IRS Issues Tax and Reporting Relief for Proposed Fiduciary Standard Consistent with Department of Labor Regulations

By Monte Schatz

There have been a significant series of regulatory announcements and rulings related to the fiduciary duty and its application to employee benefit plans.  The final fiduciary duty rule became effective on June 7, 2016, and has an applicability date of April 10, 2017. The President by Memorandum to the Secretary of Labor directed the Labor Department to examine the impact of the fiduciary duty rule.  On March 2nd the DOL published 82 FR 12319 seeking public comments about questions raised in the Presidential Memorandum.  The March 2nd notice also provided that a 60-day delay in implementation would be effective on the date of publication of a final rule

The Principal Transactions Exemptions and the accompanying Best Interest Contract provisions, included as part of the fiduciary duty rule, also have an applicability date of April 10, 2017, with a phased implementation period ending on January 1, 2018. The BIC Exemption effectively states that the fiduciary advisor must sign a “Best Interests Contract” (BIC) with the client, stipulating that the advisor will provide advice that is in the Best Interests of the client.   The Principal Transactions Exemption allows compensation for certain transactions by certain broker-dealers, insurance agents, and others that will act as investment advice fiduciaries that would otherwise violate prohibited transaction rules that trigger excise taxes and civil liability.

Most investment industry groups’ concerns regarding any non-compliance during a “gap period” of the financial fiduciary rule focused on Department of Labor and its potential civil liability enforcement provisions as outlined under ERISA.  Additional concerns were raised concerning Internal Revenue Service enforcement provisions found in Internal Revenue Code §4975 prohibited transaction rules that provides for the imposition of excise taxes for violations of that rule.

As a result of delays of the Fiduciary Standard rules, the Department of Labor published Field Assistance Bulletin (FAB) 2017-01.  FAB 2017-01 provides that, to the extent circumstances surrounding its decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including retroactive prohibited transaction relief, the DOL will consider taking such additional steps as necessary with respect to the arrangements and transactions covered by the DOL temporary enforcement policy and any subsequent related DOL enforcement guidance.

In Announcement 2017–4 the IRS stated, Because the Code and ERISA contemplate consistency in the enforcement of the prohibited transaction rules by the IRS and the DOL, the Treasury Department and the IRS have determined that it is appropriate to adopt a temporary excise tax non-applicability policy that conforms with the DOL’s temporary enforcement policy described in FAB 2017-01. Accordingly, the IRS will not apply § 4975 and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.

SOURCES:

http://www.asppa.org/News/Article/ArticleID/8480

https://www.irs.gov/pub/irs-drop/a-17-04.pdf

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Guidance Issued on Option for Small Business to Apply Research Tax Credit to Payroll Taxes

The Internal Revenue Service recently issued guidance related to options for qualified small businesses claiming the research tax credit. Prior to 2016, the research tax credit could only be used against income tax liability. The Protecting Americans From Tax Hikes (PATH) Act provided that qualified small businesses may elect to apply the tax credit against payroll tax liability.

Qualified businesses have less than $5,000,000 in gross receipts and did not have gross receipts prior to 2012. Such a qualified business can apply up to $250,000 of the research tax credit against the payroll tax liability.

The election is made on Form 6765, which is included with the businesses income tax return, and Form 8974, which is included with the business payroll tax return. For 2016, if a qualified business has already filed its tax return and failed to timely make the election, an amended return may be filed making the election. Such amended return must be filed before December 31, 2017.

For additional information, see Internal Revenue Service, Notice 2017-23, available at https://www.irs.gov/pub/irs-drop/n-17-23.pdf.

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IRS Use of Private Debt Collectors Begins April 2017

Beginning this month as result of federal legislation enacted in December of 2015, the Internal Revenue Service will begin using private debt collectors to collect certain outstanding inactive tax receivables. The Fixing America’s Surface Transportation Act, in fact, requires the use of private collection agencies for certain tax debt that the IRS is no longer actively working on collecting.

The IRS has announced that CBE, Conserve, Performant, and Pioneer and the four private collection agencies that will be assigned collection matters. With the ever-present risk of tax related scams, the IRS has provided guidance regarding the procedures when the accounts are transferred to the private debt collection agencies.

First, a taxpayer will receive written notices from both the IRS and the private collection agency indicating that the private collection agency will be handling the collection. The private collection agency representatives are also required to identify themselves as debt collectors and will be required to follow the Fair Debt Collection Practices Act.

Taxpayers who are contacted by a private debt collector should ensure that the contract is from one of the above listed private debt collection agencies and that they have received the proper notices listed above. In the event a taxpayer is contacted regarding a tax debt, you may wish to confirm the accuracy of such debt using the IRS’s new balance check, available at https://www.irs.gov/uac/view-your-tax-account.

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IRS Warns Taxpayers About Recent Phone Scam

The Internal Revenue Service (“IRS”) recently warned taxpayers that an aggressive phone scam that targets taxpayers, often senior citizens, is making rounds throughout the country and costing taxpayers millions of dollars and their personal information. The callers are con artists who claim to be IRS employees. The caller tells the victim taxpayer that the taxpayer owes money to the IRS and threatens the taxpayer with legal action if he or she refuses to pay. The caller often demands immediate payment with a prepaid debit card, gift card, or wire transfer.

The callers often alter caller IDs to make it look like the IRS is the true caller, know information about their victims, use fake names and IRS identification badge numbers, and leave urgent callback requests. Similarly, callers may tell taxpayers they have a refund due, in an attempt to trick taxpayers into sharing private information.

The IRS reminded taxpayers the IRS will never do any of the following:

• call to demand immediate payment using a specific payment method,
• threaten to immediately bring legal action against a taxpayer who refuses to pay,
• demand that a taxpayer pay taxes without providing the taxpayer the opportunity to question or appeal the amount the IRS claims the taxpayer owes,
• ask for credit or debit card numbers over the phone.

he IRS also reminded taxpayers it will work with private collection agencies for the collection of certain tax debts this year. However, the IRS reported that if a private agency calls, there will not be any threats or immediate payment demands and the call will typically occur only after the agency has mailed the taxpayer a notification about the debt.
The IRS urges taxpayers to protect their personal information at all times and to report scam calls to the IRS, the Federal Trade Commission, or the Treasury Inspector General for Tax Administration.

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IRS Issues Final Regulations for Foreign Owned Single Member LLCs

The Internal Revenue Service (“IRS”) issued final regulations that will increase reporting requirements for certain foreign owned single member limited liability companies (“LLC”). When a single member LLC is formed, for federal tax purposes, it is a disregarded entity by default. This means that income, loss, and subsequent tax obligations will pass through the entity to the owner. The final regulations change the default rule when a LLC is wholly owned by a foreign person, requiring the LLC to be treated as a domestic corporation separate from its owner.

By having these LLCs treated as a domestic corporation, separate from its owner, the LLC must obtain an Employer Identification Number (EIN) and annually file an information return, Form 5472. The LLC must also maintain records of reportable transactions with the foreign owner or foreign related parties. Ultimately, the IRS believes that this will ensure that disregarded LLCs aren’t used by foreign owners to shield assets from the IRS.

Although this change is designed to prevent abusive practices, this has a practical impact for foreign owners of a domestic LLC, ultimately increasing administrative requirements. For further information, the IRS regulation can be found at the following address: https://www.irs.gov/irb/2016-21_IRB/ar19.html

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Tax Related Identity Theft Awareness

The holiday season is underway and while this is a time for family events and holiday parties, this is also the time that many identity theft scams occur. The Internal Revenue Service (IRS) started the process of alerting taxpayers about potential tax-related identity theft and to provide advice on how to prevent threats to your identity.

For prevention, the initial steps include ensuring use of security software on devices, use of secure wireless networks, and never providing sensitive data when replying to emails, texts, or pop-up ads. For individuals that are hit with tax-related identity theft, it may not become apparent until attempting to file taxes or receiving a notice from the IRS and finding out that a tax return has been filed on your behalf. When this occurs, file a complaint with the Federal Trade Commission (FTC) at https://www.identitytheft.gov/, file a report with the credit agencies, and contact the IRS. Importantly, regardless of the situation, ensure that your taxes are filed and paid, even if it requires filing in paper form.

Taking steps now to add layers of security for your social security number and other sensitive data can help prevent tax-identity theft in the future. If you have questions, please contact the attorneys at Vandenack Weaver LLC.

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IRS Implements New Safeguards for Income Verification Express Service

The Internal Revenue Service (“IRS”) is implementing new requirements for taxpayers who use the Income Verification Express Service (“IVES”), a service companies use when signing off on the incomes of loan applicants. The new safeguards are part of a larger effort to protect taxpayers and fortify authentication standards.

The new requirements were sent to IVES participants shortly after the IRS announced the initiative. Among others, the requirements involve collecting data to verify participant clients and the individuals that clients authorize to submit and receive IRS transcripts on the clients’ behalf. The IRS will not deliver borrower income transcripts unless IVES participants certify their compliance with the new requirements. Additional safeguards include requiring individuals to have strong passwords and unique login credentials.

The new protections reflect initiatives being taken elsewhere in the tax system. Recently, the IRS shut down the electronic filing (“e-file”) PIN tool, a tool to assist with electronic tax filing, after criminals attacked the system and stole PIN numbers. The IRS is taking these steps in an attempt to protect taxpayer information and combat potential fraud.

The new requirements are in effect as of July 1, 2016.

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