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IRS previews qualified plan determination letter changes in new guidance

The Internal Revenue Service (IRS) issued guidance on Jan. 4, 2016, that clarifies certain implications of its previously announced changes to the employee plans determination letter program. These clarifications, announced in Notice 2016-03 (Notice) are necessary to cover open issues raised from prior guidance that in effect shuts down the determination letter program for most amendments to individually designed plans.…

Protecting Americans from Tax Hikes Act of 2015

Leaders in the U.S. Congress reached a deal on Tuesday night to permanently extend many of the 52 provisions of the Internal Revenue Code that expired on Dec. 31, 2014. The full Congress approved the bill on Dec. 18, 2015 and President Obama signed the bill into law. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extends the popular research and development credit, bonus depreciation deduction, and the enhanced Section 179 depreciation deduction. Congress had previously approved an extension of these provisions—colloquially known as “extenders”—in the years 2012 and 2014 by legislating the extenders to apply …

Nonqualified deferred compensation plan guidance from the IRS appears to be on the horizon

Ever since the series finale of “Mad Men,” I’ve been thinking a lot about old commercials. One commercial in particular involves Heinz ketchup. In the ad, someone would turn the bottle upside down, and the ketchup would take an extremely long time to pour out of the bottle and onto a sandwich. An announcer would then say the slogan: “The best things come to those who wait.” Apparently, Heinz wanted us to believe that patience was a virtue—rewarded by its ketchup.

Marketing gimmicks aside, the IRS has taken a similar view (towards patience, not ketchup) with respect to tax guidance …

Bright lines getting blurrier: Recent Ohio Supreme Court decision changes factors for determining who is an Ohio resident for state tax purposes

Cunningham v. Testa, Slip Opinion No. 2015-2744 (July 8, 2015)

Recently, the Supreme Court of Ohio issued an opinion in Cunningham v. Testa which significantly alters the application of a statute for determining non-Ohio domicile for state tax purposes. Prior to the ruling, the statute seemed to set forth two factors which, when verified, would create an irrebuttable presumption of non-residency for state income tax purposes:

  1. too few contact periods; and
  2. an abode outside of Ohio.

Following this ruling, a taxpayer may now be forced to prove sufficient additional facts to show that he would legally be considered domiciled …

Like old soldiers, Employee Plans Determination Letter Program fades away

The Internal Revenue Service (the “IRS”) issued Announcement 2015-19 on July 21, 2015, in which the agency announced that its long-standing and widely used retirement plan determination program for individually designed plans was being significantly curtailed. The IRS indicated that this curtailment, which has been rumored for months and now becomes official, is attributable to a need to more efficiently direct its limited resources in an era of budget cutbacks for the agency.

Under the announcement, and effective as of January 1, 2017, the currently-available staggered 5-year determination letter remedial amendment cycles for individually designed plans generally will be consigned …

IRS issues 409A guidance—need to correct before the year of vesting

The Office of Chief Counsel of the Internal Revenue Service (the “IRS”) recently confirmed that violations of Section 409A of the Internal Revenue Code (the “Code”) could be corrected without penalty in any taxable year before the taxable year in which an arrangement became vested. However, the IRS went on to clarify that the Code would require immediate recognition of taxable income of the amounts deferred and the assessment of an additional 20% tax if taxpayers waited until the taxable year of vesting to correct an error.

In Chief Counsel Advice 201518013 (the “CCA”),the IRS clarified what some perceived to …

Supreme Court says give credit where credit is due

In Comptroller of Treasury of Maryland v. Wynne, 135 U.S. 1787 (2015), the Supreme Court held that Maryland’s tax scheme was unconstitutional because it discouraged interstate commerce in violation of the Dormant Commerce Clause of the U.S. Constitution. Maryland’s tax scheme gave taxpayers credit for taxes paid to other states against the Maryland state income tax, but did not provide a credit against the county income tax. Therefore, out-of-state income was subject to double taxation, a tax burden not imposed on in-state income.

The Dormant Commerce Clause only gives Congress the ability to regulate interstate commerce, not intra

Public companies should review stock option plans to ensure they qualify for exception to $1 million deduction limit

The IRS and Treasury Department recently issued final regulations under Code Section 162(m) that, as the IRS describes it, “clarifies” stock and equity-based compensation plan drafting issues. Of course, whether something represents a clarification or a substantive change lies in the eye of the beholder (particularly if that beholder is a politician or regulator in need of political cover). In this case, however, the IRS generally is correct to describe the final regulations as clarifications. With respect to stock options and SARs, the new regulations reflect what were widely held opinions in the executive compensation community. With respect to restricted …

The health care reform shared responsibility excise tax missing link: employer rights

Back in 2011, I mentioned a missing link in the health care reform Section 4980H shared responsibility employer excise tax scheme. 42 U.S.C. Section 18081 requires the establishment of an appeals and redeterminations process for penalty assessments, and acknowledges a problem with the provision itself. It requires the Secretary of Health and Human Services to consult with the Secretary of Treasury, study administration of employer responsibility, and provide a report to certain Congressional committees by January 1, 2013. This report was to address the procedures and/or legislative changes necessary to ensure the following rights are protected:

(A) The rights of …

New wrinkle for the Delinquent Filer Voluntary Compliance Program—trap for the unwary

Plan administrators who fail to timely file Form 5500 annual returns/reports are subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (the “Code”). The Department of Labor (the “DOL”) has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail to file complete and timely returns/reports. In addition, the Internal Revenue Service (the “IRS”) may impose further penalties of $25 per day up to a maximum of $15,000 per return against administrators that fail to file complete and timely returns/reports.…

IRS Safe Harbor for accepting rollover contributions – Revenue Ruling 2014-9 and Form 5310

The Form 5310 Application for Determination for Terminating Plan instructions, updated in December 2013, added an odd and time-consuming new requirement, “Submit proof that any rollovers or asset transfers received [during the year of plan termination and five prior plan years] were from a qualified plan or IRA (for example, DL [determination letter] and timely interim amendments).”

The reason we find this instruction odd is that we are not aware of any requirement for a plan administrator to obtain and retain this proof. Treasury Regulation Section 1.401(a)(31)-1, Q&A-14 provides a safe harbor for the reasonable acceptance of a rollover that …

Substantial risk of forfeiture guidance clarifies when Section 16 short-swing profit liability can defer taxation of equity compensation awards

Legend had it at my law school that one day, a lost student walked into a torts class and asked the professor if this class was wills, trusts, and estates. The torts professor replied, “We haven’t gotten that far yet.” A dry sense of humor on the professor’s part? Perhaps. His point, however, was that the law can be a seamless web, with one area of law often having an impact on another. This point often is true with respect to the tax and securities laws.

We blogged previously that the IRS and Treasury issued final regulations under Code Section …

Supreme Court unanimously holds that severance payments generally are subject to FICA taxes

Clients frequently ask us if severance payments are subject to tax withholding. The answer is that they clearly are subject to income tax withholding, but there has always been some ambiguity about the circumstances in which they are subject to FICA tax withholding. The IRS has always taken the position that severance payments are not subject to FICA tax withholding only when the severance payments are tied to the receipt of unemployment benefits. When the issue arose in litigation, however, the Circuits were split as to whether to side with the IRS, or whether a somewhat broader FICA exception should …

“Substantial Risk of Forfeiture” Clarification Impacts Restricted Property (Stock) Grants

As complex as the Internal Revenue Code is, many people still assume that the rules contain a great deal of specificity and precision, perhaps because of the mathematical nature of calculating taxes. They often are surprised to learn that the Code leaves a lot of room for discretion and subjectivity. A great example of this subjectivity is Code Section 83’s regulations governing the taxation of restricted stock (and other property). The underlying stock subject to these grants generally does not become taxable to the employee until the stock no longer is subject to a “substantial risk of forfeiture.” As you …

Form 8822-B Responsible Party Deadline for a Few Employee Benefit Plans and Trusts: March 1, 2014

What is Form 8822-B, do I need to worry about it with respect to my employee benefit plans and trusts, and do I have a March 1, 2014 deadline? Most benefit plan sponsors/administrators do not have to worry about this, but given that this topic is a little confusing, we thought we would share this explanation.

We need to step back and look at Code Section 6109, which sets forth requirements for taxpayer identification numbers (EINs), which are used for tax reporting purposes. A legal entity, such as a new company, uses a Form SS-4 to request an EIN.  The …

United States v. Windsor: Where Is My Money! Obtaining Tax Refunds for Same-Sex Spouse Benefits

It is hard to believe that nearly five months have passed since the United States Supreme Court issued its landmark decision in United States v. Windsor. As a reminder, the Supreme Court held that the provisions contained in the Defense of Marriage Act (“DOMA”) that exclude same-sex relationships from the definition of marriage and spouse for federal law purposes (i.e., Section 3 of DOMA) are unconstitutional. The broad impact of this holding is clear: for purposes of federal law (e.g., ERISA, the Internal Revenue Code, etc.), same-sex marriages must be treated the same as opposite-sex …

Same-Sex Marriages Recognized for Federal Tax Purposes

The United States Department of the Treasury and the Internal Revenue Service (the “Agencies”) yesterday announced that same-sex couples who were legally married in jurisdictions that recognize same-sex marriages (i.e., either in states within the United States, United States territories or in other countries) will be treated as married for federal tax purposes. Recognition will be granted without regard to whether the couple lives in a jurisdiction that recognizes same-sex marriage. This new position was announced in Rev. Rul. 2013-17, as augmented by a series of Frequently Asked Questions dealing with same-sex spouse issues and related domestic partner and civil …

The Fiscal Cliff Is Avoided…But More Cliffs Loom In The Horizon

A fall over the dreaded fiscal cliff has been avoided—at least for now.  Unless pre-occupied by New Year’s revelry or college football bowl games, all of us are well, and perhaps painfully, aware that Congress managed to by-pass the dreaded fiscal cliff by passing a tax relief bill on January 1, 2013.  A very ungainly legislative process came to a merciful end when the Senate passed the legislation in the pre-dawn hours of 2013 by an overwhelming vote of 89-8.  Then, after a day of high drama and rumors of Republican intent to amend the legislation and sent it back …

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