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Potential Changes to Personal Property Tax Reporting for Manufacturers

Posted 7:03 PM by
Property taxes are getting a lot of attention in this year’s Indiana legislative session. KSM’s State and Local Tax Practice is tracking a handful of bills under consideration that could affect manufacturers specifically, including SB 436, which is a proposed reduction of the so-called 30% floor for personal property tax reporting.
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Affordable Care Act Updates

Posted 3:22 PM by
 

IRS offers relief of penalties associated with excess advance premium credit

The IRS has provided a procedure to help taxpayers avoid late payment penalties if they are unable to repay excess advance payments of the Affordable Care Act (ACA)'s premium credit for the 2014 tax year by the due date of their 2014 return. Taxpayers facing penalties for the underpayment of estimated taxes attributable to those excess payments can also get relief.

Taxpayers can qualify for these abatements if:

  1. They are otherwise current with their filing and payment obligations; and
  2. They report the amount of excess advance credit payments on their timely filed 2014 tax return, including extensions.

Taxpayers facing the late-payment penalty must also have a balance due for the 2014 tax year due to excess advance payments of the premium tax credit.

Taxpayers who are unable to repay the excess advance payments will receive a notice from the IRS in the mail. Taxpayers should write a letter to the address listed on the notice that contains the statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”

To request an abatement of the underpayment of estimated tax penalty, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return along with this statement: “Received excess advance payment of the premium tax credit.” Taxpayers do not need to complete any of the form’s other pages or calculate the penalty amount.

Individual Shared Responsibility Provision

Have you been wondering how the ACA will affect your 2014 tax return? For more than 100 million taxpayers the only additional step will be checking a box on Form 1040 indicating each member of their family had qualifying health coverage for the whole year. For those who had health coverage gaps or no coverage in 2014, however, it’s time to contact your tax professional.

For 2014, you may be exempt from the health coverage requirement if you meet certain criteria. Your tax professional can help you determine if you qualify for an exemption from the Individual Shared Responsibility provision.

It’s also important to correct the issue by enrolling in a qualifying health insurance program before the 2015 deadline. The open enrollment period for 2015 ends Feb. 15, and employers have until Feb. 2 to issue W-2s, so don’t wait until you receive your W-2 to talk with your tax professional or you could miss the deadline. The fee for not having health coverage is increasing from 1% of household income or $95 in 2014 to 2% of household income or $325 per person (maximum penalty per family is $975) in 2015.

Employers required to offer health plans or pay penalty

Originally, applicable large employers were required to comply with the Patient Protection and Affordable Care Act (ACA) after Dec. 31, 2013, but the IRS has delayed the tax for all employers until this year, 2015. For employers with 100 or more full-time equivalent employees, affordable minimum essential coverage must be offered to at least 70% percent of full-time employees in 2015 in order to avoid a penalty. Mid-sized employers (50-99) have until Jan. 1, 2016, to comply with the employer mandate without facing any Section 4890H penalties.

An applicable large employer must determine whether to “pay or play” (i.e., whether to offer a plan or not). This article is not focused on a pay or play analysis; rather, it is centered on a different and distinct excise tax. This excise tax is assessed if any employer, whether required or not, offers a group plan that does not provide for minimum essential coverage. The excise tax is $100 per day per individual to whom the failure relates.

Non-integrated health reimbursement arrangements are not considered to provide minimum essential coverage

A common plan offered by employers is a health reimbursement arrangement (HRA). An HRA is an arrangement that is funded solely by an employer which reimburses an employee for medical care expenses. HRAs are generally considered to be group health plans under the Internal Revenue Code. An HRA on its own does not constitute minimum essential coverage under the ACA even if the HRA reimburses for outside plans that would normally constitute minimum essential coverage. An employer may, however, offer an HRA in combination with other coverage and satisfy the requirement to offer minimum essential coverage. This is known as an integrated HRA.

In order for an HRA to be integrated, it must only be available to employees who are covered by the primary group health plan that is provided by the employer and satisfies the annual dollar limit prohibition. A plan violates the annual dollar limit prohibition if the plan sets a maximum dollar amount allowed for covered benefits.

The IRS issued guidance in Notice 2013-54 that explains that an HRA cannot be used in conjunction with the individual marketplace to comply with the employer mandate. Since an HRA is considered a group health plan, this arrangement will run afoul of the annual dollar limit prohibition. Employers offering a group health plan must provide minimum essential coverage or the employer will be subject to an excise tax of $100 per day per individual to whom the failure relates.

Employers should seriously consider the consequences of failing to offer a group health plan that constitutes minimum essential coverage. Both small and large employers should confirm with their benefits advisor that the plan(s) offered provides minimum essential coverage. If an employer fails to offer a group health plan that encompasses all of the minimum essential coverage requirements, the employer is subject to an excise tax of $100 per day per individual to whom the failure relates. In other words, an employer can face a maximum of $36,500 each year per employee for failing to offer a compliant group health plan.

In addition to non-integrated HRAs, there are a plethora of other mandates that can trigger the $100 per day per individual to whom the failure relates:











If an employer offers a plan that is not complaint with these requirements, there may be steps that can be taken to avoid or reduce potential excise tax. Contact your KSM advisor to review your specific situation and determine any corrective actions that may need to be taken.

If you have any questions concerning how these updates affect your tax situation, please contact your KSM advisor.

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Five Things to Do Before a Sales Tax Audit

Posted 7:48 PM by
Sales and use tax audits can be painful, especially for small and mid-sized businesses. For the unprepared, these audits shed light on areas of noncompliance and, more often than not, end with an assessment. Here are five proactive tips to ease the pain before you receive the dreaded audit notification:
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Year-End Tax Planning: Top 10 Considerations

Posted 6:03 PM by
As 2014 draws to a close, there are many year-end tax-planning strategies that both businesses and individuals should consider. Read the top-10 list of such considerations, including updates on this week's "tax extenders" legislation, the recent changes included in the Foreign Account Tax Compliance Act, new repair regulations, and others.
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The Manufacturing Advisor: Tax Policy of Critical Concern to Manufacturers

Posted 2:25 PM by
Tax Policy of Critical Concern to Manufacturers: The 2014 Indiana Manufacturing Survey: Strong for Today, Concerned for Tomorrow was full of enlightening information for the Hoosier manufacturing industry, but one of the most striking pieces of information to come from the survey was this: When asked to select the most critical factor in terms of manufacturing cost and viability, property tax policy and corporate tax policy were rated extremely important by 66% of respondents, finishing . just a single percentage point behind regulatory issues and healthcare. And, in this day of 24/7 coverage of the Affordable Care Act, that’s saying something.
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The Advisor - Issue 2, 2014

Posted 10:50 PM by

In This Issue:

Managing Partner Message
It is always a pleasure to share some of the great happenings taking place at Katz, Sapper & Miller, none of which would be possible without the combination of talented, dedicated employees and wonderful clients. By David Resnick, CPA

Tax-Planning Pitfalls for Developers in Public-Private Partnerships
Public-private partnerships (P3) are a hot topic in real estate development. With many real estate developers and construction companies still experiencing a lack of liquidity coming out of the Great Recession, these cooperative agreements between government and private entities allow the building of many projects that would not happen otherwiseBy Chad Halstead, JD
 

2015 Hiring Outlook: The Year of the Contractor
It would be hard to argue the U.S. economy has not fared better in 2014 than 2013, and it certainly looks like that trend will continue into 2015. Like the economy, hiring and unemployment trends have also improved. By Mark Barnhart, CPC, CERS

Accounting Considerations with Tax Increment Financing
Among economic incentives, tax increment financing (TIF) is a common financial tool of local governments to spur growth. Essentially, TIF provides upfront funding of development efforts, which are repaid by the resulting higher incremental future tax revenues. By Matt Bishop, CPA, MBA

Amortization of Goodwill Is Back on the Table
Companies are finding opportunities for growth through acquisitions. Upon completing an acquisition, any unallocated acquisition price is presented on the balance sheet as “goodwill.” By Jason Patch, CPA

Weighing the Decision to Move to the Cloud
By now, everyone has heard about cloud computing and, likely, has at least considered use of the cloud for professional or personal needs. By Charlie Brandt

 

Katz, Sapper & Miller’s The Advisor is a bi-annual newsletter that focuses on business and tax solutions for today's entrepreneur.

 

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Congress Passes "Tax Extenders" Legislation

Posted 9:21 PM by

Yesterday, the Senate passed the Tax Increase Prevention Act of 2014, also known as the "tax extenders" legislation. This bill now goes to President Obama for signature.

The "tax extenders" legislation extends more than 50 expired tax provisions retroactively to the beginning of 2014. These provisions have only been extended for 2014.

Two of the most significant provisions that were extended are bonus depreciation and Section 179 expensing.

  • Bonus depreciation allows for taxpayers to claim an additional first-year depreciation deduction equal to 50% of the cost of new assets placed in service prior to January 1, 2015. In order to qualify for bonus depreciation, the asset placed in service must be a new piece of tangible property.
  • Section 179 allows for taxpayers to expense up to $500,000 of the cost of qualified assets with an overall investment limitation of $2 million. To qualify for Section 179 treatment the asset must be depreciable tangible property or computer software which was acquired for use in a trade or business. Assets must be placed in service prior to January 1, 2015.

Other key business provisions that have been extended include:

  • The research credit has been extended.
  • The Work Opportunity Credit has been extended for employees who began work for the employer before January 1, 2015.
  • For corporations that converted from C to S status, the built-in gain recognition period is five years.
  • For S corporations making charitable donations of appreciated property, a shareholder's basis is adjusted by the cost basis of the asset instead of the appreciated value.
  • Certain excise tax credits for alternative fuels have been extended.

Key individual provisions that have been extended include:

  • The deduction for state and local income taxes in lieu of deducting state income taxes.
  • The above-the-line deduction for qualifying tuition and fees for post-secondary education.
  • The $250 above-the-line deduction for teachers' classroom expenses.
  • The exclusion from income from cancellation of mortgage debt on a principal residence up to $2 million.
  • The ability to contribute required minimum distributions from IRAs, up to $100,000, directly to charitable organizations. These distributions are not taxable.

If you have any questions concerning how these and other provisions affect your tax situation, please contact your KSM advisor.

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New FATCA Withholding Rules

Posted 2:20 PM by

The Foreign Account Tax Compliance Act (FATCA) imposes a new layer of withholding rules on U.S. persons making payments of U.S. source income to foreign entities. The FATCA withholding rules require a 30% nonrefundable withholding tax on certain payments of U.S. source income to foreign entities that fall within specifically defined categories. Payors of U.S. source income to foreign entities need to obtain the new Form W-8BEN-E from the foreign payee in order to document the payee’s FATCA status and substantiate exemptions from this withholding obligation. 

The requirement to document the status of each payee (U.S. versus foreign) is not a new requirement and was previously satisfied using the Form W-9 (for U.S. individuals and U.S. entities) or Form W-8BEN (for foreign individuals and foreign entities). The documentation procedures for U.S. persons and foreign individuals has not changed, and the Forms W-9 and W-8BEN are still used. However, the Form W-8BEN is no longer used for payments to foreign entities. The FATCA obligations now require U.S. payors to obtain the Form W-8BEN-E (or other W-8 series form if appropriate) from payees that are foreign entities. 

FATCA Categories

All foreign payees will be classified as either a foreign financial institution (FFI) or non-financial foreign entity (NFFE). FFIs include (but are not limited to):  

  • Depository institutions (banks)
  • Custodial institutions (mutual funds)
  • Investment entities (hedge funds or private equity funds)
  • Insurance companies that offer cash value products or annuities (typically life insurance companies)

NFFEs are foreign entities that are not FFIs. 

Once the foreign payee is determined to be either an FFI or NFFE, then the categories within each classification must be determined. A description of the most common types of entities in each category are provided below along with the FATCA withholding obligation associated with each category.

Action Steps

If making payments of U.S. source passive income to foreign entities, the following must be done:

  1. Determine who is being paid (foreign or U.S. person)
  2. Get documentation to support that conclusion (either a W-9 or W-8 form)

- If paying a foreign entity, get an updated W-8BEN-E that confirms the payee’s FATCA status. If the payee is a participating FFI, check the published monthly list of participating FFIs to confirm their status. 

- Determine (based on the FATCA status) if it is necessary to withhold the 30% FATCA obligation. If not, determine if other withholding rules would apply. It is important to note that payments exempt from FATCA withholding are still subject to the long-standing withholding rules under Internal Revenue Code Sections 1441 through 1446.

If you (or a member of your consolidated group) are considered an FFI or NFFE, and such foreign entity is receiving payments of U.S. source income subject to FATCA withholding, the following must be done to ensure that you are registered and in compliance with FATCA: 

  1. FFIs need to register on the FATCA website and sign the FFI agreement. If they are in a Model 1 country, they must do so by 12/31/14. If they are in a Model 2 country or a country with no IGA, they must do so immediately. 
  2. Passive NFFEs (defined below) need to determine which category of NFFE they will be.

    - A passive direct reporting NFFE (defined below) needs to register on the FATCA website and report their substantial direct and indirect U.S. owners on Form 8966 by March 31.
     

    - A passive indirect reporting NFFE (defined below) must list their substantial direct and indirect U.S. owners on the W-8BEN-E they provide to potential withholding agents. 
     
  3. There is no action required with respect to active NFFEs (defined below).

The FATCA registration website can be found at https://sa.www4.irs.gov/fatca-rup/.

The official FFI list can be found at http://www.irs.gov/Businesses/Corporations/FATCA-Foreign-Financial-Institution-List-Search-and-Download-Tool.

Common FATCA Entity Types

  • Foreign Financial Institution (FFI):

    - Exempt FFI: Exempt FFIs include most governmental entities, most non-profit organizations, certain small or local financial institutions, and certain retirement entities. No FATCA withholding is required.

    - Participating FFI: FFIs that have registered with the IRS using the online registration or through filing a Form 8957. They appear on the official FFI list (that is issued monthly) with a valid Global Intermediary Number (GIIN).  Participating FFIs have signed an FFI agreement to provide the IRS with information about U.S. account holders (name, identifying number, address, maximum balance, etc.). FFIs that are in a country that has signed a Model 2 Intergovernmental Agreement (IGA) are also included as a participating FFI. No FATCA withholding is required. 

    - Nonparticipating FFI: FFIs that do not register with the IRS and are subject to a 30% withholding tax on all payments of U.S. sourced income that is fixed or determinable, annual or periodic income (generally passive income such as interest, dividends, rents, royalties, etc.).  

    - Deemed Compliant FFI: Deemed compliant FFIs include certain local banks, qualified collective investment vehicles, restricted funds, retirement plans, FFIs with only low value accounts, and FFIs that are in a country that has signed a Model 1 Intergovernmental Agreement (IGA). No FATCA withholding is required.   
  • Non-Financial Foreign Entity (NFFE):

    - Excepted NFFE: Excepted NFFEs include publicly traded companies and their affiliates, certain entities organized in U.S. territories, and certain non-financial entities (holding companies, treasury centers, etc.). No FATCA withholding is required. 

    - Active NFFE: An Active NFFE is an NFFE where less than 50% of its gross income for the preceding calendar year is passive type income and less than 50% of its assets for the preceding calendar year are assets that generate passive type income. No FATCA withholding is required. 

    - Passive NFFE: A passive NFFE is an NFFE that isn’t excepted or active. It could fall into three different categories: 
  1. Direct Reporting NFFE: A direct reporting NFFE registers with the IRS and gets a GIIN number. It reports its direct or indirect substantial U.S. owners on Form 8966. No FATCA withholding is required.
  2. Passive indirect reporting NFFE: An NFFE that does not directly report its U.S. owners to the IRS, but does report its U.S. owners on the W-8BEN-E. No FATCA withholding is required.
  3. Passive non-reporting NFFE: A passive NFFE that does not report its direct or indirect substantial U.S. owners (directly or indirectly). These NFFEs are subject to a 30% withholding tax on all payments of U.S. source income that is fixed or determinable, annual or periodic income (generally passive income such as interest, dividends, rents, royalties, etc.). 

About the Author
Ryan Miller is a partner in Katz, Sapper & Miller’s Tax Department. Ryan provides consulting services on a variety of technical tax matters, with an emphasis on international tax, oversees tax compliance and handles tax controversies. His experience includes entity taxation, among other areas.
 

About the Author
Katherine Malarsky is a manager in Katz, Sapper & Miller's Tax Department. Katherine provides consulting services on technical tax matters. She has experience in cost allocation methodologies, export incentive calculations, and international earnings and profits. Connect with her on LinkedIn.

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The Advisor - Issue 1, 2014

Posted 1:43 PM by

In This Issue:

Understanding the Responsibilities and Risks of Serving as a Trustee of a Trust
Being asked to serve as a trustee of a trust may be flattering; however, many factors should be considered in deciding whether to serve as a trustee of a trust. Mistakes can be costly, and trustees can be held liable for breach of fiduciary duty. By Jay Benjamin, CPA, JD

Don’t Bet Your Bottom Dollar
On Jan. 29, 2014, proposed regulations under Internal Revenue Code Section 752 were issued by the U.S. Treasury Department and the Internal Revenue Service, which would preclude partners of partnerships (and members of limited liability companies) from utilizing customary guarantees of partnership debt to bolster the tax basis of partnership interestsBy John Estridge, CPA

Preventing Identity Fraud
In February 2014, the Internal Revenue Service (IRS) ranked identity theft as #1 on its list of “Dirty Dozen” tax scams. From 2008 through May 2012, more than 550,000 taxpayers have been victims of Stolen Identity Refund Fraud (SIRF)By Aaron Brezko, CPA/CFF, CFE

Cost Reduction Strategies: What About Utilities?
In today’s challenging economic times, all businesses and organizations are looking for opportunities to reduce costs. As companies review expenditures, they should not overlook their utilities expense. By Scott Grotjan

 

Katz, Sapper & Miller’s The Advisor is a bi-annual newsletter that focuses on business and tax solutions for today's entrepreneur.

 

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PCORI Fee Due July 31

Posted 3:13 PM by

The Affordable Care Act created a fee called the Patient-Centered Outcomes Research Institute (PCORI) fee. This fee is to be used to fund research on medical treatment effectiveness. This fee is to be paid by both fully-insured and self-funded group health plans.

The fee is $2 per person enrolled in the plan. A person enrolled in the plan includes the participating employee, spouses, domestic partners and dependents. COBRA and retiree participants also must be counted. The fee is due based on the year-end of the plan. The filing will be due on or before July 31, 2014. The fee must be reported on IRS Form 720, “Quarterly Federal Excise Tax Return.”

If you are an employer with a fully-insured group health plan, no action is required as your health insurance carrier is required to report and pay this fee. This additional fee is most likely built into the premiums that you currently pay.

If you are an employer with a self-funded plan, you are responsible for calculating the fee, completing the Form 720 and paying the related fee.

The following plans are considered self-funded plans that are subject to the PCORI fee and the Form 720 filing requirement:

  • All self-funded group health plans, including Health Reimbursement Accounts (HRAs)
  • An HRA that is offered as part of a fully-insured group health plan – the fee is paid only on the HRA part of the plan
  • A stand-alone HRA plan
  • On-site medical clinics
  • Retiree-only group health plans
  • Employee Assistance Programs – only if the EAP provides significant medical benefits

The following plans are exempt from the PCORI fee:

  • Employee Assistance Programs – does not provide significant medical benefits
  • Individual Health Savings Accounts
  • Health and Dependent Flexible Spending Accounts
  • Stand-alone dental plans
  • Stand-alone vision plans

Upon determination that you have a self-funded plan, you must complete the IRS Form 720 (revised version dated April 2014). The form may be completed manually and mailed directly to the IRS (not required to be filed electronically). 

The fee is based on the average number of enrollees for the plan year. Most employers should be able to obtain this information directly from their benefit plan service provider(s). If you have to calculate the number of enrollees yourself, there are three methods that you may choose from in determining the average number of enrollees. The methods are as follows:

  1. The Form 5500 Method: If the plan is required to file Form 5500 and your 2013 Form 5500 is filed timely and before July 31, 2014, this method can be used. To use this method, add the number of participants at the beginning of the year (Part II, line 5 of Form 5500) to the total participants at the end of the year (Part II, line 6d) and divide the total by 2.Then multiply this total by $2.
     
  2. The Actual Count Method: This method uses the number of lives covered for each day of the plan year divided by the number of days in the plan year.
     
  3. The Snapshot Method: This method uses the total number of lives covered on a given date in each quarter of the plan year. The sum is then divided by 4.

The following sections of the Form 720 will need to be completed (assuming that the Form 720 is being filed only to report the PCORI fee):

  • Complete the top section of the form. The quarter ending is the second quarter, which is June 2014.
  • Go to Part II, line 133. The Applicable Self-Insured Health Plans line is going to be completed. In column (a), report the average number of lives covered. Multiply the number in column (a) by $2 and enter that amount. This calculated amount will also be entered in the tax column.
  • Go to Part III and enter the total tax on line 3. Show 0 on line 5 as no payments have been made towards this tax. Line 10 will show the amount due with the return.
  • Sign and date the return on the bottom of page 2.

The fee needs to be paid using the Electronic Federal Tax Payment System.

  • Mail the signed and completed Form 720 to:
    • Department of the Treasury
      Internal Revenue Service
      Cincinnati, OH 45999-0009
       
  • If you want to use FedEx, UPS or DHL, the address to send your return to is:
    • IRS Processing Center
      201 W. Rivercenter Blvd.
      Covington, KY 41011

The contents of this message are for informational purposes only. If you have any questions regarding the PCORI fee and filing requirement, please contact your benefit plan service provider or any of the following KSM advisors.

Patrick Brauer, Partner
317.844.4873         

Bernadette Fletcher, Director
317.580.2134

Karen Noel, Director
317.844.4879

Jolaine Hill, Director
317.580-2446

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