Letter to Bankers States That Erroneous Employer HSA Contributions May Be Refunded in More Situations Than Just the Two Mentioned in Notice 2008-59

Tax Analysts published a copy of the letter from the IRS to officials at UMB Bank and the American Bankers Association in Tax Notes Today on April 8 that explained that Notice 2008-59’s list of conditions under which an employer may take back a contribution to an employee’s HSA is not an exclusive list of such situations. (2016 TNT 68-9)

If an employer has provided for contributions to be made to eligible employee’s HSAs under Section 223, a problem arises if the contribution is, in fact, in error and excessive.  IRC Section 223(d)(1)(E) provides that a taxpayer’s balance in an HSA is nonforfeitable.  Notice 2008-59 provided two conditions under which an employer could recover an erroneous payment.

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Impact of Obergefell Decision on Retirement and Health and Welfare Plans Detailed by IRS

In Notice 2015-86 the IRS issued guidance regarding the effect of the U.S. Supreme Court’s ruling in Obergefell v. Hodges on retirement plans and health and welfare benefit plans.

Generally the ruling notes that since the federal government was required to recognize same sex marriages that were valid at the time entered to following 2013’s decision by the United States Supreme Court in the case of United States v. Windsor there is a very limited impact of the Obergefell decision.

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Even Though Statute Expired Under §4979A, Failure to File Form 5330 Meant Statute Remained Open Under §6501 to Assess Excise Tax on ESOP

In ruling on a motion for reconsideration in the case of Law Office of John H. Eggertsen, P.C. v. Commissioner, 143 TC No. 13 the Tax Court addressed the interaction of provisions governing the statute of limitations for the excise tax on prohibited allocations of employer securities in an ESOP imposed by IRC §4979A.

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Data Breech Victims Will Not Be Deemed to Have Taxable Income From Receipt of Identity Protection Services

In Announcement 2015-22 the IRS stated that it will not tax data breach victims on the value of the identity theft protection services provided by the organizations whose systems were compromised.

There have been a number of high data breech cases in the past few years, affecting major retailers like Target, insurers such as Anthem, and even the federal government’s own Office of Personnel Management.  Generally these entities and organizations have responded to the incident by offering those whose information was or may be been disclosed various identity theft protection services.

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IRS to Eliminate Automatic 30-Day Extension for Filing Forms W-2 for 2016, Other Information Returns May Be Affected for 2017

Identity theft is an increasingly significant issue in the tax arena.  As the preamble to TD 9730, discussed below:

Identity theft and refund fraud is a persistent and evolving threat to the nation's tax system. It places an enormous burden on the United States Government, with the most painful and immediate impact being on the victims whose personal information is used to commit the crime and the most pervasive impact being an erosion of public confidence in the tax system.

The tax refund fraud category of identity thieves most often make use of fictitious W-2’s to carry out the fraud.  The W-2s most often make use of the name and employer identification number of an actual employer, along with the name and social security number of a real taxpayer.  However, that taxpayer quite often has never worked for that employer or, if the taxpayer did, the amounts reported on the W-2 are not what was actually paid to the taxpayer.

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Claim Taxpayer Was Not Involved in Finances Did Not Make Taxpayer Not a Responsible Person

In the case of Waterhouse v. United States, United States Court of Federal Claims, 116 AFTR 2d ¶2015-5080 a corporate officer and holder of a 40% interest in the company’s stock argued that he was not a responsible person under IRC §6672 because he and another officer had agreed to divide up the responsibilities. 

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Tax Court Finds Economic Benefit Portion of Split-Dollar Regulations Valid

“While it would be nice if all tax shelters advertised as legitimate tax shelters were indeed legitimate, the fact of the matter is that not all marketed tax shelters are legitimate.”  That sentence outlines the basic problem for the taxpayers in the case of Our County Home Enterprises, Inc., et al v. Commissioner145 TC No. 1.

The case is yet another in a series of unsuccessful attempts by owners of closely held businesses to use a purported welfare benefit plan (promoted as “single employer plans” or “419(e) plans”) to use life insurance in such programs to provide cash and other benefits on an extremely tax advantaged basis to the owners of the businesses.

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IRS Plans to Issue Regulations Prohibiting Defined Benefit Plans From Offering to Accelerate Annuity Payments Being Made to Satisfy Required Minimum Distribution Rules

In Notice 2015-49 the IRS announced that it proposes to amend the regulations related to required minimum distributions under IRC §401(a)(9) to provide a defined benefit plan will generally not be permitted to replace any annuity being paid with a lump sum payment or other accelerated form of distribution.  The IRS plans to make these regulations effective generally as of July 9, 2015.

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IRS Issues Audit Technique Guide on Nonqualified Deferred Compensation Plans

The IRS has issued a new audit guide.  The Nonqualified Deferred Compensation Audit Techniques Guide (June 2015) has been issued by the IRS to guide agents in examining such programs.

The guide considers issues in all aspects of nonqualified deferred compensation (NQDC) arrangements, including:

  • Timing of inclusion in income and deduction by employer
  • Constructive receipt and economic benefit doctrines
  • Payroll tax implications of such plans
  • Application of the provisions of §409A to such plans
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Penalty Imposed By State Law For Untimely Payment of Final Wages is Not Subject to FICA, FUTA or Federal Withholding

If an employer is required by state law to made additional payments to an employee when their final wages are not paid within a specified time period is that payment subject to federal payroll taxes and/or federal withholding?  This is the issue addressed in Chief Counsel Advice 201522004.

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IRS Issues Final Late Filer Form 5500-EZ Relief for Filers of Plans Not Subject to Title I of ERISA

In Revenue Procedure 2015-32 the IRS replaced the temporary pilot relief program for 1-Participant plans that was created by Revenue Procedure 2014-32 with a permanent program for relief.  The revised program applies to applications submitted on or after June 3, 2015. 

One participant programs, because they are not covered by Title I of ERISA, are not eligible to participate in the Department of Labor’s Delinquent Filer Voluntary Compliance (DFVC) program that provides an option for relief from penalties for those plans. 

In Notice 2002-23 the IRS had provided that plans that obtained DFVC relief from the Department of Labor would automatically be exempted from penalties imposed by the IRC.  Thus, one participant plans (which generally should have filed Form 5500-EZ) had no method to automatically obtain relief from IRC penalties of the sorts that plans under the jurisdiction of the Department of Labor could obtain. 

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Impact on Statute of Limitations When Employer Files Wrong Federal Employment Tax Form (Forms 941 or 944) Discussed in Field Service Advice

Small businesses may find that their federal payroll tax filing form changes from year to year from Form 941 (filed quarterly) to Form 944 (filed annually).  While the Form 944 was meant to be a simplifying concession to small businesses, often business owners may not understand the notice they receive regarding which form should be filed or, just as possible, the notice may end up being lost in the mail.

So that begs the question—what impact does filing the wrong form have on the statute of limitations for the IRS to assess taxes?  IRS Field Service Advice 20152101F provides some answers to that question.

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Disability Pension Payments Converted to Taxable Amounts in Hands of Former Spouse Receiving Them Under a QDRO

Payments from a disability pension being paid to a former spouse under a qualified domestic relations order (QDRO) will not qualify for an exclusion from income pursuant to IRC §104(a)(1) per the ruling in PLR 201521009.  That will be true even if the amounts are excludable from income under that provision when paid to the original recipient of the payments.

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Plan Fiduciary May Be Held Liable for Failing to Properly Review Costs of Investment Options Offered

In the case of Tibble v. Edison Int’l, US Supreme Court No. 13-550, reversing and remanding in part 711 F.3d 1061 as revised in 729 F. 3d 1110 CA9 the United States Supreme Court looked at the period of time a plan fiduciary may be held liable for a breech of fiduciary duty related to the selection of investments made available to qualified plan participants.  The Supreme Court, in a unanimous opinion, found that the District Court and Ninth Circuit had applied too restrictive a standard in determining when the clock began running on the statute of limitations.

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Effect of Acquisition of Employer During 1 Year ISO Holding Period on Employee Discusssed

The treatment of incentive stock options that have been exercised when the employer is acquired during the one year period following exercise of the options is discussed in Chief Counsel Advice 201519031.  The key issue is whether the transfer of the shares in the employer for interests in the acquiring company will constitute a disqualifying disposition.  And, as with all good tax questions, the answer is “it depends.”

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Deferred Compensation Arrangement Out of Compliance with §409A Could Not Be Successfully Amended in Year of Vesting

In Chief Counsel Advice 201518013 the IRS decided that an employer’s attempt to reform a non-qualified deferred compensation plan that failed to comply with the time and form of payment requirements of IRC §409A(a), even though the plan was revised to contain compliant language prior to date in the tax year where the taxpayer no longer had a substantial risk of forfeiture. 

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Calendar and Log Book Formed Adequate Records to Support 100% Business Use for Two Autos

Under IRC §274(d) taxpayers are denied any deduction for certain expenses if they do not maintain adequate contemporary documentation to support the expense, even if it is obvious that the taxpayers must have incurred the expense and the amount of expense could be reasonably estimated.  This rule was put into the IRC to override the “Cohan” rule, so called due to the case involving George M. Cohan where the Second Circuit ruled that documentation is not needed if it is clear a taxpayer incurred an expense and it can be reasonably estimated [Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).

The IRS claimed in the case of Ressen v. Commissioner, TC Summary Opinion 2015‑32 that the taxpayer’s records documenting his use of two vehicles, for which he claimed a 100% business use deduction on each, was inadequate.  However the Tax Court did not agree with the IRS on this issue.

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IRS Revises EPCRS Guidance for Employee Elective Deferral Failures

The IRS has issued revisions to the Employee Plans Compliance Resolution System (“ECPRS”) in Revenue Procedure 2015-28, modifying Revenue Procedure 2013-12

ECPRS is a program that allows for correction of plan failures.  As the IRS outlines in the introduction to the program found in Rev. Proc. 2013-12, it is meant to allow retirement plans that are intended to comply with §§401(a), 403(a), 403(b), 408(k) or 408(p) but which have failed to meet the requirements of those provision to correct the errors that will allow the plans to continue to offer tax-favored benefits.

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