Industry & Regulatory News

Tax-Related Deadline Relief for Victims of Severe Storms in Wisconsin

The IRS has issued News Release WI-2018-07 announcing tax-related deadline relief for certain Wisconsin residents who are victims of recent storms, tornadoes, straight-line winds, flooding, and landslides that took place beginning on August 17, 2018. In addition to postponement of tax return deadlines falling within dates identified in the news release, the relief includes postponement of deadlines for completing certain time-sensitive, tax-related acts specified in Treasury Regulation 301.7508A-1(c)(1).

These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation. For those who qualify, such deadlines falling on or after August 17, 2018, and on or before December 17, 2018, are postponed to December 17, 2018.

The areas identified as directly qualifying for relief are Crawford, Dane, Juneau, La Crosse, Monroe, Richland, Sauk, and Vernon counties. The relief applies specifically to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief.

Affected taxpayers who reside in or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.


DOL Proposes Regulations for Employer to Form Association Retirement Plans

The Department of Labor (DOL) has proposed regulations to be officially published in tomorrow’s federal register which would allow employers to join together to form “Association Retirement Plans.”

Under the proposed rule, a retirement plan could be sponsored by an employer association or a professional employer organization (PEO). The rule would change the definition of “employer” within the meaning of ERISA Sec. 3(5). The PEO or employer association would be considered an “employer” under the new regulations. An employer association could be formed by employers within a geographic region such as a city, county, state, or metropolitan area, as well as by employers in a particular industry nationwide.

The DOL will be accepting public comments for 60 days from the publication of the proposed rule (expected tomorrow, October 23).

The proposal comes in response to an executive order issued by President Trump on August 31, 2018. The order directed the Department of the Treasury and the Department of Labor to issue regulations that expand access to retirement plans. Among other things, the executive order instructed the Department of Labor to consider regulations that would increase access to multiple employer plans by easing restrictions upon which businesses may join together to create multiple employer plans.


Appellate Panel Finds Retirement Assets Acquired in Divorce Not Protected in Bankruptcy

A three-judge panel of the United States Bankruptcy Appellate Court for the Eighth Circuit has ruled that 401(k) plan and IRA assets acquired by a former spouse in a divorce proceeding are not retirement funds that qualify as exempt under federal law.

Qualified retirement plan assets generally are fully shielded from most bankruptcy creditors, and IRA-originating assets are shielded up to $1 million—that figure indexed upward since 2005 to $1.28 million.

In this litigation, Brian A. Lerbakken, Debtor-Appellant, v. Sieloff and Associates, a bankruptcy court had initially ruled that the 401(k) and IRA assets acquired in a civil court-approved divorce settlement were not exempt from the alternate payee’s (recipient’s) bankruptcy estate.  Lerbakken appealed, and the three-judge appellate panel affirmed the bankruptcy court’s ruling that these assets must be included in the Lerbakken bankruptcy estate; thus accessible to creditors.

The panel cited as precedent Clark v. Rameker, in which tax-qualified retirement assets inherited by a nonspouse beneficiary were found not to be retirement assets intended for that individual, and thus not shielded from creditors in bankruptcy.  The appellate panel acknowledged that Lerbakken did not acquire these assets “in the identical manner as the IRA account addressed in Clark,” but declared that “this distinction is not material.”

Lerbakken had contended that the 401(k) and IRA assets acquired from his former spouse had been “saved for their joint retirement,” and thus, he should be granted the same bankruptcy-shielding protection they had while in her possession.


Hurricane Michael Disaster Relief Expanded to More Counties in Florida, Georgia

The IRS has added more Florida counties to those initially identified as eligible for tax-related deadline relief in the wake of Hurricane Michael.  Newly added is similar relief for identified counties in Georgia.

IRS News Releases FL-2018-04 and GA-2018-04 describe the relief provided in Treasury Regulation 301.7508A-1(c)(1) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. These include, for example, completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

See the news releases for the counties that currently are included in the tax-deadline relief. The IRS often updates the disaster news releases for new counties that get added to the relief. The IRS has indicated that if the Hurricane Michael disaster declaration is further broadened by the Federal Emergency Management Agency (FEMA) to include other areas, the same relief will apply there.

For those covered by the Florida guidance, covered tax-related deadlines that fall on or after October 7, 2018, and before February 28, 2019, are extended to February 28, 2019.  In Georgia, deadlines that fall on or after October 9, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area that is injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.


IRS Issues Proposed Rules on Safe Harbor De Minimis Reporting Errors

The IRS has issued proposed regulations on a safe harbor for relatively minor—de minimis—errors in providing certain information returns filed with the IRS and payee statements provided to taxpayers.

These returns and statements, which include such IRS forms as 1099-R, 5498, and others in these series, report information on such tax-advantaged savings arrangements as IRAs, employer-sponsored retirement plans, Coverdell education savings accounts (ESAs), and 529 plans.

Penalties can be assessed against custodians, trustees, or issuers for failure to timely file correct information returns or payee statements, unless reasonable cause can be shown. However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 created an exception to certain of these penalties when the reporting errors are within stated tolerances; examples include dollar amount errors that do not exceed $100, or when income tax withholding amount errors do not exceed $25.

The IRS is asking for public comments on all aspects of the proposed regulations. Details on comment submissions can be found in the Addresses section of the proposed regulations.


Tax-Related Deadline Relief for Hurricane Michael Victims

The IRS has released a pair of news releases describing tax-related deadline relief available to victims of Hurricane Michael, including those automatically eligible for that relief. News Release FL-2018-04 describes the relief provided in Treasury Regulation 301.7508A-1(c)(1)) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. This includes completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

Currently, the announced deadline relief applies only to the Florida counties of Bay, Franklin, Gulf, Taylor, and Wakulla. However, the IRS indicates that if the Hurricane Michael disaster declaration is broadened by the Federal Emergency Management Agency (FEMA) to include other areas of Florida or other states, the same relief will apply there. Under this guidance, covered tax-related deadlines that fall on or after October 7, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who was injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.

The second guidance item, News Release IR-2018-199, specifically addresses tax returns, including business income tax return filing deadlines and tax payments; the same extended deadline applies.

 


IRS Releases 2019 Form 1099-QA for Reporting ABLE Account Distributions

The IRS has released 2019 Form 1099-QA, Distributions From ABLE Accounts. This form is used to report information pertaining to distributions from savings accounts of certain special-needs individuals, accounts created by the Achieving a Better Life Experience (ABLE) Act.

ABLE accounts are intended to allow tax-advantaged saving for future expenses of special-needs individuals.  Annual contributions up to the federal gift tax maximum (currently $15,000) can be made to an ABLE account.  And, while no federal tax deduction is granted for contributions, qualifying distributions (including earnings) are tax-free, much like the IRC Section 529 state-sponsored education savings accounts after which ABLE accounts are modeled.

As a result of tax reform legislation enacted in 2017, certain 529 plan assets can be rolled over to ABLE accounts, and limited additional ABLE contributions may be made with earnings of a special-needs individual for whom an account was established.


IRS Program Letter Outlines TEGE Initiatives for 2019

The IRS has released a Program Letter communication, in which the agency shares plans for 2019 initiatives of its Tax Exempt/Government Entities (TEGE) division.

These initiatives will include continuing guidance on the Tax Cuts and Jobs Act, tax reform legislation enacted in December of 2017, some of whose effects are still being fleshed-out.

The communication also states that TEGE will be focused on compliance efforts that are cost-effective and limited in their intrusiveness when possible, including “educational efforts, soft letter compliance reviews, compliance checks, and correspondence or field examinations.” The letter further notes that TEGE will continue to refine its examination strategies to focus on the highest priority compliance areas.

More information on the TEGE division’s plans and accomplishments can be found in the Program Letter.

 


Taxable Wage Base Increases for 2019

The Social Security Administration has announced an increase for the 2019 taxable wage base (TWB). The TWB for 2019 is $132,900, a $4,500 increase over 2018.

The TWB represents the level of taxpayer income that is subject to taxation for purposes of Social Security’s Old Age, Survivors and Disability Insurance (OASDI) program. Taxpayer earnings above this level do not generate additional Social Security OASDI benefits for such taxpayers.

The same TWB figure is used in some integrated retirement plan contribution allocation formulas, commonly referred to as a “Social Security integration” formula. This may include profit sharing and simplified employee pension (SEP) plan allocations.

The release of the Social Security TWB figure typically coincides closely with the IRS release of the cost-of-living-adjusted (COLA) retirement plan limitations for the coming year. Watch this ascensus.com News for the 2019 retirement plan and IRA limitations expected soon.


PBGC Issues Final Regulations on “Guaranteed Benefits” for Owner-Participants in Terminating DB Plans

The Pension Benefit Guaranty Corporation (PBGC) issued final regulations, published in the October 3, 2018, Federal Register, regarding limitations on guaranteed benefits to be paid to owner-participants by this insuring agency. PBGC provides partial benefits in the event that certain defined benefit (DB) pension plans are unable to pay participants their promised benefits. The guaranteed benefits described in these regulations relate to terminating single-employer DB plans. They specifically address a change from prior law with respect to owners of the businesses sponsoring such terminating plans.

The guidance—first issued as proposed regulations on March 7, 2018—implements changes brought about by the Pension Protection Act of 2006 (PPA). Before PPA, as now, there have been limitations on the benefit guarantees—insurance payments—that are provided by this agency when a plan cannot do so. Note, however, that certain DB plans, including owner-only plans and small plans of certain professional organizations, are not insured by PBGC.

The PBGC-insured benefits of certain owners have restrictions that do not apply to rank-and-file employees. Before PPA, there were benefit limitations that applied to substantial owners, these being defined as a person owning the entire interest in an unincorporated trade or business, or more than 10 percent of a partnership or corporation. PPA changed the applicable definition from substantial owner to “majority owner,” now defined as a person owning the entire interest in an unincorporated trade or business, or more than 50 percent of a partnership or corporation.