeiture clauses” in their customer contracts relating to accounts receivable credits or with vendors or other parties where their rights are cut off after certain time period (e.g., stale dated check 180 days).
 
Use of Estimation Methods
 
The Illinois RUUPA, like old law, allows for estimation if a holder fails to retain the records for the period or in the form and content required, then the State Treasurer in an audit examination is permitted to use a “reasonable method of estimation . . . including extrapolation and use of statistical sampling.”  What is new and important to note is that a payment of an Illinois unclaimed property liability based on an estimation is treated as a penalty for failure to maintain records (extrapolation penalty).  Further, as such, the payment does not relieve a holder from an obligation to report and deliver unclaimed property to the state of the holder’s domicile (i.e., state of incorporation or organization).[1]
 
However, if a holder has filed Illinois unclaimed property reports and has retained the records required to be retained, then an audit examination may not be based on the use of an estimate, unless the holder consents to the use of an estimate.  While comforting at first glance, this may only serve to create a multi-state exposure based on un-researchable periods using actual records (e.g., list of outstanding checks, voids, credits, etc.) held to satisfy Illinois record retention law.   Given that Illinois, like so many other states, use third-party auditors to conduct their audits, these firms have contracts with multiple states whom routinely join audits initiated by a demand state.[2]  Does the holder community find itself in another game of “gotcha” and if so, how can this stand?  Can Illinois impose a retroactive penalty on a holder even though the old law had a record retention and estimation statute on the books? [3]
 
Business-to-Business Exemption Eliminated
 
Under prior law that, but for the “transitional provision” that is technically in effect through December 31, 2017, property in the custody of a holder that arose from a business transaction that the holder had with another business was not subject to escheat to Illinois.  The Illinois RUUPA eliminates the “B2B exemption.”  This generally means that all transactions between the holder (a business association) and its vendor or customer that are also business associations are subject to escheatment unless the transactions are remediated in accordance with Illinois statutes, regulations and any administrative guidance or otherwise preempted by law.[4]
 
This provision is problematic once coupled with the transitional provision discussed below, as it could create an avenue to audit previously filed Illinois reports and/or voluntary disclosure agreements that took B2B positions under the old law.[5]
 
Other Exemptions - Gift Cards, Stored Value Cards, Loyalty Cards, and Merchandise Credits
 
The Illinois RUUPA specifically exempts from escheatment (a) game-related digital content, (b) loyalty cards and (c) gift cards.[6]  Gift cards are defined to include “store value card” that is (i) issued on a prepaid basis in a specified amount, (ii) does not expire, (iii) is not subject to dormancy, inactivity, or service fee, (iv) is decreased in value only by redemption merchandise, goods or services, and (v) cannot be redeemed for money.  Thus the exemption for gift cards appears to include “closed loop” gift cards but not “open loop” gift cards.  It should also be noted that holders are required to honor stored-value cards indefinitely upon escheatment and to seek reimbursement from the state following redemption.  Gift cards are also defined to include “prepaid commercial mobile radio service” as defined in 47 C.F.R.  20.3 as amended. 
 
In store merchandise credits, generally meaning money or a credit owed to a customer as a result of a retail business transaction are also exempt under the Illinois RUUPA.[7]
 
Dormancy Periods
 
Generally, the Illinois RUUPA changes the dormancy periods from five years to three years for most property types.  The most common property type dormancy periods are summarized below:
  Property Type Dormancy Period
 
  Comments A/R Credit 3   Payroll 1   A/P 3   Securities - See below for further discussion Traveler’s Check 15   Money Order 7   State or municipal, bearer or original issue discount bond 3 Years after the earliest date of maturity or is called or the obligation to pay the principal arises Debt of a business association 3 Years after obligation to pay arises Demand, savings or time deposit 3 Years after the later of maturity or the date of last indication of interest in property by the apparent owner, except for a deposit that is automatically renewable, or after initial date of maturity unless apparent owner consented in a record on file with the holder to renewal at or about the time of renewal Safe Deposit Box 5 Years after the expiration of the lease or rental period of the box Deposit or refund owed by a utility 1 Year after the deposit or refund becomes payable All other property 3 After the owner first has a right to demand the property or the obligation to pay or distribute the property arises  
Securities under the new law generally will incorporate an RPO and inactivity standard.  Securities are now presumed abandoned at the earliest of  three years after the first RPO (i.e., returned mail undelivered) or five years after the owner’s last indication of interest in the security (i.e., inactivity).  There are two general exceptions to this rule as follows: 
 
  • First, if holder does not send annual communications to apparent owner by mail to confirm his or her interest in security, then holder must send e-mail within three years after last indication of interest in property.  If holder doesn’t have apparent owner email, receives notification that e-mail not received by apparent owner or no response to e-mail within 30 days after it was sent, then security is presumed abandoned five years after the owner’s last indication of interest in the security (i.e., inactivity). 
  • Second, a holder that receives notification that the owner of a security has died is required to attempt to confirm whether the owner is in fact deceased.  If death is confirmed, the security is presumed abandoned two years after the date of the owner’s death.
 
Indication of an apparent owner interest can generally include: (a) written record by apparent owner to holder or its agent, (b) verbal record contemporaneously memorialized by holder or agent, (c) check presentment, dividend, interest payment or other distribution, (d) account activity, (e) deposit or withdrawal, and (f) premium payment on insurance policy. 
 
Remediation Guidelines & 90 Day Void Waiver
 
The new law provides guidance with respect to remediation that could resolve items included in populations used in a voluntary disclosure, audit or annual compliance filings.  The holder must establish by a preponderance of the evidence that a check, draft, or similar instrument was:
 
  • issued as an unaccepted offer in settlement of an unliquidated amount;
  • issued but later was replaced with another instrument because the earlier instrument was lost or contained an error that was corrected;
  • issued to a party affiliated with the issuer;
  • paid, satisfied, or discharged;
  • issued in error;
  • issued without consideration;
  • issued but there was a failure of consideration;
  • voided not later than 90 days after issuance for a valid business reason set forth in a contemporaneous record; or
  • issued but not delivered to the third-party payee.
 
Moreover, a holder may present evidence of a course of dealing between the holder and apparent owner as a defense against an assertion that a particular item is abandoned property. 
 
The “Transitional Provision”
 
While the Illinois RUUPA is effective January 1, 2018, a “transitional provision” effectively makes the new property reporting requirements enacted as part of the RUUPA retroactive for a five-year period.  Section 15-1503(a) of the Illinois RUUPA provides, as follows:
 
An initial report filed under this Act for property that was not required to be reported before the effective date of this Act, but that is required to be reported under this Act, must include all items of property that would have been presumed abandoned during the 5-year period preceding the effective date of this Act as if this Act had been in effect during that period.
 
As a result, for their first Illinois unclaimed property report due after the January 1, 2018, effective date, it appears that holders may have to apply the transitional provision to a look back period at least eight to ten years given general three-year and five-year dormancy periods coupled with the five-year transition period.  This is very important for holders to monitor as could have significant impact on their compliance responsibilities.
 
Use of Third Party Auditors and Contingent Fees
 
The Illinois RUUPA expressly authorizes the State Treasurer to contact with third parties to perform audit examinations.  The auditor may be paid on fixed fee, hourly fee or contingent fee basis.  If a contingent fee arrangement is agreed to, the maximum contingent fee charged by the third party cannot exceed 15 percent “of the amount or value of property paid or delivered as a result of the examination.”
 
Administrative Procedures
 
The Illinois RUUPA enacts administrative appeals procedures for challenging unclaimed property assessments.  First, a holder is provided 30 days after the holder’s receipt of a notice of determination of a liability to pay to request an informal conference with the State Treasurer.  Interest and penalties continue to accrue during the pendency of the informal conference.  If the holder wants to appeal an informal conference decision (or does not request an informal conference), the holder has 90 days after receiving notice of the State Treasurer’s notice of decision (if an informal conference was requested and decided) or notice of determination of liability to pay (if the holder did not request an informal conference) to appeal the determination.  The appeal is treated as a “contested case” under the Illinois Administrative Procedure Act.  A final decision in an administrative appeal proceeding is subject to judicial review.   

Penalties and Interest
 
IL RUUPA enacts various penalties and interest for failure to file, pay, deliver; evasion; and fraud as summarized below:

Given the summary above, and that the extrapolation penalty is for failure to hold records, it is unclear if such penalty would be waived in a voluntary disclosure setting.  This could be a huge benefit of the voluntary disclosure program if it does in fact waive this penalty for holders. 
 
  Type of Interest/Penalty Details Discretionary Waiver Citation Failure to report, pay or deliver property interest 1% per month on the amount or value of the property – calculated from the date the property should have been reported Yes – if holder acted in good faith and without negligence Section 15-1204 (a) (interest)
Section 15-1206 (a) waive Failure to report, pay or deliver property penalty $200 per day for each day the failure occurred, maximum of $5,000 Yes – if holder acted in good faith and without negligence Section 15-1204 (b) (interest)
Section 15-1206 (a) waive Failure to retain required records penalty State is permitted to use “reasonable method of estimation” as penalty No Section 15-1006 (penalty) Evasion of unclaimed property law penalty $1,000 per day obligation is evaded or duty not performed, maximum of $25,000 plus 25% of property that should have been reported No Section 15-1205 (a) (penalty) Fraudulent filing penalty $1,000 per day from date of original report until corrected, maximum of $25,000 plus 25% of property that should have been reported or was under reported No Section 15-1205 (b) (penalty)































 
BDO Insights  
  • Holders of unclaimed property should make note of the Illinois RUUPA and prepare for its January 1, 2018, effective date.  The Act’s “transitional provision,” however, effectively gives the RUUPA a five-year period of retroactivity.  This will have an impact on previously filed returns, and IL voluntary disclosure agreements that most likely will not protect holders in this context as the agreements specifically allow the state to audit the holder post VDA payment. 
 
  • The Illinois RUUPA’s “Transitional provision” could have significant consequences, especially for holders who previously relied on the business-to-business exemption or that have not retained the records in the form and content required by the RUUPA for the entire five-year period of retroactivity. 
 
  • Holders should evaluate their records and record retention policies in light of the new Illinois RUUPA record retention and statute of limitation provisions and prepare accordingly.  Holders that maintain records for the full Illinois look-back period may avoid the extrapolation penalty only to be whipsawed by reporting un-researchable items to other states represented by the third-party auditing firm.  Holders should evaluate if they maintain complete and researchable records as part of their overall compliance with Illinois and other states.
 
  • Holders should adopt policies and procedures around unclaimed property that tie into new annual compliance requirements including change in dormancy periods, records to be included in reports, accounting for voids appropriately, etc. 
 
  • Holders that are currently under unclaimed property audit by Illinois should evaluate what these provisions mean to the audit and evaluate settling the audit with the state prior to the January 1, 2018, effective date of the Act.  Any settlement should include a legal agreement through legal counsel that would provide the holder with appropriate protection for all historical periods so that the new law would not impact their filing if possible.
 
  • Illinois is expected to adopt regulations regarding the examination process, etc.  Holders should comment on these regulations when provided the opportunity in order to help drive clarity and transparency on audit expectation and general compliance process.  This at a minimum should include requests for how the extrapolation penalty will be calculated among other matters.
 
For more information, please contact one of the following practice leaders: 
  West:     Southeast: Rocky Cummings
Tax Partner
      Scott Smith
Tax Managing Director
  Paul McGovern
Tax Managing Director
      Tony Manners
Tax Managing Director
      Northeast:     Southwest:

Janet Bernier
Tax Principal

   

Tom Smith
Tax Partner

Matthew Dyment
Tax Principal

   

Gene Heatly
Tax Managing Director

    Central:     Atlantic:

Nick Boegel
Tax Managing Director

   

Jonathan Liss
Tax Managing Director

Joe Carr
Tax Partner

   

Jeremy Migliara
Tax Managing Director

Mariano Sori
Tax Partner

   

Angela Acosta
Tax Managing Director

Richard Spengler
Tax Managing Director

          [1] See generally, Temple-Inland, Inc. v. Cook, Civ. No. 14-654-GMS (D. Del. June 28, 2016) (summary judgment rulings where state of Delaware was held to have violated plaintiff’s due process rights for various reasons, estimation for liability of estimated property owed (not a penalty) discussed, etc.).  [2] See generally Article 15, Sec. 15-1004(3),(4) (providing generally records used in Illinois examination may be shared with other states, federal government and foreign country on joint exams or to other states unclaimed property administrators for “…circumstances equivalent to circumstances described in this Article…”) [3] See generally, 765 ILCS 1025/11.5 (Section scheduled to be repealed on January 1, 2018) Sec. 11.5. Estimation techniques and record retention. (a) If a holder has failed to retain records as required by this Act or if the records retained are shown to be insufficient to conduct and conclude an examination, the Office of the State Treasurer may use estimation techniques that conform to either Generally Accepted Auditing Standards or Generally Accepted Accounting Principles to determine the amount of unclaimed property.  In the conduct of an examination, the State shall not request of a holder any records that relate only to property that under subsection (a) or (b) of Section 10.5 is not subject to this Act. 
 
See generally also, 765 ILCS 1025 /11(h)(2) ((Section scheduled to be repealed on January 1, 2018)  (generally providing “…In the case of all other holders commencing on the effective date of this amendatory Act of 1993, property records for the period required for presumptive abandonment plus the 9 years immediately preceding the beginning of that period shall be retained for 5 years after the property was reportable.”)
  [4] See generally, Sec 15-102(4) definition of “business association.” [5] See generally, Illinois Unclaimed Property Voluntary Disclosure Agreement (2017) provision #5 providing (“…The Holder and the Treasurer agree that the Treasurer maintains the right to perform an examination of the Holder’s books and records to determine the Holder’s unclaimed property obligations for fourteen (14) years to present (the “Examination Period”), or date of incorporation, whichever is older…”) [6] See generally, Article 15, Sec. 15-102 (14) “Loyalty Card” (means a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate, or promotional program which may be used or redeemed only to obtain goods or services or a discount on goods or services.  The term does not include a record that may be redeemed for money or otherwise monetized by the issuer.) [7] See generally, Article 15 Sec. 15-201(7).

International Tax Alert - August 2017

Mon, 08/21/2017 - 12:00am
Notice 2017-42 Delays Effective/Applicability Dates in Dividend Equivalent Rules 
Summary Notice 2017-42 (the “Notice”) provides taxpayers with additional guidance for complying with final and temporary regulations under Sections 871(m), 1441, 1461, and 1473 of the Internal Revenue Code (collectively referred to as the “Section 871(m) regulations”) in calendar year 2018 and 2019. The Department of the Treasury and the Internal Revenue Service (collectively, “Treasury”) announced in the Notice their intention to amend the Section 871(m) regulations to delay the effective/applicability date of certain rules in those final regulations and also extend the phase-in period provided in Notice 2016-76 for certain provisions of the Section 871(m) regulations.
 
The anti-abuse rule provided in Treas. Reg. §1.871-15(o) will continue to apply during the phase-in years described in the Notice. As a result, a transaction that would not otherwise be treated as a Section 871(m) transaction (including as a result of the Notice) may be a Section 871(m) transaction under Treas. Reg. §1.871-15(o).
 
Consistent with Executive Order 13777 (82 FR 12285), the Notice states that Treasury continues to evaluate the Section 871(m) regulations and consider possible agency actions that may reduce unnecessary burdens imposed on regulations.
  Details Section 871(m) treats dividend equivalents as U.S.-source dividends generally subject to withholding for Chapter 3 and 4 purposes. Over the past several years, Treasury issued final and temporary Treasury Regulations (TD 9734 and TD 9815), a Notice (Notice 2016-76), and a Revenue Procedure (Rev. Proc. 2017-15) providing guidance for taxpayers and withholding agents to comply with Section 871(m). For a discussion of Notice 2016-76, see our January 2017 Tax Alert.
 
The Notice delays the applicability date for certain rules in the Section 871(m) regulations and also extends the phase-in period provided in Notice 2016-76 for certain provisions of the Section 871(m) regulations.
 
In particular, the Notice states that:
  • Treasury intends to revise the effective/applicability date for Treas. Reg. §1.871-15(d)(2) and (e) to provide that these rules will not apply to any payment made with respect to any non-delta-one transaction issued before January 1, 2019;
  • The IRS will take into account the extent to which the taxpayer or withholding agent made a good faith effort to comply with the Section 871(m) regulations in enforcing the Section 871(m) regulations for (1) any delta-one transaction in calendar year 2017 and 2018, and (2) any non-delta-one transaction that is a Section 871(m) transaction pursuant to Treas. Reg. §1.871-15(d)(2) or (e) in calendar year 2019;
  • For purposes of the IRS’s enforcement and administration of the qualified derivatives dealer (“QDD”) rules in the Section 871(m) regulations and the relevant provisions of the final qualified intermediary withholding agreement (the “2017 QI Agreement”), the Notice extends through calendar year 2018 the period during which the IRS will take into account the extent to which the QDD made a good faith effort to comply with Section 871(m) regulations and the relevant provisions of the 2017 QI Agreement;
  • The IRS intends to revise the 2017 QI Agreement to provide that a QDD will be considered to satisfy the obligations that apply specifically to a QDD under that agreement for calendar year 2018 provided that the QDD makes a good faith effort to comply with the relevant provisions of the 2017 QI Agreement;
  • The period during which the simplified standard for combined transactions provided in Notice 2016-76 for withholding agents to determine whether transactions entered into are combined transactions is extended to include calendar year 2018. Transactions that are entered into in calendar year 2017 and 2018 that are combined under this simplified standard will continue to be treated as combined transactions for future years and will not cease to be combined transactions as a result of applying Treas. Reg. §1.871-15(n) or disposing of less than all of the potential Section 871(m) transactions that are combined under this rule. Transactions that are entered into in calendar year 2017 and 2018 that are not combined under this simplified standard will not become combined transactions as a result of applying Treas. Reg. §1.871-15(n) to these transactions in future years, unless a reissuance or other event causes the transactions to be retested to determine whether they are Section 871(m) transactions.[1] This simplified standard applies only to withholding agents, and does not apply to taxpayers that are long parties to potential Section 871(m) transactions;
  • Treasury intends to amend Treas. Reg. §§ 1.871-15(q)(1) and (r)(3), and 1.1441-1(b)(4)(xxii)(C) to provide that a QDD will not be subject to tax on dividends and dividend equivalents received in calendar year 2017 and 2018 in its equity derivatives dealer capacity or withholding on dividends (including deemed dividends);
  • A QDD will be required to compute its Section 871(m) amount using the net delta approach provided in Section 4.01(1) of Rev. Proc. 2017-15 beginning in calendar year 2019. A QDD will remain liable for tax under Section 881(a)(1) on dividends and dividend equivalents that it receives in any capacity other than as an equity derivatives dealer, and on any other U.S.-source FDAP payments that it receives (whether or not in its equity derivatives dealer capacity). In addition, a QDD is responsible for withholding on dividend equivalents it pays to a foreign person on a Section 871(m) transaction, whether acting in its capacity as an equity derivative dealer or otherwise; and
  • A QDD is not required to perform a periodic review with respect to its QDD activities for calendar year 2017 and 2018. Note that a QDD must use the same year for the periodic review of its QI activities and its QDD activities. A QI that is a QDD must choose 2019 or a later year within its periodic review period in which to perform its periodic review unless its applicable periodic review period ends in 2018 or an earlier year.
Before the promulgation of the amendments to the Section 871(m) regulations and the 2017 QI Agreement, taxpayers may rely on the provisions of the Notice regarding the proposed amendments discussed above. Withholding agents may rely on the simplified standard for determining whether transactions are combined transactions as described above.
  BDO Insights The delay in the applicability/effective date for certain rules in the Section 871(m) regulations and extension of the phase-in period should provide valuable time to dealers, issuers and other withholding agents to test and further develop their withholding and reporting systems needed to comply with the Section 871(m) regulations.
 
After the issuance of the Notice, it should be noted that the U.S. Chamber of Commerce requested that the regulations under Section 871(m), along with certain other controversial regulations, be included for review under President Trump’s Executive Order 13789, a directive designed to reduce tax regulatory burdens. If these regulations are identified for review, they could be modified or, as recommended by the U.S. Chamber of Commerce, withdrawn back to the in-scope definition adopted by the September 2015 final regulations in TD 9734.  
For more information, please contact one of the following practice leaders:
  Joe Calianno
Partner and International Tax Technical Practice Leader
National Tax Office       Monika Loving
Partner and International Tax Practice Leader
    Scott Hendon
Partner    Annie Lee
Partner   Chip Morgan
Partner   Robert Pedersen
Partner   William F. Roth III
Partner
National Tax Office   Jerry Seade
Principal
    Sean Dokko
Senior Manager       [1] See, Treas. Reg. §1.871-15(g)(2) (providing that the delta of a potential Section 871(m) transaction generally is determined on the earlier of when the transaction is (1) priced or (2) reissued); see, also Treas. Reg. §1.871-15(a)(6) (defining the term “issue” to include “an issuance as a result of a deemed exchange pursuant to Section 1001”).

State and Local Tax Alert - August 2017

Tue, 08/15/2017 - 12:00am
States’ 2017 Legislation Sessions and Administrative Actions Show That Spread of Economic Nexus for Sales and Use Tax and Other Provisions Aimed At Remote Sellers Are Not Slowing Down
Summary Despite the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, in which the Court held that a remote seller must have a physical presence in a state before that state can impose a sales and use tax collection obligation, states continued their attempts to impose “economic nexus” for sales and use tax purposes during their 2017 legislative sessions.  A “remote seller” is an Internet or other seller that does not have a physical presence in a state.  Further, after Colorado’s 2016 victory in Direct Marketing Association v. Brohl that sustained the state’s use tax reporting and notice statute for remote sellers, a number of states also enacted similar legislation in 2017.  Lastly, a new sales and use tax nexus measure appeared in 2017 – “marketplace provider” nexus.  While a number of the economic nexus provisions are currently being challenged in state courts, including in Alabama, South Dakota, and Tennessee, states are aggressively aiming for remote sellers.  
 
In this SALT Alert, we provide a survey of these 2017 sales and use tax nexus and other developments targeting remote sellers.
  Details
Economic Nexus for Sales and Use Taxes Continues to Spread in 2017
 
Following the lead of Alabama, South Dakota, Tennessee, and Vermont, which enacted or issued sales and use tax economic nexus statutes or regulations in 2016, the following is a general survey of similar state developments that occurred in 2017.

Connecticut:
Connecticut law defines a “retailer” to include remote sellers that are engaged in regular and systematic solicitation of sales to Connecticut customers, including via advertising and Internet or catalog solicitation and distribution.  On March 28, 2017, the Commissioner of the Connecticut Department of Revenue Services announced that the Department would be instituting increased sales and use tax collection targeting and audit efforts aimed at remote sellers with a “substantial economic presence” in Connecticut.

Indiana:
Indiana H.B. 1129 establishes a sales and use tax economic nexus provision for retail merchants that do not have physical presence in Indiana.  The new provision requires the collection and remittance of sales tax for a remote seller that makes at least $100,000 of sales to or has at least 200 transactions with Indiana customers.  The law is effective as of July 1, 2017.

Maine:
Effective October 1, 2017, L.D. 1405 (S.P. 483), requires the collection and remittance of Maine sales and use taxes for out-of-state sellers of tangible personal property, other than taxable products transferred electronically (e.g., software or digital products), or taxable services for delivery into Maine if:
 
(1) the seller’s gross revenue from Maine customers exceeds $100,000 in the previous calendar year or the current calendar year; or
(2) the seller engaged in at least 200 separate transactions with Maine customers in the previous calendar year or the current calendar year.
 
The new law allows Maine to bring a declaratory judgement action in state court to establish whether the tax collection obligation is valid under state and federal law.

Massachusetts:
In April, the Massachusetts Department of Revenue issued Directive 17-1, which required Internet sellers to collect sales and use tax, as of July 1, 2017, if the Internet seller has more than $500,000 in sales to Massachusetts customers and 100 or more transactions with Massachusetts customers during the previous 12 months. The Directive was quickly challenged in state court.  On June 28, 2017, the Department issued Directive 17-2, which revoked Directive 17-1.  However, also on June 28, the Department issued proposed regulations that not only include Directive 17-1’s economic nexus provision, but also add a provision that “cookies” or software downloaded onto a Massachusetts customer’s computer, tablet, or device constitutes a physical presence in Massachusetts for an Internet seller.  The proposed regulation is set for public hearing on August 24. 

North Dakota:
In S.B. 2298, enacted on April 7, 2017, North Dakota established a $100,000 or 200 separate transactions sales tax economic nexus threshold for remote sellers.  However, the statute only becomes effective on the date the U.S. Supreme Court overturns Quill.

Ohio:
Pursuant to Ohio H.B. 49, beginning January 1, 2018, a seller is deemed to have substantial nexus with Ohio if it uses in-state software to sell or lease tangible personal property or services and has gross receipts of more than $500,000 in the current or preceding calendar year from the sales of tangible personal property to Ohio customers.  Additionally, H.B. 49 provides that a remote seller has substantial nexus if it enters into an agreement to provide a content distribution network in Ohio to accelerate or enhance the delivery of the seller’s web site to consumers, provided the seller meets the $500,000 gross receipts threshold.  Although the Ohio Department of Taxation has denied it, there are concerns that Ohio’s statute could impose what is being termed “cookie nexus.”

Rhode Island:
Most recently, on August 3, 2017, Rhode Island enacted sales and use tax economic nexus for “non-collecting retailers,” which are “remote sellers,” “marketplace providers,” and “referrers” pursuant to H.B. 5175.  The legislation broadly defines a “non-collecting retailer” to include a seller that, in addition to not having a physical presence in Rhode Island, has software or “cookies” downloaded onto a Rhode Island customer’s computers or devices, as well as a retailer that uses a “retail sale facilitator” or “referrer” or that has an affiliate in Rhode Island.  Beginning January 1, 2018, a “remote seller,” as defined under the statute, is required to collect Rhode Island sales or use taxes if (a) the seller had at least $100,000 of revenues from Rhode Island customers in the prior calendar year from sales of tangible personal property, electronic delivery (software and digital products), or services to Rhode Island customers, or (b) engaged in 200 or more such transactions with Rhode Island customers. 
 
Alternatively, a “remote seller” can use the use tax notice and reporting option in lieu of collecting tax (see below).

South Dakota:
South Dakota was one of the first states to enact economic nexus for remote sellers.  A remote seller is required to collect sales and use taxes based on a $100,000 or 200 separate transactions economic nexus threshold.  The effective date of the legislation was stayed pending resolution of a declaratory judgment action filed in a South Dakota state court, South Dakota v. Wayfair, Inc.  Although a trial court held in favor of the remote sellers, the South Dakota Supreme Court recently accepted an appeal of the case and will hear oral arguments on August 29, 2017.

Tennessee:
Effective January 1, 2017, the Tennessee Department of Revenue issued “Rule 129” that imposed economic nexus on remote sellers having sales to Tennessee customers exceeding $500,000 for the prior 12 months, beginning July 1, 2017 (registration required by March 1, 2017),  to TN consumers in the last 12 months.  On May 10, 2017, however, H.B. 261 was enacted, which prohibits enforcement of Rule 129 against Internet sellers.  Further, on March 30, 2017, a lawsuit challenging Rule 129 was filed in a Tennessee Chancery Court, American Catalog Mailers Ass’n v. Tennessee Department of Revenue.  The court has issued a temporary injunction against enforcement of Rule 129.  While this agreed order is in effect, Rule 129 cannot be enforced by the Department of Revenue.

Wyoming:
Wyoming H.B. 19 establishes a sales and use taxes economic nexus provision for remote sellers having at least $100,000 of sales to or at least 200 transactions with Wyoming customers.  The law is effective on July 1, 2017.  The new law allows Wyoming to bring a declaratory judgement action in state court to establish whether the tax collection obligation is valid under state and federal law. 
 
“Marketplace Provider Nexus” Appears in 2017

Minnesota:
On May 30, 2017, H.F. 1 was enacted and expands the definition of a “retailer maintaining a place of business in this state” to include having a representative such as a “marketplace provider” operating in Minnesota.   The bill also expands the definition of a retailer’s “affiliate entity.”
 
“Marketplace providers” must collect and remit Minnesota sales and use taxes on sales facilitated on behalf of a remote seller, unless specific exemptions are met.  The new legislation, however, does not become effective until the earlier of July 1, 2019, or the date that Quill is overturned by the U.S. Supreme Court.

Washington:
Beginning January 1, 2018, remote sellers with gross receipts sourced to Washington of at least $10,000 must either (1) collect and remit sales or use tax, or (2) comply with notice and reporting requirements (see below).  The definition of “seller” has been expanded to include “marketplace facilitators” and “referrers.”
 
Use Tax Notice and Reporting Statutes Expand in 2017
 
Like economic nexus for sales and use taxes, use tax notice and reporting requirements were popular with state legislatures in 2017.  These developments expand on the imposition of such requirements following the lead of statutes in Colorado, Oklahoma, and Vermont that were enacted prior to 2017.

Alabama:
Effective July 1, 2017, S.B. 86 authorizes the Alabama Department of Revenue, “within constitutional limitations,” to require remote sellers to provide use tax notification to their Alabama customers and file information of such sales with the Department.

Colorado:
Beginning July 1, 2017, Colorado reporting requirements are now in effect, because the litigation from the DMA v. Brohl case has finally been resolved in favor of Colorado.  The Colorado Department of Revenue has promulgated Regulation 39-21-112, which provides guidance to remote sellers that are subject to the notice and reporting requirements.  Additionally, the Department has agreed to waive any penalties for failure to follow the notice and reporting requirements for transactions before July 1, 2017.

Louisiana:
Also effective on July 1, 2017, Louisiana imposes use tax notice and reporting requirements.  Pursuant to H.B. 1121, a remote seller with sales to Louisiana customers of $50,000 or more must notify its customers of their Louisiana use tax reporting obligations at the time of purchase and by January 31 each year.  The remote seller must also file a report with the Louisiana Department of Revenue by March 1 of each year.  In addition, H.B. 601 was enacted on June 16, 2017, to establish the “Louisiana Sales and Use Tax Commission for Remote Sellers.”  The purpose of the commission is to focus on the collection of Louisiana sales and use taxes from remote sellers.

Rhode Island:
In addition to economic nexus, Rhode Island included a use tax notice and reporting option for remote sellers as part of H.B. 5175.  Also effective January 1, 2018, a remote seller will have the option of use tax notice and reporting to customers instead of collecting sales and use taxes.  If a “remote seller” adopts this option, it will be required to (a) post a “conspicuous notice” on its website that Rhode Island use tax is owed on purchases, (b) notify its Rhode Island customer at the time of purchase that use tax is due, (c) notify the customer again by e-mail within 48 hours of the purchase, (d) send a notice by January 31 each year to all Rhode Island purchasers having total cumulative purchases of $100 or more during a calendar year of their obligation to remit Rhode Island use tax, and (e) file an attestation with the Division of Taxation by February 15 each year that it has complied. 

Vermont:
Vermont, like Colorado, had already enacted use tax notice and reporting requirements prior to 2017.  The effective date of Vermont’s legislation was tied to the outcome of the DMA v. Brohl litigation.  Since that litigation concluded in favor of Colorado, effective July 1, 2017, Vermont requires remote sellers to file an additional copy of their required annual information notices for Vermont purchases before January 31 of each year.  The additional required notice is for vendors with over $100,000 of sales to Vermont customers in the previous calendar year.  Vermont can impose a $10 penalty for each notice failure.
 
A remote seller must also send an annual notice to Vermont purchasers who have made purchases of $500 or more in the previous calendar year.  This provision is also effective July 1, 2017.

Washington:
In H.B. 2163, enacted June 30, 2017, a remote retailer is required to either collect and remit Washington sales and use taxes, or to report the purchaser’s information to Washington.  Similar to the economic nexus provision discussed above, this bill applies to sellers with over $10,000 of gross receipts into Washington.
  BDO Insights
  • Although Quill is still good law and has not been overturned by the U.S. Supreme Court, states appear intent on aggressively pushing the envelope of economic nexus and use tax notice obligations on remote sellers.
  • The intent of these states appears to be to force a contested case to the U.S. Supreme Court, much as the so-called “expanded nexus statutes” of the 1980s resulted in the Quill case arriving at the Supreme Court.
  • Remote sellers must remain mindful of these 2017 legislative developments and continue to monitor both state legislatures, departments of revenue, and courts as more states enact these types of measures, and remote sellers challenge the constitutionality of the statutes.
 
For more information, please contact one of the following practice leaders: 

  West:     Southeast: Rocky Cummings
Tax Partner
      Scott Smith
Tax Managing Director
  Paul McGovern
Tax Managing Director
      Tony Manners
Tax Managing Director
      Northeast:     Southwest:

Janet Bernier
Tax Principal

   

Tom Smith
Tax Partner

Matthew Dyment
Tax Principal

   

Gene Heatly
Tax Managing Director

    Central:     Atlantic:

Nick Boegel
Tax Managing Director

   

Jonathan Liss
Tax Managing Director

Joe Carr
Tax Principal

   

Jeremy Migliara
Tax Managing Director

Mariano Sori
Tax Partner

   

Angela Acosta
Tax Managing Director

Richard Spengler
Tax Managing Director

       

R&D Tax Alert - August 2017

Tue, 08/15/2017 - 12:00am
New Guidance for Research Tax Credit Payroll Offset Timing and Procedures
Summary Under the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, eligible small businesses may elect to utilize up to $250,000 of the Research Tax Credits (“RTCs”) they generate under Internal Revenue Code section 41 after 2015 against their portion of payroll taxes, i.e., Federal Insurance Contributions Act (“FICA”) taxes. On July 31, 2017, the Internal Revenue Service (“IRS”) released generic legal advice memo (AM 2017-003) to provide further guidance, addressing timing issues associated with how small start-up businesses can apply the RTCs against their payroll tax liability.
  Details An eligible small business may use the RTC to offset employer Social Security (“ESS”) tax liability the quarter after filing its income tax return with appropriate elections. The credit may be taken to the extent of ESS tax on wages associated with the first payroll payment, and then to the extent of ESS tax associated with succeeding payroll payments in the quarter until the credit is used. If any payroll tax credit amounts remain at the end of the quarter, the excess credit may be carried over and treated as a payroll tax credit for the succeeding quarter.

In determining the amount to enter on the Record of Federal Tax Liability with respect to a payment of wages subject to social security tax, the employer should reduce tax liability by the lesser of the amount of ESS tax on the wages or the available payroll tax credit.

If an employer did not elect the payroll tax credit on their timely filed original, federal tax return and wishes to file an amended return to claim it, they may do so on the employment tax return for the quarter beginning after the filing of the amended income tax return. The income tax return amendment must be filed on or before December 31, 2017, and the credit cannot be applied to an earlier quarter of filing.
 
The guidance also notes that should a taxpayer file an income tax return properly electing the payroll tax credit in one quarter, but in the following quarter mistakenly fail to take account of the payroll tax credit in determining its deposits and in filing Form 941, it should file a Form 941-X for that following quarter with appropriate form attachments claiming the appropriate credit.
 
General Procedure for Adjusting Payroll Tax Liability for RTC
 
Step 1 - Calculate the ESS tax included in the liability to be reported on Form 941 Line 16 for monthly depositors, or Schedule B for semi-weekly depositors, on the first date wages are paid for the quarter.

Step 2 - Compare that amount of ESS tax on the wages paid for the first pay date to the amount of payroll tax credit available for that quarter.

Step 3 - Deposit, in a timely manner, the amount of the reported liability for (a) the amount of ESS tax that cannot be offset by the payroll credit, (b) the amount of employee social security tax, (c) the amount of employer Medicare tax, (d) the amount of employee Medicare tax, and (e) the amount of income tax withholding.

Step 4 - If any credit is being carried over to a proceeding quarter, a Form 8974 will be required for each quarter—or year, if filing an annual employment tax return. Repeat these steps until the credit is fully utilized.
Taxpayers are encouraged to consult with their payroll provider for further instructions.
  BDO Insights With this new guidance, taxpayers now have certainty in electing and utilizing RTCs to offset their payroll tax. Allowing small businesses and startups to benefit from the RTC regardless of whether they pay income taxes frees up private capital and enables investment in resources to facilitate the development of new or improved technologies.
 
For more information, please contact one of the following regional practice leaders: 
  Chris Bard
National Leader Patrick Wallace
Managing Director
Jonathan Forman
Principal
David Wong
Partner
Jim Feeser
Managing Director
Chad Paul
Managing Director
 

Private Client Services Alert - August 2017

Tue, 08/15/2017 - 12:00am
As the summer heats up, so apparently does the frequency of fraudulent calls by individuals posing as IRS or United States Treasury officials.  This observation is based on our experience here at BDO as we recently noticed an increase in client calls to us regarding this type of activity. 

This Client Alert summarizes important information on how to respond in the event you are contacted by someone stating they are from the IRS, United States Treasury or other state or local taxing authority.

If you receive a phone call from someone claiming to be from a taxing authority,
  1. Request the employee’s name, badge number, and call back number, and record the caller ID information (if available).
  2. Do not provide any personal or financial information to the individual.  The IRS does not request financial account numbers, passwords, or other sensitive information.
  3. Do not make any payments.  The IRS or other officials will never demand payments via Western Union, MoneyGram, bank wire transfers, iTunes gift cards, or other gift cards.
  4. If the caller becomes threatening, hang up.
  5. Report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at https://www.treasury.gov/tigta/contact_report_scam.shtml or call the IRS at 1-800-366-4484.
  6. Contact your BDO advisor for additional guidance.

If you receive a suspicious email from someone claiming to be from a taxing authority,
  1. Do not reply to the email.
  2. Do not open any attachments.
  3. Do not click on any links contained in the email.
  4. Forward the email to the IRS at phishing@irs.gov.
  5. Delete the original email.
  6. Contact your BDO advisor for additional guidance.

If you receive a letter, notice, or form via regular mail claiming to be from a taxing authority,
Please send a copy of the letter, notice or form to your BDO advisor for review.  We will then determine the legitimacy of the inquiry and determine what action steps need to be taken. Do not reply with any personal or financial information if you suspect the letter, notice, or form is fraudulent.

Conclusion:  The IRS does not initiate contact with taxpayers by phone or email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels.  These are fraudulent inquiries.  Additional information from the IRS on how to protect your personal information is available on the IRS website www.irs.gov in the “Taxpayer Guide To Identity Theft” and in IRS Publication 4524, “Security Awareness For Taxpayers.” We would be happy to send you copies of these publications upon request.

It is important to remain vigilant in securing and protecting one’s information.  If you ever have any questions, please do not hesitate to contact your BDO advisor.
 
For more information, please contact one of the following regional practice leaders: 
  Joan Holtz
Partner                      Sharon Berman
Atlantic Regional Leader   Jeff Kane
National Managing Partner   Mike Campbell
Regional Practice Leader   Jack Nuckolls
Technical Director   Marty Cass
Regional Practice Leader   Brooke Anderson
Regional Practice Leader   Jerry Guillott
Regional Practice Leader   Chuck Barragato
Regional Practice Leader   Traci Kratish
Managing Director

August Recess and the State of Play on Tax Reform

Mon, 08/14/2017 - 12:00am
Congress is about to adjourn for its 2017 August Recess (except that the Senate will remain in session just long enough to prevent Presidential recess appointments, so I’ll refer to that as “August break”), and tax reform continues to be at the top of the legislative agenda of both the White House and Congress.
 
On July 27, 2017, in the wake of the failure of any legislative changes to health care policy, Speaker Paul Ryan, Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Chair Orrin Hatch, and House Ways and Means Chair Kevin Brady issued a joint statement on tax reform.  While stressing the need for tax reform, the Congressional leaders called on the two tax writing committees to “develop and draft legislation that will result in the first comprehensive tax reform in a generation,” while urging a bipartisan effort.  In their statement, the leaders set aside what they referred to as the “pro-growth benefits of border adjustability,” a controversial proposal that was estimated to raise over $1 trillion. [1]
 
On August 1, 2017, The Hill reported that, upon return from its August break, the Senate will use the budget reconciliation process to move forward a tax package.[2]  Through reconciliation, the Senate would need only a simple majority to pass such legislation; however, the impact of any deficit increase (e.g., tax cuts), would be limited to the 10-year budget window, just as was the case with the Economic Growth and Tax Relief Reconciliation Act of 2001.  To consider a permanent tax cut, under current Senate rules, 60 members would be needed to overcome any filibuster, which means significant democratic support likely would be needed.
 
The procedural options chosen with which to pursue tax legislation may impact not only the duration of any new tax law, but also the substantive provisions of any package.  Consider, for example, the comments of Office of Management and Budget Director Mick Mulvaney on August 2, 2017, during an interview on “Fox & Friends.”  Apparently referring to the contents of a tax bill, Director Mulvaney stated that “a tax bill looks a lot weaker – a lot less likely to get us to 3 percent economic growth – if we’ve got 8, 10, 12, 14 Democrats on it.”[3]  National Economic Council Director Cohn on August 4, 2017, opined that a temporary cut will not suffice.  Director Cohn advocates ensuring that a permanent package be balanced over 10 years so it can be moved through the Senate with a simple majority.[4]
 
In an August 1, 2017, public letter, 45 of the 48 Senate Democrats urged the GOP not to use the budget reconciliation process to pass tax reform on a party line.  (Democratic Senators Donnelly (IN), Heitkamp (ND), and Manchin (WV), who did not sign the letter, are each up for reelection in red states.)  Politico observes that Senate Democrats could be gearing up for a tax bill with temporary 10-year provisions.[5]
 
So where does this leave the current state of play on tax reform?  The Daily Signal finds that July 2017’s strong job growth numbers might add momentum to tax legislation.[6]  While strong economic data can often bolster the outlook of tax legislation, this legislative session has been anything but predictable.  Signs from the House leadership push the tax timetable to end of 2017.  Senate leadership is ready to go into high gear after Labor Day.  While early fall will be the time to watch, it would be little surprise if a watered down tax cut was on the table in early 2018.

Commentary by Todd Simmens, BDO’s National Managing Partner of Tax Risk Management and former staff of Congress’s Joint Committee on Taxation. For more information on tax reform, contact Todd Simmens at tsimmens@bdo.com.   [1] The White House, Office of the Press Secretary, “Joint Statement on Tax Reform,” July 27, 2017. [2] The Hill, “Senate pivots to tax reform fight,” August 1, 2017. [3] The Hill, “OMB director:  Tax reform looks weaker with Democrats on it,” August 2, 2017. [4] Washington Examiner, “Gary Cohn:  Tax reform must be permanent and balanced,” August 4, 2017. [5] Politico, “Senate Democrats reach for message on tax reform,” August 2, 2017. [6] The Daily Signal, “Strong Jobs Report for July Gives Trump Momentum for Tax Reform,” August 4, 2017.

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