The DOL Ruling on Overtime and the President-elect’s First 100 Days

Most of the country is still buzzing over the improbable victory of Donald Trump over Hillary Clinton, but as you expect of us, we’re considering the impact his first year in the Presidency may have on business and taxes.  If you haven’t seen the President-Elects published plan for his first 100 days in office, a link to the transcript is as follows:  https://assets.donaldjtrump.com/_landings/contract/O-TRU-102316-Contractv02.pdf.

The President-elect’s proposals will impact a cross-section of American wage-earners.  We’ll wait for more concrete proposals to come out once the inauguration is completed in January, but we would like to stress one of our 2016 hot topics:  Overtime pay.

The Department of Labor has issued final regulations concerning the definitions of exempt and non-exempt employees as regards the payment of overtime rates.   These regulations must be enacted beginning December 1, 2016, and the President-elect has vowed to repeal this legislation in the first 100 days of his Presidency.

You’ve heard me speak on the subject of the HKA Informed Taxpayer Rule.  If you haven’t heard of us expound on this before, our Rule looks like this:  We believe it is our responsibility to make you aware of business and personal risk associated with positions you may want to take on your business and personal tax returns.  You, as an informed taxpayer, make an assessment of the risk associated and your tolerance for that level of risk.  We support your decisions (of course we never and you never promulgate fraud of any kind).

The DOL Overtime rule going live on December 1 (today!) would fall under this Rule.  The 100 day plan, may be better described as a wish list.  It is in no way a guarantee that all of these proposals will be adopted by this fractured and rancorous Congress.  Our advice is simple:  Adopt processes and procedures which enable you and your business to comply with the new regulations fully.  Compliance with these new rules is not easy, but penalties are stiff and should be considered before you accept the business risk of non-compliance.

Please call our office at 314-993-4285 if you have any questions.

 

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New Law Sets Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

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A new federal law moves up the W-2 filing deadline for employers and small businesses to Jan. 31. The new law makes it easier for the IRS to find and stop refund fraud. It also delays some taxpayer refunds. Those taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit won’t see refunds until Feb.15, at the earliest.

Here are some key points to keep in mind:

  • Protecting Americans from Tax Hikes (PATH) Act. Enacted last December, the new law means employers need to file their copies of Forms W-2  by Jan. 31. These forms also go to the Social Security Administration. The new deadline also applies to certain Forms 1099. Those reporting nonemployee compensation such as payments to independent contractors submitted to the IRS are due Jan. 31. Employers have long faced a Jan. 31 deadline in providing copies of these forms to their employees. That date won’t change.
  • Different from past deadline. Employers normally had until the end of February, if filing on paper, or the end of March, if filing electronically, to send in copies of these forms. The IRS is working with the payroll community and other partners to spread the word.
  • Helps stop fraud or errors. The new Jan. 31 deadline will help the IRS to spot errors on returns filed by taxpayers. Having these W-2s and 1099s sooner will make it easier for the IRS to verify legitimate tax returns and get refunds to taxpayers eligible to receive them. The changes will allow the IRS to send some tax refunds faster.
  • Some refunds delayed. Certain taxpayers will get their refunds a bit later. By law, the IRS must hold refunds for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. This means the whole refund, not just the part related to the EITC or ACTC.
  • File tax returns normally. Taxpayers should file their returns as they normally do. The IRS issues more than nine out of 10 refunds in less than 21 days. However, some returns may need further review. Whether or not claiming EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date. Consider this fact when making major purchases or paying debts.
  • Use IRS.gov online tools. Starting Feb. 15, the best way to check the status of a refund is with the Where’s My Refund? tool on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers may need their Adjusted Gross Income amount from a prior tax return to verify their identity. They can get a transcript of their return at www.irs.gov/transcript.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Special Edition Tax Tip Issue Number: 2016-16.

FAQs on Disaster Recovery Income and Deductions

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The states of Louisiana and Mississippi are responding to the recent flooding first with guidance on disaster recovery payments and income taxes.  This guidance alerts us to their state revenue bulletins for details on these programs.  Our prayers continue to be with you and your families.

From CCH State Tax Review, Vol 77, Issue 35:

The Louisiana Department of Revenue provided answers to frequently asked questions about personal income tax aspects of disaster recovery payments and income. Among other things, the answers addressed donations to or payments from a”GoFundMe” or other crowdfunding website; time spent as a volunteer; providing living space and meals for displaced persons; donating clothing, food, household goods, or other similar items; records required to substantiate a charitable deduction; casualty and theft losses for damaged or destroyed homes, household items, and vehicles; mitigation or qualified disaster relief payments; FEMA payments; and insurance payments. Revenue Information Bulletin No. 16-048, Louisiana Department of Revenue, August 22, 2016

The Mississippi Department of Revenue has announced that it will follow federal extensions granted to Louisiana residents directly affected by the severe storms and flooding that took place on August 11, 2016. Taxpayers residing in Louisiana counties designated as federally declared disaster areas have until January 17, 2017 to file individual income, corporate income and pass-through entity tax returns due on or after August 11, 2016, and before January 17, 2017. The department automatically provides interest and penalty relief on original or extended filing and payment due dates, including extended filing or payment due dates, that fall within the postponed period. Therefore, taxpayers residing in affected Louisiana counties do not need to contact the department to get relief. Relief does not provide an extension for payments on prior liabilities. Notice 80-16-003, Mississippi Department of Revenue, August 18, 2016

If you have any questions or would like guidance on this matter, please contact our office at 314-993-4285.

Foreign bank account filing responsibility is a real thing!

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September 11, 2001 changed everything.

The Patriot Act changed everything.

What changed?  Among other things, foreign bank account reporting and failure to file penalty.  If you are a U.S. citizen, it is incredibly important for you to contact us immediately if you have a foreign bank account, regardless of the size of the account, and you have not disclosed this to us previously.

After years of penalty abatement the IRS stance for forgiveness is that they will not charge you with the felony or throw you in jail, both of which are allowed under the law.  The penalty is $10,000 per occurrence.

It’s simple.  Call us if you have a foreign bank account. 314-993-4285.

Income Tax: Guidance Provided on Impact of Wynne

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To all of our friends, but especially to those of you in OH, the Wynne case from MD is beginning to gain traction in many tax advocacy groups around the country.  In the Wynne case the Supreme Court held that a state tax system that did not allow for an offset of income tax paid in another state against the resident state tax was unconstitutional.  Although this guidance is directed at IN taxpayers, it is good to note this case should help fix many issues in other states, but it will take time.  Our OH clients are especially hard hit by municipal taxes on income derived in a nonresident municipality as their local municipalities do not allow for a credit for the tax paid against this same income.  Pure double taxation, if I were the Don of municipality taxes it would be a beautiful thing!  Note, the Supreme Court case did not go as far down to the municipality level of taxation.

From CCH State Tax Review, Vol 77, Issue 35:

The Indiana Department of Revenue has issued a Commissioner’s Directive providing guidance on the impact of Comptroller of the Treasury of Maryland v. Wynne, U.S. Supreme Court, Dkt. 13-485, May 18, 2015, to personal income taxpayers and to demonstrate why Indiana is not in a similar situation to Maryland. The Wynne decision holds that under a Maryland law an income tax credit for taxes paid to a different state should recognize both income or earnings taxes imposed by the other state and local governments of the other state. Unlike Maryland, Indiana allows credits for out-of-state taxes at both the state and local levels. Indiana allows a credit for out-of-state income taxes against Indiana’s state income tax and a credit for out-of-state local income taxes against local income taxes owed in Indiana. According to the Supreme Court, had Maryland offered credits for out-of-state taxes, Maryland’s tax system would have survived constitutional scrutiny. Further, Indiana allows credits at both the state-to-state level and the county-to-county level. Finally, Indiana does not permit out-of-state state income taxes to offset Indiana county income taxes or allow out-of-state local income taxes to offset Indiana state income taxes. Thus, the department reasons that Indiana’s tax regime meets the internal consistency test set forth in Wynne.

If you have any questions or would like to discuss this further, please give us a call at our office, 314-993-4285.

FLSA Overtime Changes

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To All:

We used to use the words, Significant Legislation, Landmark Legislation to preempt our interpretations of recent regulatory and tax law changes.  Today is more Significant Interpretation Enactment.  In 2014, President Obama directed the Secretary of Labor to update the DOL policy as regards overtime.  This is a truly a sea change!  The executive summary looks like this:  If your employee is making less than $47,476 annually, they are now required to receive overtime at 1.5X their annual rate of pay.  Do not be fooled into believing your exempt employees do not count!  This covers exempt and non-exempt employees.  Please raise a flag to your HR staff to ensure you will pass these new regulations.  Penalty per occurrence is $10,000.  The final rule takes effect December 1, 2016 and does NOT change any of the normal tests associated with employee classification testing, except add the annual income standard.

If you have any questions or would like more information, please do not hesitate to give us a call at our office, 314-993-4285.

Tax Practitioners Warned Against New E-mail Phishing Scam

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The IRS has alerted tax professionals in several states (California, Ohio, Oklahoma, Virginia) to a phishing scam, where scammers posing as tax software providers send e-mails asking recipients to click on an embedded link to download and install an “important software update.” The downloaded file’s naming convention uses the actual name of the tax professional’s software followed by an “.exe extension.” Upon completion, tax professionals mistakenly believe they have downloaded a software update when actually they have loaded a program designed to track their key strokes to steal login information, passwords and other sensitive data. (CCH State Tax Review, Vol 77, Issue 35)

A warning to all of our clients in all of our states, scammer technology, infrastructure, and intelligence is only constrained by our ability to heed the warnings of our advisors.  Life learned pearls of wisdom:

  • Never run with scissors;
  • Never talk with your mouth full;
  • Always look the other person in the eye;
  • Never respond to voicemail messages from anyone purporting to be with the IRS or state revenue agency;
  • Never respond (avoid opening if you can) to email from anyone purporting to be with the IRS or state revenue agency;
  • Never panic if the IRS or state revenue agency is threatening you.

In all above cases please call our office at 314-993-4285 and we are ready to help you out, (I’ll be sending you to my mom for the first three, she’s really good at those).

Resources on IRS.gov and Social Media Help Employers and Coverage Providers Understand ACA

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The Affordable Care Act (ACA) continues to befuddle industry.  The rules continue to evolve.  Use the Government website first in understanding the employer responsibilities.

Whether you are a business owner, tax manager, employee benefits manager or health coverage providers, the IRS knows that you want to understand how the health care law may affect your organization. When questions come up, IRS.gov/aca is a great place for you to begin finding the answers you need – when you need them.   At IRS.gov/aca, you’ll find frequently asked questions, legal guidance, and links to other useful sites. You can also access valuable information about specific topics, including rules and responsibilities for employers, as well as tax provisions for insurers, tax-exempt organizations and other businesses.

Resources for Employers and Coverage Providers

You can use social media tools to find information about the health care law.

  • IRS Videos Health Care playlist on YouTube
    • Are You an Applicable Large Employer?
    • Employer Shared Responsibility Payments
    • Highlights for Self-Insured Employers
    • Small Business Health Care Tax Credit
  • @IRSNews on Twitter

Health care tax tips come out weekly, and provide information about rules and requirements related to ACA. You can also browse the IRS health care tax tip archive to read all the tax tips published since 2013.

Pre-recorded webinars covering topics that include the corrections process for information returns, an overview of the employer shared responsibility provision, and information reporting. If you prefer to see the presentation slides, you can view them on the Affordable Care Act Information Returns (AIR) Program Overview page.

ACA Information Center for ALEs – one stop-shop web page with links to an array of resources.

The Taxpayer Advocate Service Estimator tools assist you in estimating credits and payments related to the Affordable Care Act.

Electronic publications covering topics to help your organization understand ACA:

  • Publication 5215: Understanding Reporting Responsibilities of the health care law
  • Publication 5208:  Are you an applicable large employer?
  • Publication 5200:  What employers need to know
  • Publication 5196:  Understanding employer reporting requirements of the health care law
  • Publication 5165: Guide for Electronically Filing Affordable Care Act Information Returns For Software Developers and Transmitters – Processing Year 2016

Questions and answers cover a wide range of topics related to the health care law:

  • Employer shared responsibility
  • Information reporting by employers on Form 1094-C and 1095-B
  • Information reporting by health coverage providers
  • Reporting of offers of health insurance coverage by employers

You can also access a web-based IRS flyer, Health Care Law Online Resources, for links to other federal agencies that also have a role in the health care law.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue Number: HCTT-2016-64.

Funding of Affordable Care Act Cost-Sharing Payments found Unconstitutional: A Battle that may well Wage into the Future

A federal district court has found that funding of cost-sharing payments under Section 1402 of the Affordable Care Act (ACA) made by the federal government to insurers is unconstitutional. The ACA created a permanent appropriation for the Code Sec. 36B premium assistance tax credit but not for cost-sharing, the court found.

The court enjoined additional payments under Code Sec. 1402 until a valid appropriation is in place. However, the court stayed its injunction pending appeal. A White House spokesperson predicted that the Obama administration will appeal the decision.

Background

Section 1402 of the ACA provides a discount that lowers the amount individuals pay out-of-pocket for deductibles, coinsurance, and copayments for health insurance obtained through the ACA Marketplace. Generally, the individual must enroll in a qualified health plan (a Silver level plan) and have a household income that exceeds 100 percent but does not exceed 400 percent of the poverty line for a family of the size involved. Individuals with income between 100 and 250 percent of the poverty line qualify for an additional reduction. Eligibility for the Code Sec. 36B credit is also a prerequisite to receiving cost-sharing reductions.

The U.S. Treasury has been making advance payments of cost-sharing reductions to insurers in the ACA Marketplace. In 2014, House Republicans filed suit challenging the payments as unconstitutional.

Court’s analysis

Under Article 1 of the U.S. Constitution, “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” The expenditure of public funds is proper only when authorized by Congress. Appropriations legislation, the court explained, provides legal authority for federal agencies to incur obligations and to make payments out of the Treasury for specified purposes. Appropriations legislation has the limited and specific purpose of providing funds for authorized programs.

A “permanent” or “continuing” appropriation, once enacted, makes funds available indefinitely for their specified purpose; no further action by Congress is needed. A “current appropriation,” by contrast, allows an agency to obligate funds only in the year or years for which they are appropriated.

The Code Sec. 36B credit was added to a pre-existing list of permanently appropriated tax credits, the court found. Cost-sharing under Section 1402 was not added to that list, the court added.

The court rejected the government’s argument that ACA’s provisions for cost-sharing the Code Sec. 36B credit are economically and programmatically integrated. Premium tax credits are payable under Code Sec. 36B. Cost-sharing reductions are payable under Section 1402 of the ACA. The two are textually and legally distinct, the court found. The cost-sharing reductions, unlike the Code Sec. 36B credit, do not reduce an individual’s tax liability. The payments are made to compensate insurers for the costs that they bear.

Legislation enacted after the ACA also did not support the government’s argument. The 2013 Continuing Appropriations Act required the government to certify eligibility for premium tax credits and reductions in cost-sharing before making the credits and reductions available. However, the court found that the temporary appropriations act merely allowed Congress to require certification of eligibility prior to monies being distributed; it did not create an appropriation for cost-sharing.

If you have any questions, do not hesitate to give us a call at the office, 314-993-4285.

*This information was received from CCH Federal Tax Weekly*

Sale of Master Limited Partnerships (MLPs)

logoLast year, the master limited partnership Kinder Morgan Energy Partners (KMP) was purchased by the corporation Kinder Morgan, Inc. (KMI). There are tax consequences to this sale.

The proceeds from this sale could have been paid out in three ways: common stock in KMI, cash, or a combination of the two. Regardless of how you received the compensation for your KMP units, the tax implications are the same.

In order to determine the taxability of the sale, you will need to know your basis in the units you owned. Your financial advisor will be able to run a report showing all units purchased. Be sure you include any distributions from KMP that you reinvested.

There will be three components of gain or loss from the sale of KMP units: capital gain, ordinary gain, and ordinary loss. All of these hinge on your basis in the units and how you reported income or loss from KMP on your tax return for each year you owned any units.


 

We would be happy to discuss any question you have on the taxability of the KMP sale or anything else. Place call the office at (314) 993-4285 at any time or email us at office@hkaglobal.com.