Internal Revenue Service Archives - Page 11 of 23

New Cafeteria Plan Change in Status Options

by McDermott Will & Emery | Oct 31, 2014 | Health and Welfare Plans

In Notice 2014-55, the Internal Revenue Service (IRS) announced two new situations in which employees may change their health plan elections midyear under their employer’s cafeteria plan. In the first, an employee’s hours are reduced below 30 per week (without a corresponding loss of eligibility for the employer’s group health plan). In the second, an employee decides to enroll in coverage through a Marketplace Exchange (Exchange). Both of these are optional changes in status; neither is mandatory.

Reduction in Hours

If an employee who was expected to work on average at least 30 hours per week is then expected midyear to work on average less than 30 hours per week, the employee may drop his or her employer-provided group health plan coverage, even if the reduction in hours does not result in the employee’s loss of eligibility under the group health plan. The change in election must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in other minimum essential coverage (group health plan or Exchange). The new coverage must be effective no later than the first day of the second month following the month in which the employer-sponsored coverage is dropped. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.

Exchange Coverage

An employee who is eligible to enroll in Exchange coverage (during an Exchange open enrollment or special enrollment period) may drop employer-provided group health plan coverage midyear. The change must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in Exchange coverage that is effective no later than the day after the last day of the employer-sponsored coverage. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.

Plan Amendment

If an employer chooses to adopt one or more of these midyear election changes for its cafeteria plan, a plan amendment is necessary. The amendment generally must be adopted on or before the last day of the plan year in which the additional changes are allowed and can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the guidance, including notification to participants of the amendment.

Special Rule for the 2014 Plan Year

Under a special rule, an employer that adopts these new midyear election changes for its 2014 cafeteria plan year has until the last day of the 2015 plan year to adopt the amendment. Although plan amendments may be adopted retroactively, election changes to revoke coverage retroactively are not permitted.

IRS Announces Employee Benefit Plan Limits for 2015

by Jacob Mattinson and Stephen Pavlick | Oct 28, 2014 | Employee Stock Ownership Plans (ESOPs), Health and Welfare Plans, Retirement Plans

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2015. Although many dollar limits currently in effect for 2014 will change, some limits will remain unchanged for 2015.

Read the full article.

June 30 Deadline Approaches for Mandatory E-File FBAR Reporting

by Diane Morgenthaler, Ruth Wimer and Todd Solomon | Jun 25, 2014 | Fiduciary and Investment Issues

2014 presents particular challenges with respect to FBAR, the Report of Foreign Bank and Financial Accounts, for certain U.S. persons with interests in or signature authority over assets exceeding $10,000 held outside the U.S. in foreign accounts. The deadline for calendar year 2013 reporting obligations is June 30, 2014, and by then all taxpayers must e-file completed forms using the Bank Secrecy Act (BSA) E-Filing System. Failure to file the FBAR can result in criminal sanctions. In addition, failure to file the FBAR can result in civil penalties exceeding 100 percent of the foreign account balance, as recently determined by the Federal District Court in the May 28, 2014, decision inU.S. v. Carl R. Zwerner.

The BSA requires any U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds to report the “maximum value of the account” yearly to the Internal Revenue Service (IRS). This requirement may now only be satisfied by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, FBAR, which replaces Form 90.22-1. An overview of the FBAR filing requirements is provided by the IRS. But in summary, an FBAR must be filed by any U.S. person who either owns or has signature authority over a foreign account that, at any point during the year, was valued at or greater than $10,000. For FBAR purposes, a foreign account includes any account that is held outside the United States, including those at foreign branches of U.S. banks. For more details regarding the specifics of which accounts must be reported, two prior On the Subject newsletters about FBAR reporting can be found here and here.

FinCEN is attempting to make the new e-filing user friendly. The mandatory e-filing requirement information, capability to register and to upload completed FBARs, and new Form 114 for those individuals and businesses that must file an FBAR is accessible through the BSA e-file website.

The BSA e-file website allows a taxpayer to either file the Form 114 directly as an “Individual” by uploading a completed file or, alternatively, to fill out Form 114a permitting another party, designated by the BSA system as an “Institution,” to file the Form 114 on his or her behalf. For example, the new Form 114a may be used by an employer company to file the FBAR as an Institution on behalf of any of its executives who are required to file an FBAR because of non-exempt signatory authority over the employer’s foreign bank accounts. (Note that FBAR filing by certain individuals with signatory authority but no ownership interest in a foreign account may be deferred until June 30, 2015, pursuant to FinCEN Notice 2013-1.) For its own FBAR, the employer company may register as an Institution and designate a “Supervisory User,” who has authority to file on behalf of the company and who, [...]

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IRS Guidance Favorably Modifies Voluntary Worker Classification Settlement Program

by McDermott Will & Emery | Jan 7, 2013 | Employment

by Diane M. Morgenthaler, Ruth Wimer and David Diaz

One year ago the Internal Revenue Service (IRS) published Announcement 2011-64, which provided a Voluntary Classification Settlement Program (VCSP) for employers to treat their workers as common law employees rather than independent contractors only on a prospective basis. Now the IRS has issued two new announcements that favorably modify and expand the VCSP. Because certain favorable tax relief is available only for applications filed before June 30, 2013, employers should review quickly their worker classification issues in light of this new guidance.

To read the full article, click here.

IRS Eliminates Use of Letter Forwarding Service to Find Missing Participants and Beneficiaries

by McDermott Will & Emery | Sep 28, 2012 | Retirement Plans

by Jeffrey M. Holdvogt and Susan Peters Schaefer

The Internal Revenue Service (IRS) recently discontinued its letter forwarding service for missing participants or beneficiaries entitled to a benefit under an employee retirement plan. Until now, retirement plan sponsors have frequently used the IRS letter forwarding service as a way to locate missing participants or beneficiaries to whom benefits are owed under a retirement plan. Following this discontinuance, plan sponsors will need to utilize another more expensive government forwarding service or utilize internet search tools, commercial locater services and credit report agencies to locate missing retirement plan participants.

To read the full article, click here.

December 31 Deadline to Update Severance, Employment and Change in Control Agreements

by McDermott Will & Emery | Sep 11, 2012 | Employment, Executive Compensation

by Jonathan J. Boyles

Agreements that require a release or other signed document from an employee before payment should be reviewed to ensure compliance with Code Section 409A guidance. Transition relief ends on December 31, 2012, and the penalties for noncompliance can be harsh. Employers that conducted a fulsome Code Section 409A review in 2007 and 2008 should ensure their arrangements are in compliance with new guidance.

To read the full article, click here.

Recent PPACA Guidance on New $2,500 Health FSA Limit

by McDermott Will & Emery | Jun 5, 2012 | Health and Welfare Plans

by Maureen O’Brien and Susan Nash

The Internal Revenue Service (IRS) recently released guidance on the implementation of the $2,500 limit on health flexible spending accounts (FSA) scheduled to go into effect in 2013. IRS Notice 2012-40 (Notice) clarifies the application of the new limit for plan years beginning after 2013 and solicits comments regarding whether to modify the use-or-lose rule set forth in the current proposed regulations under Section 125 of the Internal Revenue Code of 1986, as amended (Code).

The Notice states that the $2,500 limit on contributions to health flexible spending accounts is applicable for plan years beginning on or after January 1, 2013. This means that non-calendar year plans do not need to institute a mid-year limit to comply with applicable law. In addition, the Notice states that the $2,500 limit does not apply to heath savings accounts or health reimbursement accounts or “flex-credits” granted by an employer. In addition, for cafeteria plans under Section 125 of the Code with grace periods which allow use of contributions for up to two and one-half months after the end of the plan year, the $2,500 limit does not apply to any amounts contributed for the previous plan year and available during such grace period.

If an employee erroneously contributes more than $2,500 to his or her health flexible spending account for plan years beginning on or after January 1, 2013, the Notice provides for a correction method for employers to refund amounts over the limit to the employee and adjust the employee’s reportable wages for the applicable tax year. This correction method is available only if the employer has complied with the written plan requirements of Section 125 of the Code, the erroneous contribution was due to reasonable mistake and not willful neglect by the employer and the employer’s cafeteria plan is not under examination for the plan year in which the erroneous contributions occurred.

The Notice also provides that employers may amend the cafeteria plan anytime prior to December 31, 2014 to comply with the new FSA limit. Such amendment may express the limit as a maximum dollar amount or use another method to express the new $2,500 limit. The $2,500 limit will be subject to cost of living increases and this type of indexing should be considered when drafting any required amendments.

Finally, the Notice requests comments on modifications to the use-or-lose rule for health flexible spending accounts currently in effect given implementation of the new dollar limit. McDermott will continue to update employers on any changes to the use-or-lose rule for health flexible spending account plans.

New Proposed Section 83 Regulations Clarify What Constitutes a Substantial Risk of Forfeiture

by McDermott Will & Emery | May 30, 2012 | Executive Compensation

by Joseph S. Adams and Andrew C. Liazos

Earlier today, the Internal Revenue Service (IRS) released new proposed Section 83 regulations, which clarify several points including:

A substantial risk of forfeiture (SRF) may be established only through a service condition or a condition related to the purpose of the transfer. Citing the U.S. Court of Appeals for the First Circuit’s opinion in Robinson, the preamble noted that “[s]ome confusion has arisen as to whether other conditions may also give rise to a substantial risk of forfeiture.” The proposed regulations retain the language from Section 83 final regulations that refraining from service may be a service condition.
In determining whether a SRF exists, it is necessary to consider both (a) the likelihood that the forfeiture event will occur, and (b) the likelihood that the forfeiture will be enforced. All of the facts and circumstances must be evaluated to determine whether a performance-based vesting condition for a restricted stock award will be treated as a substantial risk of forfeiture for purposes of Section 83.
Transfer restrictions such as lock-up agreements, Rule 10b-5 insider trading restrictions) do not create a SRF – in other words, they do not defer the taxable event – even if there is a potential for forfeiture or disgorgement of some or all of the property, or other penalties, if the restriction is violated. The only exception to this rule is with respect to Section 16(b) “short swing” profit liabilities. The proposed regulations provide three new examples illustrating when transfer restrictions will – and will not – constitute a SRF. The proposed regulations incorporate the IRS’ position in Revenue Ruling 2005-48.

These regulations under section 83 are proposed to apply to transfers of property on or after January 1, 2013. Taxpayers may rely on the proposed regulations for property transfers occurring after the publication of the proposed regulations until further notice. Comments are due by August 28, 2012.

Further details on the newly proposed regulations will be provided in subsequent McDermott publications.

IRS Requests Comments on Minimum Value and Reporting Requirements

by McDermott Will & Emery | May 10, 2012 | Health and Welfare Plans

by Amy M. Gordon, Susan M. Nash and Jamie A. Weyeneth.

The Internal Revenue Service recently issued requests for comments in advance of issuing proposed regulations on health care reform reporting and minimum value requirements.

To read the full article, click here.

IRS Extends Transition Relief for Puerto Rico Qualified Plans to Participate in U.S. Group Trusts and Deadline to Transfer Assets

by McDermott Will & Emery | Dec 28, 2011 | Retirement Plans

by Nancy S. Gerrie and Jeffrey M. Holdvogt

On December 21, 2011, the U.S. Internal Revenue Service (IRS) issued Notice 2012-6, which provides welcome relief for U.S. employers with qualified employee retirement plans that cover Puerto Rico employees. Notice 2012-6 provides that the IRS will extend the deadline for employers sponsoring plans that are tax-qualified only in Puerto Rico (ERISA Section 1022(i)(1) Plans) to continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 (81-100 group trusts) until further notice, provided the plan was participating in the trust as of January 10, 2011, or holds assets that had been held by a qualified plan immediately prior to the transfer of those assets to an ERISA Section 1022(i)(1) Plan pursuant to a spin-off from a U.S.-qualified plan under Revenue Ruling 2008-40.

Notice 2012-6 also extends the deadline for sponsors of retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) to spin off and transfer assets attributable to Puerto Rico employees to ERISA Section 1022(i)(1) Plans, with the resulting plan assets considered Puerto Rico-source income and not subject to U.S. tax.

There are now two separate deadlines:

First, in recognition of the fact that Puerto Rico adopted a new tax code in 2011 with significant changes to the requirements for qualified retirement plans, the IRS has extended the general deadline to December 31, 2012, for dual-qualified plans to make transfers to Puerto Rico-only plans, in order to give plan sponsors time to consider the effect of the changes made by the new tax code.
Second, in recognition of the fact that the IRS has not yet issued definitive guidance on the ability of an ERISA Section 1022(i)(1) Plan to participate in 81-100 group trusts, the IRS has extended the deadline for dual-qualified plans that participate in an 81-100 group trust to some future deadline, presumably after the IRS reaches a conclusion on the ability of a dual-qualified plan to participate in an 81-100 group trust, as described in Revenue Ruling 2011-1.

For more information on the issues related to participation of ERISA Section 1022(i)(1) Plans in 80-100 group trusts, see “IRS Permits Puerto Rico-Qualified Plans to Participate in U.S. Group and Master Trusts for Transition Period, Extends Deadline for Puerto Rico Spin-Offs.”

For more information on the issues plan sponsors should consider with respect to a dual-qualified plan spin-off and transfer of assets attributable to Puerto Rico employees to ERISA section 1022(i)(1) plans, see “IRS Sets Deadline for Transfers from Dual-Qualified to Puerto Rico-Only Qualified Plans.”

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