Articles Posted in Employee Benefits

In IRS Notice 2019-09 (the “Notice”), the Internal Revenue Service (“IRS”) has provided guidance on the excise tax imposed on a tax-exempt entity under Code section 4960 that pays excess remuneration (or an excess parachute payment) to an employee. Here are the highlights of the Notice.

The General Rule of Code Section 4960. Under Code section 4960, an applicable tax-exempt organization (an “ATEO”) that pays excess remuneration or makes an excess parachute payment to a covered employee during a taxable year is subject to an excise tax on this excess.  The rate of this excise tax is equal to the rate of tax under Code section 11. For taxable years beginning after December 31, 2017, this rate of tax is 21 percent.

What is An ATEO?  As provided in Code section 4960(c)(1), an ATEO is any organization which, for its taxable year:

So, you and your family are receiving COBRA continuation health care coverage, and you or a family member becomes disabled.  How does the disability affect the COBRA coverage?

A. Normal Period of COBRA Coverage.

COBRA provides a temporary extension of the group health care coverage that you and your family are receiving because of your job, but would otherwise be lost due to certain life events.

In 84 Fed. Reg. 213 (Jan. 23, 2019), the Department of Labor (the “DOL”) lists the Federal civil penalty amounts for 2019. The list, normally due out by January 15 of the year, was delayed this year due to the government shutdown and apply to penalties assessed after January 23, 2019 (an effective date that is later than usual). These adjustments include:

–Under ERISA section 502(c)(2), the penalty for each failure to properly (e.g., timely) file the annual Form 5500 is increased from $2,140 to $2,194 per day;

— Under ERISA section 502(c)(4), the penalty for each failure to disclose certain documents upon request under ERISA section 101(k) and (l) (information pertaining to multiemployer plans), and for each failure to furnish notices under 101(j) (notice about funding restrictions on distributions) and 514(e)(3) (notice under automatic contribution arrangements) increased from $1,693 to $1,736 per day;

In Notice 2018-76 (the “Notice”), the Internal Revenue Service (the “IRS”) provides transitional guidance on the deductibility of expenses for certain business meals under § 274 of the Internal Revenue Code (the “Code”).

Section 274 was amended by the Tax Cuts and Jobs Act (2017) (the “Act”).  As so amended, § 274(a)(1) generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation.  However, the Act does not specifically address the deductibility of expenses for business meals.  This deductibility could be lost to the extent the business meals constitute entertainment expenses.  The Notice provides guidance on this topic, on which taxpayers may rely for now, and announces that the IRS and Treasury intend to publish regulations to provide permanent guidance.

The Act did not change the definition of entertainment under § 274(a)(1); therefore, the regulations under § 274(a)(1) that define entertainment continue to apply.  The Act did not address the circumstances in which the provision of food and beverages might constitute entertainment.  However, the legislative history of the Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, in accordance with pre-Act law.

As discussed in yesterday’s blog, in Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses treated as qualified transportation fringes (“QTFs”) (under Code section 132(f) that is nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

The Notice provides interim guidance how to calculate the amounts in (1) and (2) above.  The IRS intends to issue regulations in the future to provide more permanent rules.

Yesterday’s blog discussed the Notice’s interim guidance pertaining to the determination by taxpayers of the amount of parking expenses treated as QTFs that is nondeductible under § 274(a)(4).  Today’s blog summarizes the Notice’s interim guidance on the determination by tax-exempt organizations of the increase in the amount of UBTI under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

In Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses, which are treated as qualified transportation fringes (“QTFs”) (under Code section 132(f); generally being “qualified parking” for these purposes), and which are nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.  The Notice provides interim guidance on how to determine the amounts described in (1) and (2) above.  The IRS intends to issue governing regulations in the future.

Changes To The Law.  Sections 274 and 512 were amended by the Tax Cuts and Jobs Act (2017) (the “Act”), effective for amounts paid or incurred after December 31, 2017.

Determining The Nondeductible Amount Of Parking Expenses.  Under the Notice, the method of determining this amount depends on whether the taxpayer pays a third party to provide parking for its employees, or the taxpayer owns or leases a parking facility where its employees park.

In IRS Notice 2018-74 (the “Notice”), the Internal Revenue Service (the “IRS”) has issued new eligible rollover distribution notices.  The Notice contains revised safe harbor explanations, which may be used to meet the requirement found in Code section 402(f), that a plan administrator of a qualified retirement plan provide an explanation of the tax rules applying to an eligible rollover distribution made to the recipient.  The applicable safe harbor explanations in the Notice should be used immediately.  The Notice states that it has the following purposes.

This Notice modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions.  The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”)) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this Notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

Further to yesterday’s blog, in a statement issued December 17, 2018, the Department of Health and Human said the following:

The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. As always, the Trump Administration stands ready to work with Congress on policy solutions that will deliver more insurance choices, better healthcare, and lower costs while continuing to protect individuals with pre-existing conditions.

In Texas v. United States of America, Civil Action No. 4:18-cv-00167-O (N.D. Texas 2018), the district court judge ruled that the entire Affordable Care Act (the “ACA”) is unconstitutional, and therefore presumably unenforceable.

How did the judge arrive at this decision?  The Tax Cuts and Jobs Act of 2017 eliminated the penalty imposed on an individual for not having health insurance coverage, and thus not complying with the ACA’s Individual Mandate.  The judge who rendered the decision, Judge O’Connor, said that, without a penalty that could be imposed, the constitutionality of the Individual Mandate could no longer be supported by Congress’ taxing power, and, as no other power of Congress supports it, the Individual Mandate is unconstitutional.  Further, ruled Judge O’Connor, the Individual Mandate is not severable from the remainder of the ACA, so the entire ACA is not constitutional.

So what happens now?  Nothing immediately.  Judge O’Connor did not enjoin the ACA in his decision.  As such, the rules and requirements of the ACA remain the law.  The White House has announced that the ACA will stay in effect, through the upcoming appeal of Judge O’Connor’s decision to the Court of Appeals for the Fifth Circuit and (probably) to the United States Supreme Court.  So for right now, employers should continue to follow ACA rules.  Don’t be late with the Form 1094/1095 information returns (see my blog of December 12).

In Notice 2018-94, the Internal Revenue Service “IRS”) extends the due date for for furnishing to individuals the 2018 Form 1095-B, Health Coverage, and the 2018 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2019, to March 4, 2019.

A Form 1095-B provides information to an individual who is covered by minimum essential health coverage and therefore are not liable for the individual shared responsibility payment.  A Form 1095-C reports to the individual information about offers of health coverage from and enrollment in the employer’s health plan, and the individual may use this information to determine whether, for each month of the calendar year, the individual may claim the premium tax credit on his or her individual income tax return.

The Notice states that, in view of this automatic extension to March 4, 2019, the provisions under the Treasury regulations allowing the IRS to grant an extension of time of up to 30 days to furnish Forms 1095-B and 1095-C will not apply to the extended due date.  Notwithstanding the extension provided in this notice, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they are able.