William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

Archive for the ‘Wealth Management’ Category

TaxFacts Intelligence December 16, 2020

Posted by William Byrnes on December 16, 2020


There have been a number of challenges to the requirement for physical damages in business interruption insurance policies, and this week we see a court ruling in North Carolina that CVOID-related restrictions were enough to meet the test for physical damages because they prevented the policyholder from using their property. More on this in Tax Facts, and also at our sister site FC&S.  Also, if you missed the late November webinar on “The Biggest Tax Implications for 2021” you can still register and view the recording at the link below. William Byrnes and Robert Bloink walked us through an hour of what the CARES Act and FFCRA changes may look like in 2021. Tune in!

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

ACA Likely To Withstand Latest Challenge The U.S. Supreme Court recently heard oral arguments that will be instrumental in determining the fate of the Affordable Care Act.  Since the 2017 tax reform legislation reduced the individual mandate to $0, many challenged whether the ACA was constitutional–in other words, whether it could be considered a valid exercise of Congress’ power to tax.  Confirmation of new Supreme Court justice Amy Barrett created the real possibility that the ACA could be overturned.  However, after hearing oral arguments, two conservative justices–Roberts and Kavanaugh–indicated their support for severance.  If that happens, the individual mandate portion of the ACA would be severed from the remainder of the law.  For more information on the ACA, visit Tax Facts Online.  Read More. Read More

State Court Rules in Favor of Restaurants in Business Interruption Insurance Case A North Carolina court has ruled in favor of a group of restaurants and required the insurance company to provide business interruption coverage.  The court agreed with the plaintiffs that government stay-at-home orders and travel restrictions caused the restaurants to suffer a physical loss because they lost physical use and physical access to their businesses.  The policy at issue defined “loss” as “accidental physical loss or accidental physical damage,” but did not define “direct”, “physical loss”, or “physical damage.”  The court agreed that the businesses lost the full use and advantage of their business premises.  The court rejected the insurance company’s argument that tangible physical loss was required because, even if true, that rendered the policy language ambiguous.  Despite the fact that this was a state-level case, other courts may find the reliance on standard contract interpretation principles persuasive.  For more information on business insurance issues, visit Tax Facts Online. Read More

DOL Releases Final Rule on Considering Non-Financial Factors in Selecting Retirement Plan Investments The DOL has released a final rule on whether environmental, social and governance (ESG) factors can be considered when retirement plan fiduciaries are selecting plan investments without violating their fiduciary duties.  Plan fiduciaries are obligated to act solely in the interest of plan participants and beneficiaries when making investment decisions.  The final rule confirms the DOL position that plan fiduciaries must select investments based on pecuniary, financial factors.  Fiduciaries are required to compare reasonably available investment alternatives–but are not required to scour the markets.  The rule also includes an “all things being equal test”–meaning that fiduciaries are not prohibited from considering or selecting investments that promote or support non-pecuniary goals, provided that they satisfy their duties of prudence and loyalty in making the selection.  For more information, visit Tax Facts Online. Read More

Texas A&M, an annual budget of $6.3 billion (FY2020) and $1 billion of research grants/budget, is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

TaxFacts Intelligence December 14, 2020

Posted by William Byrnes on December 14, 2020


Looks like we have more guidance from the IRS on PPP forgiveness and deductibility of expenses. This is getting more complicated as we approach the end of the year and many taxpayers are anticipating, but have not yet received, the forgiveness of their PPP loans. The new guidance helps deal with a couple of potential types of situations that companies may find themselves in while they wait for forgiveness applications to be reviewed.

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

IRS Releases Safe Harbors to Allow Certain PPP Loan Recipients to Deduct Business Expenses One controversial element of the PPP loan rules involves whether taxpayers who receive loan forgiveness qualify to deduct otherwise deductible business expenses.  To date, IRS’ guidance has confirmed that otherwise eligible deductions will be denied.  However, the agency has now released a safe harbor for certain taxpayers whose application for forgiveness was denied or who opted to forgo applying for forgiveness.  The safe harbors allow a taxpayer to claim a deduction in the 2020 tax year for certain otherwise deductible eligible expenses.  For more information on the safe harbor requirements, visit Tax Facts Online. Read More

IRS Confirms Position on Non-Deductibility of Business Expenses for PPP Loan Recipients Who Expect Loan ForgivenessThe IRS has released guidance confirming that PPP loan recipients who have a reasonable expectation that they will have loan amounts forgiven cannot deduct otherwise eligible business expenses.  A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses may not deduct those expenses in the tax year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period.  That’s true even if the taxpayer has not yet submitted an application for forgiveness of the covered loan by the end of the tax year.  For more information on the implications of PPP loan forgiveness, visit Tax Facts Online. Read More

Complex Contribution Limits for Employees Participating in Multiple Employer-Sponsored Retirement PlanAs we approach the end of the year, many taxpayers may have questions about their 2020 retirement plan contribution limits.  Employees who participate in more than one plan are subject to two sets of limits: the annual additions limit and the deferral limit.  The deferral limit maxes out at $19,500, or $26,000 for clients 50 and older, in 2020.  Each participant is limited in contributing $19,500 across all retirement plans.  The annual additions limit in 2020 is $57,000 ($63,500 for those 50 and up).  The annual additions limit includes all employer and employee contributions.  Each employer-based plan gets its own annual additions limit.  Therefore, if you have two employers, each employer can contribute up to the $57,000 limit.  In other words, contributions from unrelated employers aren’t aggregated.  For more information on the 401(k) contribution limits, visit Tax Facts Online. Read More

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

TaxFacts Intelligence Dec. 7, 2020

Posted by William Byrnes on December 7, 2020


Well, it looks like there will be a work-around for the SALT cap that was enacted under the Trump tax reform bill, at least for taxpayers who own pass-throughs. The IRS has officially announced that those pass-through entities can pay (and then deduct) the SALT taxes above the $10,000 limit.  Also, those who took our PPP loans for $2 million or more are getting a rather detailed questionnaire from the SBA inquiring about the economic necessity of those loans. Recall that PPP loans of less than $2 million are presumed to be requested in good faith, so this doesn’t apply to those borrowers. Happy Thanksgiving (or Zoomsgiving)!

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

IRS Offers Guidance on Covid-19 Era Qualified Transportation BenefitsWith so many employees working from home for the bulk of 2020, employees have begun to question whether they will lose their unused qualified transportation benefits.  Some employees are driving rather than using public transit–and others aren’t commuting at all.  The IRS recently released an information letter explaining that unused qualified transportation benefit amounts can be rolled over to subsequent periods and used for future commuting expenses.  To qualify, the employee must have made a valid compensation reduction election and remain employed by the employer in the subsequent period.  Further, the IRS confirmed that unused amounts could be applied to other types of qualified transportation benefits, including parking, if the employer offers that benefit.  On the other hand, the IRS noted that refunds of unused qualified transportation benefits are not permitted if those benefits are provided through a compensation reduction agreement.  For more information on qualified transportation benefits, visit Tax Facts Online.  Read More

SBA Issues PPP Loan Necessity Questionnaires to PPP Loan RecipientsIn a surprise move, the SBA has begun asking paycheck protection program (PPP) lenders to issue loan necessity questionnaires to recipients of loans of at least $2 million.  The questionnaires are detailed and request significant information, and were issued without warning or fanfare.  It’s expected that these information requests might be used in enforcement of PPP loan requirements or in determining eligibility for forgiveness.  According to the SBA, the forms will be used to evaluate whether a recipient’s loan was made necessary by economic uncertainty.  Information provided in the forms must be certified under threat of criminal action for false statements.  The questions essentially ask borrowers to certify actual detrimental economic impact.  Borrowers will also have to provide information about local Covid-19 shutdown orders, other CARES Act aid, financial information and compensation to highly compensated owners and employees.  Upon receipt, the borrower has only 10 days to complete the questionnaire and submit supporting documents.  For more information on the PPP loan program, visit Tax Facts Online.  Read More

IRS Regs Bless SALT Cap Workarounds for Pass-Through EntitiesThe IRS has released regulations confirming that partnerships and S corporations who pay entity-level taxes at the state level can deduct those taxes on their federal income tax returns.  By now, most people are familiar with the $10,000 SALT deduction cap created by the 2017 tax reform legislation.  High-tax state governments have attempted to create workarounds that would allow taxpayers to get around this cap.  At the individual level, the IRS has responded to shut those efforts down.  The recent regulations confirm, however, that the entity is permitted the deduction for state-level taxes even if the entity could have elected to pass the tax liability through to the actual individual owners.  For more information on the SALT cap, visit Tax Facts Online.  Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin on January 19 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

TaxFacts Intelligence December 3, 2020

Posted by William Byrnes on December 3, 2020


This week, we examine the new October regs (subscribers received this analysis the next day) on the process of establishing an ABLE account. The new rules provide increased flexibility in terms of who can establish the account, which may be an important factor when support for the beneficiary comes from multiple family members. We also have additional clarification on the Small Business Exemption to the Business Interest Deduction rules and a new online resource from the IRS that assists those who are closing a business. . .

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Final ABLE Account Regulations Offer New Flexibility

The IRS final ABLE account regulations broaden the range of parties who are eligible to establish an account.  Under the new rules, the beneficiary can designate any person to establish an account on their behalf.  If the beneficiary is unable to designate a person, the account can be set up by an agent under a power of attorney, a conservator, legal guardian, spouse, parent, sibling, grandparent or representative payee appointed by the Social Security Administration (in that order of priority).  The ABLE program itself is entitled to rely upon the person’s certification that he or she is authorized to set up the account for the benefit of a disabled person, and that there is no person with a higher priority who is willing and able to set up the account.  Similarly, the person who establishes the account will generally have signature authority over the account.  For more information on the ABLE Account rules, visit Tax Facts Online. Read More

IRS Clarifies Small Business Exemption to Business Interest Deduction Rules

The 2017 tax reform legislation changed the general rules for deducting business interest.  While the 2020 CARES Act relaxed the new limitations, the new rule generally limits the business interest deduction.  Small businesses that are not tax shelters are not subject to the new limits if they pass the gross receipts test (by having average annual gross receipts of no more than $26 million for the past three tax years).  Related entities are generally aggregated if they’re aggregated for other tax code purposes.  In past years, some small businesses were uncertain whether they fell into the definition of “tax shelter” because there was some uncertainty in the way “syndicate” was defined–multiple definitions apply in different tax code sections.  The IRS clarified this by releasing proposed regulations specifying that “syndicate” is defined using the Treasury Regulation Section 1.448-1T(b)(3) definition.  Because of this, only small businesses that have passive investors who are actually allocated losses are treated as tax shelters that are ineligible.  For more information, visit Tax Facts Online. Read More

IRS Creates Online Resource for Closing a Business

Unfortunately, many small business owners have been forced to close due to the economic fallout of the Covid-19 pandemic.  The IRS has now created an online resource giving business owners step-by-step information about how to close a business.  The website reminds taxpayers that they are required to file a final tax return for the year the business closes.  The relevant form will depend upon the type of business entity involved.  Employers are also required to pay employees all compensation that they’re owed—and must pay related employment taxes on those wages.  They must also report any payments in excess of $600 made to independent contractors.  The business should also close all business accounts and cancel their EIN by sending a letter to the IRS.  For more information on the tax obligations of employers, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. < Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Leave a Comment »

TaxFacts Intelligence Nov 23, 2020

Posted by William Byrnes on November 23, 2020


This week we analyze two updates on how the CARES Act is impacting retirement plans. First, we have additional information about re-contributing COVID hardship distributions for qualified plans. Recall that the CARES Act offers a generous window in which to make those re-contributions, so this may be an important topic for end-of-the year tax planning. We also see an update for single-employer defined benefit plans, including some important deadlines. Happy tax reading for Thanksgiving week!

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Clearing up Confusion About Re-Contributing Coronavirus-Related Retirement Distributions

The CARES Act relaxed the hardship distribution rules so that plan participants suffering hardships because of the coronavirus pandemic could access their retirement savings. The law also allows participants to re-contribute those funds within three years of the distribution without penalty. Employer-sponsored plans, however, are only able to accept rollovers from participants (and sometimes new hires). Therefore, if an employee takes their entire account balance as a coronavirus-related hardship distribution and later stops working for the employer, the person is no longer a participant or new hire. For more information on the rules regarding CRDs, visit Tax Facts Online. Read More

Agencies Offer New CARES Act Contribution Relief for Single-Employer Defined Benefit Plans

Sponsors of defined benefit plans are generally required to pay premiums annually to the PBGC. Calculating the premium amount is complex. The first factor imposes a flat-rate, per-participant amount. The second portion is variable, and is based on the plan’s unfunded vested benefits. In calculating this amount, the sponsor is allowed to include any contributions made up to the filing due date. The CARES Act extended the deadline for making a 2019 defined benefit contribution until January 1, 2021. For more information on the defined benefit plan funding rules, visit Tax Facts Online. Read More

IRS Issues Final Regs on Post-TCJA Deductions for Estates and Non-Grantor Trusts

The IRS has released final regulations to clarify that estates and non-grantor trusts are entitled to take certain deductions even after the 2017 tax reform legislation eliminated miscellaneous itemized deductions and suspended the personal exemption for 2018-2025. Generally, non-grantor trusts are entitled to deduction otherwise deductible expenses that would not be incurred but for the fact that the property or assets are held in trust. For more information on the taxation of trusts and estates, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin on January 18 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

TaxFacts Intelligence Nov 20, 2020

Posted by William Byrnes on November 20, 2020


This week we look at the three sets of updates from the IRS regarding various SECURE Act changes (subscribers will find our coverage the same week as the release in Tax Facts Online). First, we have guidance for employers on vesting schedules for long-term part-time employees. Next is an update on how QCDs are affected by (newly) deductible qualified plan contributions made after age 70½. Finally, we have guidance that accepting contributions from plan holders who are past age 70½ is not mandatory, and may be disallowed by financial institutions.

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

IRS Offers Guidance on Vesting Rules for Long-Term, Part-Time Employees Post-SECURE Act

The SECURE Act generally amends the 401(k) qualification rules to allow participation for certain long-term, part-time employees. IRC Section 401(k)(15)(B)(iii) provides special vesting rules for employees who become eligible to participate solely by reason of having completed three consecutive 12-month periods where the employee completed at least 500 hours of service (long-term, part-time employee). The rule providing that 12-month periods beginning before January 1, 2021 are not taken into account does not apply for purposes of the vesting rules. Generally, all years of service with the employer maintaining the plan must be taken into account for purposes of determining a long-term, part-time employee’s nonforfeitable right to employer contributions under the special vesting rules in § 401(k)(15)(B)(iii). For purposes of determining whether a long-term, part-time employee has a nonforfeitable right to employer contributions (other than elective deferrals), each 12-month period for which the employee has at least 500 hours of service is treated as a year of service. For more information, visit Tax Facts Online. Read More

IRS Provides Details on Reducing Excludable QCDs Caused by Deductible Post-70½ Contributions

The SECURE Act amended the rules governing qualified charitable distributions (QCDs), which are distributions from an individual’s IRA, made directly to charity on or after age 70½. The amendment provides that the excludable amount of QCDs for a taxable year is reduced by the aggregate amount of IRA contributions deducted for the year and any earlier taxable years in which the individual was age 70½ or older by the last day of the year (post-age 70½ contributions). The excludable amount of QCDs for a taxable year is not reduced by the amount of post-age 70½ contributions that caused a reduction in the excludable amount of QCDs for earlier taxable years. For more information on the IRS guidance, visit Tax Facts Online. Read More

IRS Provides Clarity on SECURE Act Post-70½ IRA Contributions

The IRS has released guidance clarifying that while the SECURE Act removed the age 70½ restriction on making traditional IRA contributions, the provision is not mandatory. In other words, financial institutions can choose whether or not to accept IRA contributions after the account owner has reached age 70½. If the financial institution does choose to accept post-70½ contributions, the institution must amend its contracts to provide for the change. The IRS has announced that it plans to release revised model IRAs and prototype language to help reflect these changes. Further, the IRS guidance clarifies that post 70½ contributions cannot be used to offset RMDs—the contributions and distributions are treated as separate transactions. For more information on the IRA contribution rules, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin on January 18 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

TaxFacts Intelligence Nov 19, 2020

Posted by William Byrnes on November 19, 2020


There is an updated self-certification process for taxpayers who miss the 60-day rollover deadline. The new process is easier than obtaining a PLR, but it is still only available in a limited set of circumstances. Notably, one of those circumstances is an extreme illness of the taxpayer or a family member, so there may be some COVID-related relief available. Also, we have the new 2021 inflation-adjusted tax numbers! Many of them stayed the same in our current low-inflation environment, but the estate tax exemption is up to $11.7 million.

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Retirement Plan Contribution Limits for 2021 Remain Steady; Estate Tax Exemption Soars

The IRS has released the 2021 inflation-adjusted figures to be used for determining deductible retirement plan contributions, tax brackets and a number of other relevant figures.  In the retirement arena, contribution limits will remain steady–401(k) pre-tax contribution limits remain at $19,500 and catch-up limits remain at $6,500.  IRA contribution limits similarly remain at $6,000.  For 2021, every individual can exempt up to $11.7 million from the federal estate tax (up from $11.58 million).  The annual $15,000 gift tax exclusion remained unchanged.  For more information on the rules on deductible retirement contributions, visit Tax Facts Online. Read More

Instructions for 2020 Forms 1094/1095 Contain New ICHRA Reporting Information

The instructions for Forms 1094 and 1095 contain reporting information for clients who have decided to offer individual coverage health reimbursement arrangements (ICHRAs) beginning in 2020.  ICHRAs allow employers to reimburse employees for the cost of individual health insurance premiums without violating the ACA market reform rules.  Forms 1095-B and 1095-C are provided to both the IRS and the employee who receives coverage.  The employee’s ICHRA contributions now count for purposes of determining whether the employee’s contribution is affordable.  For more information on ICHRAs, visit Tax Facts Online. Read More

IRS Updates Self-Certification Process for Taxpayers Who Miss Retirement Plan Rollover Deadline

Missing the 60-day rollover deadline for tax-free transfers between retirement accounts can cause considerable problems for a client.  In the past, the only way to correct a delayed rollover was to obtain a private letter ruling (PLR) directly from the IRS.  Now, certain clients are eligible to self-certify to avoid the time and expense of obtaining a PLR.  Circumstances that qualify for a waiver via self-certification include: (1) an error was committed by the financial institution, (2) the distribution check was misplaced and never cashed, (3) the taxpayer’s principal residence was severely damaged, (4) a member of the taxpayer’s family died, (5) the taxpayer or a member of his or her family was severely ill, (6) a postal error occurred or (7) restrictions were imposed by a foreign country.  For more information, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin on January 18 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Free Webinar Today | What will be the biggest tax implications for 2021?

Posted by William Byrnes on November 18, 2020


New RMD tables! SECURE Act 2.0? Should you defer SALT expenses until 2021? Tune into Tax Facts Online this week for these exciting updates! Also, check it out, we’re having a webinar today at 2pm CST (Dallas/Chicago time)

Free Webinar | What will be the biggest tax implications for 2021?

Between an election year and a worldwide pandemic, 2020 has left tax and financial planners with a LOT to consider, and the new year is just around the corner. Join the expert-authors behind Tax Facts in this free, live webinar as they discuss important questions many will have about the state of tax in 2021, including potential changes, implications, and more. Register Here

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Bipartisan Retirement Legislation Dubbed “SECURE Act 2.0”

New retirement legislation with bipartisan support would expand upon the changes made by the 2019 SECURE Act to promote more options and greater retirement security for millions of Americans.  Importantly, if passed, the law would increase the required minimum distribution age from 72 to 75.  It would promote auto-enrollment in new employer retirement plans and also provide an expanded tax credit for small business owners who offer a retirement savings option.  The law would provide more options for clients approaching retirement age by allowing greater “catch up” options for clients who are at least 60.  Employers would also be able to provide an employer matching contribution to employees who are unable to contribute to retirement accounts, but instead use funds to pay down student loans.  The law would also ease the burden for clients who make honest mistakes while managing their own IRAs.  For more information about some of the sweeping changes made by the SECURE Act late in 2019, visit Tax Facts Online. Read More

Updated RMD Tables

Although RMDs were waived for 2020, the IRS recently released final and updated tables that are used in calculating taxpayers’ required minimum distributions (RMDs) from traditional retirement accounts.  However, the IRS has also announced that the new tables won’t apply in calculating 2021 RMDs (existing tables remain in effect for 2021).  Starting in 2022, savers who have reached age 72 (up from age 70 1/2 prior to 2020) will be entitled to use the updated life expectancy tables.  For more information on the RMD rules, visit Tax Facts Online. Read More

Defer SALT Expenses Until 2021?

By this point, we’re all familiar with the cap on the deduction for state and local taxes (SALT) that was put into place for 2018-2025.  With the uncertainty of an election year looming, some taxpayers might wonder whether they can take any steps to maximize the value of these deductions.  The answer is: maybe.  For more information on the SALT cap, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience: Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone. All four volumes of Tax Facts in print PLUS

  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , | Leave a Comment »

Estate Planning Update 2020-21 (Lexis)

Posted by William Byrnes on October 22, 2020


Texas Estate Planning Publication Update (2020) [Lexis permalink is here]

Highlights

Current Developments: In this Release 27 of Texas Estate Planning, Prof. William Byrnes analyzes the latest developments and decisions in the federal and Texas courts, including the 2017 Tax Cuts and Jobs Act, the Bipartisan Budget Act of 2018, the SECURE Act of 2019, as well as legislation and consideration resulting from the 2020 COVID-19 pandemic that impact estate planners.

Release 27 of Texas Estate Planning includes 21 chapter revisions of the latest rulings, regulations, cases, and inflationary adjustments, as well as the amendments and additions to law by the biennial 2019 86th Texas legislative session, the Tax Cuts and Jobs Act, the Bipartisan Budget Act of 2018, the SECURE Act of 2019, and CARES Act of 2020. Highlights of this release include:

The SECURE Act. The SECURE Act that took effect in 2020 specifically targets estate planning opportunities for individual retirement accounts. The impact is analyzed in Chapter 1.

T.D. 9884; Treas. Reg. § 20.2010-1(c)The I.R.S. confirmed that gifts made during 2018 through 2025 will attach the transfer tax exemption amount applicable on the date of the gift, and thus allow credit for the higher pre-2026 amount post-2026 even though the transfer tax exemption will have reverted to the pre-2018 amount (adjusted for inflation). The impact is analyzed in Chapter 2.

State Imposition of Tax on Trust Income. Some states attempt to tax trust income based on the residency of the beneficiary. In North Carolina Department of Revenue v. The Kimberly Rice Kaestner 1992 Family Trust, the State of North Carolina imposed an income tax on accumulated income of an irrevocable trust created in New York because of the residency of three beneficiaries in North Carolina. The U.S. Supreme Court in a decision based on the specific facts of the case held that the tax violated the Due Process Clause. See Chapter 31.

Impact of Tax Cuts and Jobs Act Exclusion. The IRS for 2018 reported that it received 34,092 total estate tax returns and 245,584 gift tax returns. Of the estate tax returns for 2018, the IRS reported that it received 5,484 taxable returns (which most likely relate to deaths in 2017) reporting $106 billion of estate gross assets and a tentative estate tax liability of $34 billion. The Urban Institute Tax Policy Center estimates that for 2020 only 1,900 estate tax returns will have tax owing of a total $16 billion.

Tax Cuts and Jobs Act Exclusion. The Tax Cuts and Jobs Act of 2017 (“TCJA”) increases from 2018 until 2026 the transfer tax exemption to $10 million per individual indexed for inflation so that for 2020 the amount is $11.58 million or $23.16 million per married couple. The 2020 annual gift tax exclusion for gifts made to a non-citizen spouse is $157,000. In 2026, the transfer tax exemption reverts back to the 2017 level indexed for inflation (in 2018 it would have been $5.6 million). All chapters have been updated to reflect these changes as well as the inflation adjustments of Rev. Proc. 2019-44.

U.S. Estate Tax Regime On High Net Wealth Immigrants. Chapter 7 analyzes planning strategies to mitigate exposure of foreign assets to U.S. estate tax.

IRS Settlement Offer For Microcaptives. See Chapter 5.

Author and Contributors

Professor William Byrnes of Texas A&M University School of Law and author of ten Lexis legal treatises is the author of Texas Estate Planning. He has assembled a team of preeminent subject matter experts as chapter contributors, including: Tena Fox (Leach & Fox), Terry Leach (Leach & Fox), Patrick McCormick (Drucker Scaccetti), Benjamin Terner (The Einstein Group), Kim Donovan Uskovich (Kelly Hart), and James Weller (Greenway Capital Advisors).

Interested in the two volumes of Estate Planning book? See here

Posted in Pensions, Retirement Planning, Taxation, Uncategorized, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (October 15, 2020)

Posted by William Byrnes on October 15, 2020


Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

This week we have new info on the definition of “business interest” as it relates to the 2017 tax reform and CARES Act modifications. The IRS has released both final and proposed regs on the matter, and there are new rule changes regarding some of the ancillary costs that can come with debt issuance, such as commitment fees and guaranteed payments that are broadly categorized as “substitute” interest costs. We also see new regs on the elimination of qualified transportations benefits and updated deadlines for Form 1095.

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Final Business Interest Regs Relax Definition of “Business Interest” 

The IRS has released final regulations and a new set of proposed regulations on the deduction for business interest, which was modified by the 2017 tax reform legislation.  The new proposed IRS regulations on the business interest expense implement many of the new CARES Act provisions designed to help small business owners in 2020 and future years. While the final regulations largely mirror earlier proposed rules, one significant change relaxes the previous definition of “business interest”.  Under the proposed regulations, interest included commitment fees, debt issuance costs, guaranteed payments and other “substitute” interest costs.  Under the final rules, commitment fees and debt issuance costs are excluded from the definition of interest. For more information on the business interest deduction and the 2020 CARES Act changes, visit Tax Facts Online. Read More

IRS Proposes Regs on TCJA Elimination of Qualified Transportation Benefits

The IRS issued proposed regulations on the 2017 tax reform legislation’s elimination of deductions for certain employer-provided transportation benefits.  Under the proposed rules, if the employer owns or leases the parking facility, the employer can elect to apply a general rule, or one of three simplified methods, for calculating the amount of nondeductible expenses.  Taxpayers may elect to apply the general rule or a simplified methodology for each taxable year and for each parking facility.  For more information on the simplified methods, visit Tax Facts Online. Read More

IRS Provides New ACA Transition Relief for Employer Reporting

As usual, the IRS has released transition relief to extend the deadline for providing Form 1095-C to individuals from February 1, 2021 to March 2, 2021.  However, unlike other years, the IRS has indicated that absent comments indicating a need for future extensions, this will be the last year the extension applies.  The due date to furnish the Forms 1095-B and 1095-C to requisite individuals is extended from February 1, 2021 to March 2, 2021.  Form 1094-C and Form 1095-C that must be provided to the IRS are not subject to the extension.  The employer must furnish these filings to the IRS by March 1, 2021 if the filing is on paper and March 31, 2021 if the employer is filing electronically.  For more information, visit Tax Facts Online. Read More

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Uncategorized, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (October 8, 2020)

Posted by William Byrnes on October 8, 2020


 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience: Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone. All four volumes of Tax Facts in print PLUS

  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Well, the August 31 deadline for repaying RMDs is a month behind us now, though the 60-day window still applies for later RMDs. Be sure to check out who is a qualifying individual below to see if the three-year repayment window applies. We also have some info on the new lifetime income estimates for 401(k) participants and some advice on making the most of an FSA this year.

Moving Beyond the August 31 RMD Repayment Deadline

Clients are excused from the RMD rules in 2020 because of the COVID-19 pandemic. Importantly, the IRS gave individuals until August 31, 2020 to repay any RMDs that were taken earlier in the year–even if the 60-day rollover window had already closed. Now that August 31 has come and gone, the usual 60-day rollover window will only help clients who took RMDs in July and August. However, clients should remember that “qualifying individuals” can repay their distributions at any time within three years of the distribution. Qualifying individuals include those who (1) have been diagnosed with COVID-19, (2) have a spouse or dependent who has been diagnosed, (3) have experienced financial hardship due to quarantine orders, layoffs, childcare obligations, etc. To learn more about who qualifies for repayment relief, visit Tax Facts Online. Read More

DOL Releases Rules on SECURE Act Lifetime Income Estimates for 401(k) Participants

The SECURE Act requires plan sponsors to provide plan participants with certain projections designed to increase awareness of their accounts’ income-producing potential. Under the DOL interim final rule implementing this law, 401(k) plans and other ERISA-covered defined contribution plans must show plan participants the estimated monthly payment they could receive based upon their account balance and life expectancy. For more information on how the DOL has interpreted the law, visit Tax Facts Online. Read More

Health FSA Checkup: Understanding the Facts to Make the Most of FSAs in the COVID Era

Tax-friendly health payment options may be more important than ever in the wake of the COVID-19 global health emergency. Employees should take the time to gain an understanding of the benefits and limitations of various options. Health flexible spending accounts (FSAs) allow employees to save up to $2,750 (in 2020) pre-tax for use on health expenses incurred during the year. At the plan’s discretion, up to $550 can be carried over to 2021. Because of the “use it or lose it” rule, it’s important for clients to understand just when their health expenses are deemed incurred. To learn more about health FSAs, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (October 5, 2020)

Posted by William Byrnes on October 5, 2020


Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

This week we see a reminder from the IRS on tax treatment of unemployment compensation. This may be especially important this year with a large number of people receiving unemployment benefits, and the benefit levels being raised considerably for several months to deal with the COVID pandemic. Because withholding is not mandated, there is a greater risk of taxpayers owing a lot of money next year for unemployment benefits received this year.

IRS Reminder on Tax Treatment of Unemployment Compensation

In response to the fact that an unprecedented number of Americans are currently claiming unemployment benefits, the IRS has issued a reminder that these benefits are fully taxable. However, the IRS reminds taxpayers that withholding is completely optional. Taxpayers can elect to have a flat 10% withheld from their unemployment compensation and paid over automatically to the IRS. For more information on the rules for making estimated payments, visit Tax Facts Online. Read More

Proposed Regs on Post-TCJA Qualified Plan Loan Offsets

The IRS proposed regulations help clients with timing for rollover of qualified plan loan offset amounts. The ability to take a qualified plan loan can offer a valuable source of funding in an emergency. However, plan loans are governed by strict repayment rules. Violations can result in the participant’s account balance being reduced (offset) to repay the unpaid balance (after which it is treated as a taxable distribution). These rules are problematic if the employee is terminated or if the plan itself is terminated. TCJA gave these employees extra time to roll over qualified plan loan amounts to prevent unintended consequences. Instead of the 60-day rollover period, the borrower has until the income tax filing deadline to rollover the offset amount. The regulations provide that if the taxpayer files on time, an additional six-month window to complete the rollover will apply even if the taxpayer doesn’t request the extension. For more information, visit Tax Facts Online. Read More

October 15 Deadline for Creditable Coverage Notice

Medicare-eligible individuals who do not enroll in Medicare Part D when first available, but who enroll later, must pay higher premiums permanently unless they have creditable prescription drug coverage. Higher premiums apply if the individual goes at least 63 consecutive days without creditable coverage. To help avoid this, employers are required to provide notice each year as to whether employer-provided coverage is creditable. This year, these notices are due by October 15, 2020. For more information on the creditable coverage requirement, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (October 2, 2020)

Posted by William Byrnes on October 2, 2020


Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

We don’t normally cover a lot from the EEOC here at Tax Facts, but this week has some relevant guidance pertaining to ending telework options. Right now companies are sending mixed signals about returning the office work, and it looks like the EEOC is recognizing that the situation may be different for different employers. We also have updates on using 401(k) funds for adoption expenses and Roth IRA conversions in the COVID era.

EEOC Confirms: Employers Are Not Required to Permit Telework Forever

The EEOC released guidance last week clarifying that employers who have permitted employees to work remotely during the pandemic are not required to continue to permit telework indefinitely. The EEOC guidance clarifies that the rules haven’t changed, so that employers are not required to continue to permit telework as a “reasonable accommodation” under the law. However, an employee’s ability to successfully complete all essential job requirements remotely may be a factor in considering whether a request for remote work is reasonable. For more information, visit Tax Facts Online. Read More

IRS Provides Guidance on Exception for 401(k) Withdrawals for Qualified Birth or Adoption

The SECURE Act amended the IRC to allow qualified plan participants to withdraw up to $5,000 for a qualified birth or adoption without becoming subject to the 10% penalty on early distributions. The distribution must be taken within the one-year period following the birth or adoption. For more information, visit Tax Facts Online. Read More

Enhanced Benefits of Roth Conversions in the COVID-19 Era

Clients who have been considering a Roth conversion might want to take a second look, as 2020 has created a unique opportunity for clients to maximize the value of the Roth conversion strategy. The combination of relatively low tax rates and the potential for future tax hikes might make 2020 the ideal time to convert. Clients who convert traditional retirement funds to a Roth opt to pay income taxes on retirement funds now in exchange for a source of tax-free income in the future. With the federal deficit skyrocketing and the election just around the corner, it’s widely expected that tax rates will be higher in the near future than they are today. Clients might consider taking action to “lock in” 2020 tax rates by converting to a Roth. For more information about the details of a Roth conversion strategy, visit Tax Facts Online. Read More

Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 30, 2020)

Posted by William Byrnes on September 30, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Happy October Fest! Several states now allow employers to use federal forms (1094-C and 1095-C) for state reporting requirements. This may be the beginning of an interesting trend towards simplification of state filing requirements. Obviously, not everything from a federal filing translates directly into state filings (for example, many states treat pension income differently in an attempt to lure retirees), but often much of the information that is filed for a state is redundant to the respective federal forms.

California Allows Employers to Use Federal Forms 1094-C and 10-95-C. Will Other States Follow?

California and several other states have imposed their own state-level individual mandates that closely resemble the Affordable Care Act mandate (now reduced to $0). California’s mandate became effective in 2020. Recently, the state announced that employers can satisfy their state-level reporting responsibilities using the same forms that apply for federal purposes. Employers who offer health insurance to California residents must now also submit their Forms 1094-C and 1095-C to the state franchise tax board (as well as the IRS under federal rules that continue to require employer reporting). Currently, however, the state-level forms must be filed by January 31. Historically, the IRS has extended the federal deadline to March 2. Employers should continue to pay close attention to ensure both state and federal requirements are satisfied. For more information on the employer reporting obligations, visit Tax Facts Online. Read More

PBGC CARES Act Relief for Defined Benefit Plans

Sponsors of defined benefit plans are generally required to pay premiums annually to the PBGC. Calculating the premium amount is complex. The CARES Act extended the deadline for making a 2019 defined benefit contribution until January 1, 2021. However, according to PBGC guidance, these contributions must be made by October 15, 2020 in order to be included in calculating the variable portion of the plan sponsor’s PBGC premium. Contributions paid before January 1, 2021 are not considered late, so the plan sponsor does not have to worry about incurring any additional filing obligations. For more information on the defined benefit plan funding rules, visit Tax Facts Online. Read More

Updated Model Safe Harbor Notice for Rollover Transactions

Retirement plan qualification rules periodically require employers to provide notice to participants who are eligible to take rollover distributions. In Notice 2020-62, the IRS released an updated safe harbor model notice that taxpayers can use under Section 402(f). That notice identifies several types of new distributions that are not eligible for rollover. This model notice can be modified, but is generally required for all 401(k), 403(b) and 457 plans that make distributions that are eligible for rollover to another retirement account. For more information on the notice requirements, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 28, 2020)

Posted by William Byrnes on September 28, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: A New York federal court vacated four DOL rules implementing the FFCRA paid leave provisions. The CARES Act provided relief to IRA owners by eliminating the need to take required minimum distributions for 2020. This relief also extends to certain beneficiaries of inherited accounts.

NY Federal Court Vacates Four Aspects of the DOL FFCRA Guidance

A New York federal court vacated four DOL rules implementing the FFCRA paid leave provisions. The court struck down the DOL “work availability” rule, meaning that employers may be eligible for paid leave even if there is no work available (assuming they meet the criteria for paid leave). The court also vacated the DOL definition of “healthcare provider” and partially invalidated the “intermittent leave” rules. Now, New York employers cannot require employees to gain consent for intermittent leave. Finally, the court ruled that employers cannot condition FFCRA leave on advance employee documentation of the details leading to the need for paid leave. Employers located in New York (and elsewhere) should review their policies and consult with advisors to determine the best course of action in light of the new uncertainty. For more information on the FFCRA paid leave rules, visit Tax Facts Online. Read More

IRS PLR Allows Employees to Allocate Contributions Between HRAs and a Profit Sharing Plan

The IRS recently blessed an amendment to a profit sharing plan that would also permit employees to make HRA contributions. The issue up for consideration was whether a profit sharing plan covering collectively bargained employees could be amended to allow participants to allocate contributions toward HRAs and the plan on an annual schedule (a default would apply in the absence of an election). The IRS found that the proposed amendment would not cause the plan to be treated as a 401(k), because it would not create an opportunity for participants to elect cash or to use the contributions to pay for taxable benefits. Therefore, the profit sharing plan would not offer a cash or deferred arrangement under IRC Section 401. The IRS also found that the arrangement would not violate the HRA rules. For more information on the profit sharing plan qualification rules, visit Tax Facts Online. Read More

Understanding CARES Act Relief for Inherited IRA Beneficiaries

The CARES Act provided relief to IRA owners by eliminating the need to take required minimum distributions for 2020. This relief also extends to certain beneficiaries of inherited accounts. Under pre-SECURE Act rules, certain inherited IRA beneficiaries were required to drain the account within five years of the original account owner’s death. Now, the CARES Act provides that if 2020 was one of those five years, it is not counted—essentially extending the distribution period to six years. This gives IRA beneficiaries the benefit of tax-free IRA growth for an additional year. For more information on the RMD rules for inherited IRAs, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 24, 2020)

Posted by William Byrnes on September 24, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: A couple of COVID-related updates from the IRS. First, we have some guidance on the refundable FFCRA employment tax credits. We also some additional leeway is given on mid-year changes to 401(k), which again may be important if employers have seen the contribution patterns for their plans shift dramatically and are now concerned about being about pass nondiscrimination testing for the year. Both of these are fairly technical issues but may be important issues for employers as we approach the end of the year.

Employers Beware: IRS Guidance on Recapture of Excess FFCRA Employment Tax Credits

The IRS released rules providing for the recapture of refundable employment tax credits under CARES and FFCRA. Form 7200 now allows employees to claim advance payments of any amounts remaining. However, the IRS guidance makes clear that employers are required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due on their employment tax returns. For more information on the credits, visit Tax Facts Online. Read More

Understanding IRS Relief for Safe-Harbor 401(k) Plans

In Notice 2020-52, the IRS provided relief allowing certain safe harbor plans to institute mid-year amendments to reduce or suspend safe harbor contributions. Safe harbor plans generally require employer matching contributions in exchange for exemption from the onerous 401(k) nondiscrimination testing rules. Even when employers are permitted to make changes mid-year, they must provide notice at least 30 days in advance. Under the IRS relief, the IRS clarified that contributions for highly-compensated employees are not safe harbor contributions–so they can always be reduced or suspended. The Notice also allows plan amendments reducing or suspending safe harbor contributions to non-highly compensated employees so long as they are made by August 31, 2020. To learn more about safe harbor plans, visit Tax Facts Online. Read More

Appeals Court Blesses Trump-Era Short-Term Health Insurance Plans

The D.C. Circuit Court of Appeals upheld the joint rule released by the DOL, Treasury and HHS that relaxed restrictions on short-term limited-duration insurance (STLDI) health plans. These plans are not required to satisfy the ACA requirements, including those that govern minimum essential health coverage. For more information on STLDI, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 21, 2020)

Posted by William Byrnes on September 21, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: One complication to the FFCRA and FMLA leave changes introduced by the CARES Act is the issue of W-2 reporting. While it’s not front-and-center in everyone’s mind right now, reporting season will come around again before you know it and the IRS has new guidance about how those types of leave should appear on an employee’s W-2. We also see updates on the Section 199A deduction for REIT shareholders and Premium Tax Credit-Related Inflation Adjustments for 2021.

IRS Provides Guidance on W-2 Reporting of FFCRA Paid Sick Leave and Expanded FMLA Leave

The Families First Coronavirus Response Act (FFCRA) requires smaller employers (under 500 employees) to provide paid sick leave and expanded FMLA leave for COVID-19-related reasons. IRS guidance requires W-2 reporting of those payments that provides important clarity for self-employed taxpayers. Self-employed taxpayers can claim a tax credit for FFCRA sick leave amounts. If they receive any FFCRA pay as an employee, they must reduce their credit amount by the amount paid by the employee. Because of this, employers are required to separately state the paid leave portion of employee compensation on their Form W-2, in Box 14. The employer can also report the FFCRA pay on a separate statement included with the employee’s W-2 for 2020. If the W-2 is provided electronically, the separate statement must be provided in the same manner and at the same time. For more information, visit Tax Facts Online. Read More

IRS Final Rules Confirm: RIC Shareholders Receiving REIT Dividends Qualify for 199A Deduction

The IRS released final rules that allow dividends that a RIC shareholder receives from a REIT to qualify for the Section 199A deduction. These REIT dividends qualify for conduit treatment–so they are treated as though the shareholder received them directly. On the other hand, the treatment of qualified PTP income remains uncertain. The law itself states that directly received PTP income is eligible for the 20% deduction, but the IRS has not permitted similar conduit treatment for PTP income. This uncertainty could encourage more investors to invest directly in the PTP. For more information on the treatment of REIT dividends and PTP income in calculating the Section 199A deduction, visit Tax Facts Online. Read More

IRS Releases Premium Tax Credit-Related Inflation Adjustments for 2021

The IRS has released the Affordable Care Act (ACA) premium tax credit-related inflation-adjusted numbers for use in 2021. In 2021, the percentage used to determine whether an individual is eligible for employer-sponsored health insurance that is affordable is 9.83 percent (up from 9.78 percent in 2020). This means that if the individual is required to contribute more than 9.83 percent of his or her household income toward health insurance in 2021, he or she may be eligible for premium tax credit assistance. For more information on determining when health coverage is deemed affordable for ACA purposes, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 17, 2020)

Posted by William Byrnes on September 17, 2020


Texas A&M University School of Law’s online wealth management, international tax risk management, and general risk management graduate curricula for industry professionals has attracted over 160 enrolled for fall semester. Apply now for courses that begin January 11. 

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: COVID hardship distributions for qualified plans was one of the headline features of the CARES Act, but Notice 2020-50 was recently released and deals with COVID distributions from nonqualified plans as well. Given the wide variety of nonqualified plans this could present some significant planning opportunities. We also see updates on excess parachute payments and proposed regs that would allow HRAs to reimburse expenses for concierge care, which is an increasingly popular option for many individuals and families..

IRS Guidance Sheds Light on Nonqualified Plan Election Rules

IRS Notice 2020-50 provided substantial guidance on the treatment of coronavirus-related distributions for both qualified and nonqualified plan purposes. With respect to Section 409A and nonqualified plans, the IRS confirmed that such a distribution would be treated as a hardship distribution. This allows nonqualified deferred compensation plans to amend their terms to allow either (1) automatic suspension of the individual’s deferral elections throughout 2020 or (2) the right for qualified individuals to elect to suspend their deferral elections during 2020. For more information on hardship and nonqualified deferred compensation plans, visit Tax Facts Online. Read More

Proposed IRS Regs Clarify Definition of “Excess Parachute Payment” for Tax-Exempt Tax Rules

Tax-exempt entities are subject to a 21 percent tax on excess compensation and excess parachute payments under the 2017 tax reform legislation. The IRS has proposed regulations clarifying that certain payments are exempt from the definition. However, amounts paid by the organization itself, a predecessor or related organization may also be included in the calculation. For more information on the new rules, visit Tax Facts Online. Read More

IRS Proposed Regs Allow HRA Reimbursement for Concierge Care

The IRS proposed regulations on direct primary care arrangements impact the medical expense deduction, availability of HRA reimbursements and eligibility for HSA participation. Under the regulations, a direct primary care arrangement could be used for medical care or medical insurance and could also be reimbursed from an HRA. However, individuals covered by these arrangements would lose eligibility to contribute to an HSA under most circumstances. For more information on the types of expenses that HRAs can cover, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly (Friday June 26, 2020)

Posted by William Byrnes on June 26, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

 

This week the new ERISA E-disclosure safe harbor was finalized, we have some news on GRATs, and some additional COVID-related updates pertaining to PTO donations and the always loved (but often misunderstood!) home office deduction. How goes the home office for you, dear reader?

DOL Finalizes E-Disclosure Safe Harbor

The DOL finalized its e-disclosure safe harbor proposal, allowing electronic distribution of notices and disclosures required by ERISA. Under the safe harbor documents, retirement plans can deliver documents electronically by posting required documents on the plan sponsor’s website and furnishing notice of internet availability to participants via email. The sponsor can also send the documents directly via email to plan participants, whether in an attachment or in the body of the email. For more information on the new e-disclosure safe harbor, visit Tax Facts Online. Read More

9th Circuit Affirms GRAT Included in Decedent’s Estate

The Ninth Circuit recently confirmed that a decedent’s estate included the value of a grantor retained annuity trust because the decedent received annuity payments up until the date of her death. The decedent in this case died before the GRAT terminated, meaning that there was no actual transfer of the trust property. She had created the GRAT structure to transfer interests in a family business to her daughters, receiving a $302,529 annuity payment annually for 15 years. The business generated enough income so that the value of the partnership interest was not decreased by the monthly annuity payments. Under IRC Section 2036(a), because the decedent was still enjoying the economic benefit of the property at death, the entire value was included in her gross estate. The court rejected the argument that the value should be excluded because the statute does not specifically list “annuities” as property that may be pulled into the estate. For more information on the use of GRATs, visit Tax Facts Online. Read More

Home Office Deductions in the Age of Covid-19

With so many taxpayers working from home–some indefinitely–do to Covid-19, many are likely wondering whether they can deduct their home office expenses. In short, traditional W-2 employees cannot deduct their home office expenses regardless of whether they would otherwise qualify for the deduction. The 2017 tax reform legislation eliminated this deduction for 2018-2025. Self-employed taxpayers can deduct expenses associated with maintaining a home office if the office is used regularly and exclusively as the taxpayer’s principal place of business (if the office is within the dwelling unit). A home office deduction is permitted for self-employed taxpayers with separate structures if the office/workspace is used “in connection with” the trade or business. For more information on the home office deduction, visit Tax Facts Online. Read More

IRS Provides Relief for Employee Donations of Unused Sick, Vacation & PTO

The IRS has provided relief so that employees can forgo sick, vacation or personal leave because of the COVID-19 pandemic without adverse tax consequences. Under the guidance, an employer can make cash payments to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo. Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income. For more information on the charitable contributions, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , | Leave a Comment »

Tax Facts’ COVID Weekly by William Byrnes and Robert Bloink (June 22, 2020)

Posted by William Byrnes on June 23, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Yes, there are new PPP Rules that allow a lot more flexibility in qualifying for forgiveness. But this week we also have a number of new rules on employee benefits and compensation issues, including a Supreme Court decision on a defined benefits case.

Increased Flexibility for PPP Recipients

PPP loan forgiveness is determined based on how the small business client spent the loan proceeds. Under the PPPFA, at least 60 percent of the loan must be used for payroll costs (this 60 percent threshold was reduced from 75 percent under the CARES Act The PPPFA extended the eight-week period to twenty-four weeks from the date the lender made the first loan payment to the small business owner. Unless Congress acts again, the funds must all be spent by December 31, 2020 in order to be eligible for forgiveness. The amount forgiven can also be reduced if the employer made certain staffing cuts or cut employee compensation levels. The PPPFA gives employers until December 31, 2020 to bring workers back to work/restore wage levels and continue to qualify for loan forgiveness (extended from prior law, which set the deadline at June 30)). Read More

U.S. Supreme Court: DB Participants Lack Standing to Sue Fiduciaries When Payments are Unaffected

The U.S. Supreme Court has now ruled that ERISA-governed defined benefit plan participants lack standing to sue plan fiduciaries in situations where the participants’ own payments were not impacted. In this case, the plaintiffs sued alleging mismanagement of plan funds and self-dealing. However, the plaintiffs’ own fixed pension payments continued to be paid (the plan in this case was overfunded). The Court held that because the plaintiffs would not be impacted financially by the outcome of the case, they lacked standing to sue under Article III of the U.S. constitution. For more information on DB plan funding requirements, visit Tax Facts Online. Read More

New Foreign Earned Income Exclusion Rules

The bona fide residence test and physical presence test generally provide specific time requirements that apply to individuals claiming a tax exclusion for foreign-earned income. An otherwise qualified individual may still exclude foreign earned income for the period in which the individual was actually present in the foreign country even if the individual fails to meet the time requirements. For more information, visit Tax Facts Online. Read More

IRS Waives Physical Presence Requirement for Spousal Consent to Participant Benefit Elections

IRC Section 417 generally requires spousal consent to a waiver of a qualified joint and survivor annuity (QJSA), which includes the waiver of a QJSA as part of a participant’s request for a plan distribution or a plan loan (the availability of which were expanded under the CARES Act). The spousal consent must generally be witnessed by a plan representative or a notary public in person (the physical presence requirement). Notice 2020-42 provides relief in permitting remote electronic notarization executed via live auto-video technology that satisfies any state-level requirements that apply to a notary public. For more information on spousal consent requirements, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , | Leave a Comment »

Tax Facts’ COVID Weekly by William Byrnes and Robert Bloink (June 15, 2020)

Posted by William Byrnes on June 17, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

This week’s updates are primarily focused on employee benefits issues that have taken a turn during the COVID 19 era. First, dependent care FSAs can play an increasingly important role for employees who are facing dependent care costs that may be drastically different than what they had anticipated when they were considering their benefit elections in late 2019. New rules allow for mid-year changes to those elections. Also, employers who continue to pay for healthcare coverage for furloughed employees may be able to take advantage of certain tax credits. All this and more and your weekly Tax Facts Online updates!

New PPP Guidance

The Treasury has updated its guidance related to the CARES Act Paycheck Protection Program (PPP) loan forgiveness requirements. The Treasury now notes that most companies with adequate sources of alternative liquidity are likely not eligible for the program. In order to qualify for the loans, PPP borrowers are now required to provide a good faith certification stating that current economic conditions and uncertainty make the loan necessary to support ongoing operations. PPP borrowers who find they cannot make the certification in good faith are permitted to return the funds. For more information on the PPP loan rules, visit Tax Facts Online. Read More

Required Business Expense Reimbursement in the Age of COVID-19

Some employers are now permitting employees to work from home–while others are requiring it. In some jurisdictions (California and Illinois, for example) employers are required to reimburse employees for employment expenses. This may create the need for employers to reimburse employees for the cost of maintaining a home office. Further, the FLSA does not permit an employer to require an employee to pay for business expenses if doing so would reduce the employee’s earnings to below the minimum wage. For more information on the impact of reimbursing business expenses, visit Tax Facts Online. Read More

New Proposed Regs on UBTI Calculations for VEBAs and SUBs

The IRS proposed regulations address the treatment of unrelated business taxable income (UBTI) for certain tax-exempt entities, including VEBAs and SUBs. UBTI is income generated from an activity unrelated to the tax-exempt purpose of the entity. For more information, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

TaxFacts Covid-19 Weekly by William Byrnes and Robert Bloink (Friday May 22, 2020)

Posted by William Byrnes on May 22, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk) Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
This week brings two updates that may affect employee benefits. The first is that mid-year changes to cafeteria plan elections are permissible. This includes FSA and dependent care accounts, which may be important as both healthcare and childcare expenditures for many people are wildly different than what they had anticipated at the end of 2019. The IRS also made some temporary FSA changes permanent. Finally in some non-COVID updates (yes there is some!), the IRS released proposed rules that change how some administrative expenses incurred by trusts and estates can be deducted.
IRS Provides Relief for Cafeteria Plan Participants in Response to COVID-19

Under normal circumstances, cafeteria plans are not permitted to allow participants to make mid-year election changes except in limited situations. Notice 2020-29 permits employees to allow certain mid-year elections made during calendar year 2020 that would otherwise be impermissible, including changes to salary reduction contribution elections. For more information on the mid-year election rules for cafeteria plans, visit Tax Facts Online. Read More

IRS Makes Temporary & Permanent Changes to the FSA Grace Period Rules

IRS Notice 2020-33 and Notice 2020-29, released concurrently, provides relief with respect to unused funds in a flexible spending account. Under Notice 2020-29, if an employee has unused amounts remaining in a health FSA or a dependent care assistance program at the end of a grace period (or plan year) ending in 2020, a cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses incurred through December 31, 2020. Notice 2020-33 makes a change to the carryover rules that apply to health FSAs, so that the amount that can be carried over to the following year will equal 20 percent of the maximum inflation-indexed salary reduction amount under Section 125 (increasing the carryover amount from $500 to $550 for 2020). For more information on the rules governing health FSAs, visit Tax Facts Online. Read More

IRS Proposes Rules Allowing Deduction of Administrative Fees for Trusts & Estates

The IRS has released proposed regulations that would permit the deduction for certain administrative fees incurred by trusts and estates (including the S portion of an ESBT). The guidance addresses the treatment of these expenses in light of the suspension of all miscellaneous itemized deductions for 2018-2025 under the 2017 tax reform legislation. For more information on the tax treatment of trusts and estates, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Tax Policy, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for April 3, 2020

Posted by William Byrnes on April 3, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

                    Prof. William Byrnes
          Robert Bloink, J.D., LL.M.
Lots of CVOID-19 legislation in the updates this week. The IRS and DOL continue to release new guidance–and update existing guidance–at an unprecedented and fast pace. For the time being, clients and advisors alike should check the actual text of the guidance before taking concrete action to make sure they are operating under the most up-to-date rules.
IRS Releases FAQ on COVID-19 Filing, Payment Extensions

The IRS FAQ clarifies that the filing and payment extensions (from April 15 to July 15) apply regardless of whether the taxpayer is actually sick or quarantined because of COVID-19. For fiscal year taxpayers with 2019 returns due April 15, the deadline is extended to July 15 regardless of whether April 15 is an original or extended filing deadline. Taxpayers facing filing or payment deadlines that are not April 15 must note that their deadlines have not generally been extended. The relief also does not apply to payroll or excise tax payments (deposit dates remain unchanged, but employers may be eligible for the new paid sick leave tax credit, see Tax Facts Q8550). Taxpayers do not have to do anything to take advantage of the extension–they simply file their returns and make required payments by the new July 15 deadline. Taxpayers who filed and schedule a payment for April 15 must, however, take action to reschedule their payment for July 15 if they wish (by contacting the credit or debit card company if the payment was scheduled directly with the card issuer). For more information, visit Tax Facts Online. Read More

Counting Employees for COVID-19 Paid Sick Leave & FMLA Expansion Purposes

DOL FAQ provides that an employer is subject to the expanded paid sick leave and FMLA rules if the employer has fewer than 500 full-time and part-time employees. Employees on leave and temporary employees should be included, while independent contractors are not included in the count. Each corporation is usually a single employer. When a corporation has an ownership interest in another corporation, the two are separate employers unless they are joint employers for Fair Labor Standards Act purposes. Joint employer status is based on a facts and circumstances analysis, and is generally the case when (1) one employer employs the employee, but another benefits from the work or (2) one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. For more information on the details provided by current DOL guidance, visit Tax Facts Online. Read More

Calculating Sick Pay for Part-Time and Variable Hour Workers Under the Families First Coronavirus Response Act

With respect to the FMLA extension, the rate of pay for part-time employees is based upon the number of hours they would normally be scheduled to work. For employees with variable schedules, pay is based upon a number equal to the average number of hours that the employee was scheduled per day over the 6-month period ending on the date on which the employee takes such leave, including hours for which the employee took leave of any type or (2) if the employee did not work over such period, the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work. As of now, the law provides that leave may not be carried over into 2021. For more information on the law’s requirements, visit Tax Facts Online. Read More

RMDs Suspended for 2020, Penalty Waived for Coronavirus Distributions

The CARES Act suspended the required minimum distribution (RMD) rules for 2020–a suspension that applies to all 401(k), 403(b), and certain 457(b) deferred compensation plans maintained by the government, as well as IRAs. The law also contains a provision waiving the 10% early distribution penalty that applies to retirement account withdrawals. The relief generally mirrors the relief commonly granted in more localized natural disaster situations. The Act allows employees to take up to $100,000 in distributions from an employer-sponsored retirement plan (401(k), 403(b) or defined benefit plan) or an IRA without becoming subject to the penalty. Unless the participant elects otherwise, inclusion of the distribution in income is spread over three years, beginning with the tax year of distribution. The Act also provides a repayment option, where the participant has the option of repaying the distribution over the three-taxable year period beginning with the tax year of distribution. In this case, the distribution will be treated as an eligible rollover made in a trustee-to-trustee transfer within the 60-day window. For more information on expanded access to retirement funds, visit Tax Facts Online. Read More

WEBINAR

Small Business Incentives Under the CARES Act:  Will it Help My Business?

Tuesday, April 7, 2020, 12:00 noon – 1:00 p.m. Central

Learn how the CARES Act affects your business.

Texas A&M Law faculty experts share practical, fact-based information regarding how the CARES Act is affecting those of us in Texas in this free webinar.

 

  • Access to and eligibility for loans for small businesses
  • Implications for payroll tax payments and employee tax credits

Presenters:

Posted in Pensions, Reporting, Retirement Planning, Tax Policy, Wealth Management | Tagged: , | Leave a Comment »

SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)

Posted by William Byrnes on March 17, 2020


SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for a small business. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
  • SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending

  • The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
  • SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities.
  • SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

See §121.201   What size standards has SBA identified by North American Industry Classification System codes?

The size standards described in this section apply to all SBA programs unless otherwise specified in this part. The size standards themselves are expressed either in the number of employees or annual receipts in millions of dollars unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small.  By example, a hotel that does not exceed $35 million gross revenue is a small business whereas a B&B Inn or a full-service restaurant may not exceed $8 million in revenue.

Even tax law firms can qualify for SBA loans. The office of lawyers that do not exceed $12 million in revenue is a “small” law firm. But tax preparation services? Allowed up to $22 million in revenue.

For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov(link sends e-mail).

Posted in Financial, Wealth Management | Tagged: , , , | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (March 5, 2020)

Posted by William Byrnes on March 5, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

Editor’s Note: Litigation on breaches of fiduciary duties in qualified plans has increased dramatically in the past few years, and this week sees an interesting decision from the Supreme Court reducing the statute of limitations where the employee has actual knowledge of the breach. In contrast, the IRS indicates that there is no statute of limitations for employer ACA violations. For more on these topics and many others, log in to Tax Facts for the latest.
U.S. Supreme Court Rules on Statute of Limitations for Fiduciary Breach

The U.S. Supreme Court, in the widely watched Intel case, agreed with former employees that an employer cannot shorten the time period over which plan participants can sue by simply posting relevant information online or sending information in the mail. In most cases, plan participants have six years to bring a lawsuit for fiduciary breach. However, that window is shortened to three years from the date the participant had “actual knowledge” of the fiduciary violation. For more information on investment diversification requirements for 401(k)s, visit Tax Facts Online. Read More

IRS Releases Regs on Post-Reform Deduction for Business Meals and Entertainment

The IRS released regulations governing the post-tax reform treatment of the deduction for business meals and entertainment expenses. The regulations generally mirror guidance release in 2018 and 2019 on the deduction. As such, taxpayers may continue to deduct 50 percent of their business-related food and beverage expenses that are not lavish or extravagant. For more information on the post-reform deduction, visit Tax Facts Online. Read More

IRS: No Statute of Limitations on ACA Penalties for Large Employers

In usual scenarios, when a taxpayer files a return reporting certain information to the IRS, that filing triggers the start of a limitations period after which the IRS can no longer challenge the information in that return (generally, three years). However, the IRS has recently clarified that this rule does not apply with respect to ACA penalty taxes owed by applicable large employers—because there is no actual return that they file in order to report those taxes. This is the case despite the fact that ALEs have certain reporting obligations via annual Forms 1094-C and 1095-C. For more information on how penalties are assessed, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

5 Fundamentals Of LLCs (Guest Attorney Article by Haik Chilingaryan, Esq.)

Posted by William Byrnes on June 29, 2018


Haik Chilingaryan, Esq.

Please contact Mr. Chilingaryan to discuss the five fundamentals of an LLC at E-Mail: haik@chilingaryan.law or Tel: 818.442.7777

A Limited Liability Company (“LLC”) is a hybrid business entity which contains elements of a partnership and a corporation. LLCs consist of members and managers. An LLC may provide tremendous benefits for its members, which include asset protection, intergenerational transfers, tax saving strategies, wealth preservation, flexible management structures, and clarity on the roles of all essential parties involved in the company as set out in the Operating Agreement.

The following five concepts are fundamental for establishing an LLC: Asset Protection, Intergenerational Transfers, Tax Saving Strategies, Management, and Funding.

Asset Protection

Generally, the more assets a person owns in one’s name, the more likely it is that he or she will be a target mark for creditors. This is why it’s good practice to own as little as possible in your own name. In order to accomplish this goal, it’s important to evaluate the types of asset protections tools that are available to you. An LLC is one such tool that is effective for asset protection purposes.

For creditors of the LLC itself, a member’s personal liability will generally be limited to the amount of the member’s investment in the LLC unless the member personally guarantees the transaction in question.

For creditors of the member of the LLC, a creditor is generally precluded from acquiring an interest in the debtor-member’s interest in the LLC if the judgment was entered after the LLC was formed. However, most states allow for a judgment creditor to levy on assets after distributions have been made to the debtor-member by the LLC.

As a general rule, a creditor has no right to become a member, compel a distribution, or demand company assets. If such rights were given to a creditor, then the other members of the company would suffer from an action or inaction of a particular member. This would inevitably lead to an unjust result for the remainder of the group. Therefore, the creditor must wait until distributions are made to the member before any potential recovery can be pursued.

Another limitation on a creditor’s pursuit on a claim against the debtor-member is that an Operating Agreement has the power to prevent non-members from acquiring an interest in the company. This is especially important in the case of failed marriages and judgment creditors because courts may at times issue overreaching rulings in order to accomplish an equitable outcome in the event of divorces or other circumstances. An LLC can also provide the means for family members or ex-family members who are in dispute to not be compelled to communicate at the time their interest is being transferred from their donors to them.

There is another layer of asset protection that deals particularly with the recipients of the LLC interest. It’s standard practice for owner-members to make gifts to their heirs throughout their lives. Several problems are immediately surfaced when gifts of substantial value such as property or a significant amount of cash are transferred to their heirs. Without a proper plan in place, the recipients are likely to subject these assets to waste or relinquish them to creditors or former spouses. However, the transfer of an interest in the LLC can protect these assets from loss or waste by the recipient-members.

Keep in mind that the asset protection planning must be done well in advance of any anticipation to a claim. That’s because fraudulent transfers are broadly construed. Intent is generally presumed if a transfer is found to have been made before or after the claim arose with the intent to defraud, hinder, or delay a known creditor. If the transfer is deemed fraudulent by the court, the court may set aside the transfer, which may also lead to criminal consequences.

An LLC is the preferred homeplace for many types of properties, including real estate. Real estate held for the purpose of investment is a ubiquitous phenomenon. Yet in practice, it is widespread to see title to its ownership being held in an individual’s name. In fact, if an investor owns multiple income-producing properties, it’s recommended (subject to some exceptions) to form and operate a separate LLC for each piece of property. In the case of a primary residence, transferring title to a living trust is the preferred method primarily due to tax advantages and the homestead exemption.

One of the reasons for forming a separate LLC for an income-producing real estate is that an injury on its premises can be costly even if the insurance policy satisfies a portion of the claim. Thus, if an entity only owns one piece of real estate, the claims will only be limited to that piece of property. If, however, the entity owns other assets, all such assets are at the risk of being exposed to the creditor.

Let’s also not forget one crucial point in the context of asset protection. By merely establishing an LLC, it will not be enough to be sheltered from personal liability. Formalities must be followed to embolden the shield of limited liability (just like for corporations or other types of entities that are subject to limited liability). If formalities are not adequately followed or there is a personal guarantee against the particular risk in question, the member’s personal assets will likely be exposed to the creditor.

It’s also equally important to make sure that the business is never conducted in the individual member’s capacity, but only in business capacity. For example, as “Manager” or “Member.” In the context of distributions, the accounting must continuously be updated as the distributions are being made to the members. The lack of formalities will give more weight to the argument that the LLC had no business purpose and should be disregarded as a separate legal entity.

Despite all the asset protection tools, a creditor has a few recourses (some of which go beyond the scope of this article). The one recourse that is generally available to a creditor is commonly referred to as a “charging order.” A charging order permits a creditor to seize only those assets that have been actually distributed, but not the assets that the debtor-member may potentially be entitled to receive under his or her ownership interest in the LLC.

Charging orders are better known as “phantom income” for a reason. The IRS requires for the members of the LLC to pay income tax even if they do not receive any distributions. In the case of charging orders, the creditor would be required to pay income tax on the debtor-member’s interest in the LLC even if the creditor does not receive any actual distributions. This is perhaps the most deterring factor on a creditor’s pursuit in recovering from an LLC because a creditor generally ends up in a worse position than before his pursuit of the charging order. Additionally, a creditor’s tax bracket may also increase as a result of the charging order.

Intergenerational Transfers

An LLC can be structured in such a way to protect the assets of a family for generations. These are otherwise known as Family Limited Liability Companies (“FLLC”). Even though such entities are structured and operated just like typical LLCs, most, if not all of the assets, are owned by the family in FLLCs.

In general, LLCs have some of the same benefits as living trusts when it comes to intergenerational transfers. An LLC can provide for a smoother transfer of wealth upon the death of an owner by avoiding probate. It can further prevent assets from going through probate in the event of a member’s disability and even in guardianship or conservatorship proceedings.

Another similarity with a living trust is that the nature and character of the underlying assets of the company are private. In other words, details as to what assets the LLC owns will generally be outside the scope of the public domain. As opposed to probate, where the circumstances surrounding the transfers of the decedent’s assets are a matter of public record, transfers of LLC assets are generally accomplished under private circumstances.

The effective planning techniques involve not only how the assets will be transferred when the owner of those assets dies, but to also employ techniques that will allow the transfer of assets during the donor’s life. In the context of FLLCs, there is a planning method available through gifting which allows for senior family members to periodically gift a portion of their assets to their younger family members.

There are some assets, however, that by their nature make it difficult to gift in fractions. Transferring portions of real estate, farm, or other assets are difficult to calculate especially when their value can fluctuate on a daily basis. There are some factors that may make the particular asset periodically more or less valuable: external market conditions and the overall condition of the asset. However, the gifting of an interest in an LLC avoids the trouble of transferring a fraction of a particular asset.

Regardless of the type of asset being transferred, there are incentives in place for transferring wealth during a donor’s life. These incentives can range from reducing the donor’s taxable estate to providing for the living expenses of the donor’s children. As such, the implementation of an annual gifting method may play a significant role in the periodic transfer of wealth from the older family members to the younger ones.

In 2018, the annual exclusion amount is $15,000 for individual taxpayers. Under the taxation rule of gift-splitting, a married couple can transfer $30,000 to any individual without being required to pay a Gift Tax or having to file a Gift Tax Return. To illustrate the significance of annual gifting, suppose that a married couple has four children. The couple can potentially remove $120,000 per annum from their estate without the Gift Tax consequences.

An LLC can also provide an excellent tool for gifting an interest during the donor’s life without commingling the gifted portion of the assets with the recipient’s other assets that have been accumulated during his or her marriage. After the membership interest is directly transferred to the recipient or in a separate property trust that has been specifically established for the recipient, the “paper trail” can show that a particular asset (whether in the form of cash or other property interest) is in fact the separate property of the recipient-member.

In the context of LLC ownership transfers, it is the member’s interest – not the actual asset – being transferred. Thus, the interest is adjusted in value due to lack of marketability. That’s because the assets that are subject to the LLC generally have limitations. Such limitations may include the right of first refusal, the inability to demand a distribution, order a dissolution, or participate in the management of the LLC.

The fundamental reason for the lack of marketability is that the membership interest is not a liquid asset and generally cannot be freely assigned. In other words, if the buyer cannot indeed purchase the piece of a parcel, but instead he or she can only purchase a potential ownership interest in the parcel (e.g., by owning X% in the LLC) with some of the previously mentioned limitations, the value of the membership interest will be discounted in accordance with the limitations.

The discounting aspect for lack of marketability is especially useful in the context of gifting. For instance, if a member’s interest is discounted by 1/3 due to lack of marketability, a gift of $10,000 in the form of an LLC interest is equivalent to a gift of $15,000 in the underlying assets of the LLC ($15,000 x 2/3 =$10,000).

Upon the death of the owner-member, value adjustments may also apply to the remaining portion of the deceased member’s interest in the LLC based on lack of marketability. A general formula for calculating the taxable value of the estate of the deceased-member’s interest is the following:

% of ownership x FMV (1 – discount) = Estate Tax Value

Tax Saving Strategies

An LLC can be taxed as a disregarded entity, partnership, cooperative, or corporation. By default, a multi-member LLC is taxed as a partnership. By default, a single-member LLC is taxed as a sole proprietorship. Under such a classification, the member is considered self-employed and is consequently responsible for self-employment taxes (Social Security and Medicare).

For income tax purposes, sole proprietorships, partnerships, and S-corporations are classified as pass-through entities. This means that the income and expense will pass through to the owner’s personal tax returns. Under a pass-through scenario, the LLC itself will file a Form 1065 tax return, but it will not pay the income taxes on the LLC’s profits.

One strategy for lowering a member’s taxable income is to not have them actively participate in the management of the LLC. Members who do not participate in the management of the company will generally be exempt from paying the self-employment tax. Therefore, their overall income tax may be reduced since they will not pay the self-employment tax on the LLC portion of their income.

Another way to reduce the overall income taxes during the members’ life is by spreading them among members who happen to fall in lower tax brackets than the owners. This is especially useful in the context of FLLCs since younger family members may not necessarily earn as high of an income as their elder counterparts.

Another benefit of an LLC is that a transfer of an asset by an individual to the LLC is normally not a taxable event unless otherwise excepted. Similarly, transfers upon the dissolution of the LLC are also not taxable since they are deemed a return of capital. Of course, gain may be recognized if the asset is sold by the individual after the asset has been transferred from the LLC.

The general tax consequence on transfers (to and from) an LLC is especially significant when considering that virtually any transfer from one entity to another can either be accomplished by sale or gift. If it’s a sale, then the transferor must generally pay capital gain taxes if the asset has appreciated in value since its purchase. If it’s a gift, there may be gift tax consequences. In this case, we have the owner being a separate entity, transferring to the LLC (also a separate entity). Nonetheless, these transfers generally do not qualify as taxable events for IRS purposes.

In the context of FLLCs, calculating the basis of assets or membership interests can be problematic, especially if such assets are sold generations after their purchase. This will inevitably affect the basis adjustments of those assets. The basis of an asset is what the original owner paid for its purchase. Several factors may affect the adjustment of the basis by either increasing the original basis (e.g., capital improvements) or by decreasing the original basis (e.g., depreciation deductions).

The similar concepts on basis adjustments apply to a member’s interest in the LLC because these interests also have their own basis. If there are many assets with different basis inside the LLC, it can become a logistical nightmare for accountants and administrators to calculate each member’s separate basis in the LLC. Thus, mixing different assets in the same LLC can be problematic especially in the context of multi-generational entities (e.g., FLLCs). Instead of being limited to one LLC, it is recommended to consider additional or subordinate LLCs especially for preventing such problems down the road.

The last point with regard to tax consequences of LLCs pertains to state law. When forming an LLC, it’s essential to consider all of the laws that the state provides on the formation and governance of LLCs. Some states have favorable laws with regard to LLCs versus other business types of entities; other states tend to be less favorable.

Management of an LLC

LLCs consist of members and managers. If we can make an analogy with corporations, members would be equivalent to the shareholders of a corporation; whereas managers can be a hybrid between Board of Directors and senior officers of a corporation (depending on the scope of authority provided by the members and the Operating Agreement).

There are two types of structures in which LLCs operate. There are member-managed and manager-managed LLCs. In member-managed LLCs, the members of the company manage the company by voting in accordance with each member’s interest. In manager-managed LLCs, members appoint one or more managers to conduct business activities that fall within the scope authorized by the company’s members.

There is no requirement for a manager to be a member of the LLC. Even in a member-managed LLC, the members may appoint a manager to be responsible for the daily business operations, but nevertheless be prevented from exercising any decision-making management authority.

A managing entity is recommended for a variety of reasons. First, as opposed to an individual, a managing entity does not have the same limitations as a human being might have, including disability and death. Since managers generally answer to members, the level of control over investment decisions can be set by the members in accordance with the manager’s fiduciary duty to the LLC. The level of control may vary from how much income to distribute or reinvest to being limited to only managing simple day-to-day operations.

An LLC formed in California must have an Operating Agreement. The Operating Agreement sets forth the scope of authority of members and managers. It can also provide restrictions on the transferability of membership interests and determine the form of compensation of its managers. A membership interest can be in the form of percentage or membership units. Membership units are analogous to owning shares in a corporation.

There are generally four ways members can receive compensation from the LLC. First, the General Members can receive management fees for managing the company. Such compensation can even be in the form of “preferred equity interest,” whereby a certain percentage of income is paid to the individual or entity holding that interest.

The second way is for the LLC to make distributions to the members. In such a scenario, the limited members will generally be entitled to a pro rata share from the distributions. The third way is for the LLC to make loans to the members. This strategy should be implemented with extreme caution. The fourth way provides an option to the limited members to potentially purchase a more significant share in the LLC from the owners, thereby resulting in more direct income for the owners.

Funding the LLC

Funding is the process of transferring assets to the LLC. Funding is an essential step in order for the LLC to be legally enforceable. An LLC must have a business purpose. If the LLC does not have any assets or is not otherwise funded, it follows that it does not have a business purpose.

The similar concept of funding applies to revocable living trusts. If a revocable living trust does not have any assets, it can be the most potent trust instrument ever written, but it will generally have no legal effect. Therefore, an LLC must also be properly funded, for among other things, to potentially grant limited liability to its members.

The means for funding the LLC may vary from asset to asset. For example, different standards apply when real estate is transferred onto the LLC as opposed to a publicly traded security company. As a baseline rule, the transfer of an asset to the LLC must happen in the same manner in which title to the particular type of property is held. In case of real estate, such transfers may only be effectuated by deeds, regardless of whether the transfer is from person to person, or from (or to) an LLC.

Notwithstanding the type of asset being transferred, the value of the asset must be determined at the time of transfer. Determining the valuation of real estate and business interests in firmly held companies or LLCs is not an exact science. Consequently, such assets may be required to be appraised by a qualified appraiser (someone with an excellent reputation in the field of appraisals and a successful track record for audits). To justify any valuation discounts in the event of litigation or potential challenges by taxing authorities, qualified appraisals should also value the interest in the LLC at the time the member’s interest is either sold or gifted or when one of the members dies.

The transfer of stocks, bonds, and other securities to an LLC is accomplished by a stockbroker, the issuing company, or a third party agent. If a stockbroker is used to facilitate the transfer, it’s recommended for the stocks to be held in a “nominee securities” account. In other words, the brokerage account will be in the name of the LLC, however, the actual stocks will be held in the brokerage company’s name.

One final point concerning funding to keep in mind when it comes to stocks and investment assets are the “anti-diversification rules.” Generally, the transfer of an asset to the LLC is not a taxable event unless the transfer triggers an immediate tax consequence within the meaning of diversification of securities.

Several standards are used to determine issues related to diversification. First, “The 80% Rule” states that if 80% or more of the assets of the LLC are marketable securities, the LLC can be classified as an “investment company.” As a result, the anti-diversification rules may apply and tax may be due on the transfer. Therefore, if 20% or more of the assets are made up of real estate, the anti-diversification rules will not be triggered and no tax would be due on the transfer provided that real estate assets remain at 20% or more in the LLC after the transfer.

Second, “The Non-Identical Assets Rule” applies in a scenario where one person contributes one type of stock and another person contributes another type of stock, the anti-diversification rule may be triggered. However, if the same two people were to contribute two of the same stock or if one person contributes all of the assets (even if they are not identical), the anti-diversification rules will generally not be triggered.

Third, “The 25% Test and 50% Test” states that no diversification can occur when the transferor transfers a diversified portfolio of securities to the LLC which contains no more than 25% of the value of all securities from one issuer and no more than 50% of the value of all securities from five or fewer issuers. In this instance, the portfolio itself is considered diversified since it does not contain any one issuer which represents more than 25% of the value of the total securities nor five or fewer issuers which represent more than 50% of the securities in the same portfolio. Similar to mutual funds, diversification rules generally do not apply to a portfolio that is being contributed to the LLC that is already diversified.

The crux of the matter regarding the anti-diversification rules is that if an LLC owns securities and the LLC itself is in fact performing the functions of an investment company within the context of securities, then any asset being transferred (including cash) to the LLC may be subject to tax. The application of these rules can be pernicious and planning around them must be done with extreme caution to minimize the likelihood of a tax being due on a transfer.

Final Thoughts

The rigorous legal standards surrounding LLCs increase the likelihood for the LLC to lose its asset protection status against creditors or to be successfully challenged by taxing authorities. The LLC provides tremendous benefits to its members: asset protection, intergenerational transfers, tax saving strategies, flexible management structures, and wealth preservation. In order to enjoy all the benefits that an LLC has to offer, it’s important to be in constant contact with qualified advisors, including attorneys, CPAs, tax specialists, and financial advisors to make sure that all applicable legal matters are properly addressed in advance.

Remember that an LLC is a business, it must have a business purpose, and it must be operated as a business. Problems are bound to occur when the owners of LLCs deviate from these standards and become overconfident in the notion that their LLC is an enforceable legal entity that is unequivocally protected against creditors and taxing authorities by virtue of its existence.

Important Note: Chilingaryan Law or its affiliates are not rendering legal, financial, or tax advice by providing the content above. No attorney-client relationship is formed based on the information provided above. The above content is designated only for educational use. Accordingly, Chilingaryan Law assumes no liability whatsoever in reliance on its use. Additionally, certain changes in law may affect on the legality of the information provided above and certain circumstances of the reader may vary the applicability of the above content to his or her situation.

About Chilingaryan Law

Our law firm focuses its practice on serving professionals and business owners who, among other things, seek counsel on matters relating to Estate Planning and Business Planning with an emphasis on tax efficiency.  We work with of counsel attorneys, financial advisors, tax specialists, and accountants to provide the most optimal services for our clients. We recognize that some clients wish to minimize their tax consequences, others are more concerned about posterity, yet many others are concerned about their financial security and lifestyle needs once they retire.

Our main office is in Glendale, California. We also have offices in Downtown Los Angeles, West Los Angeles, and Sherman Oaks. Tel: 818.442.7777

Posted in Taxation, Wealth Management | Tagged: , | Leave a Comment »

guest blogger Hale Stewart analyzes In Re Portnoy (asset protection case)

Posted by William Byrnes on June 30, 2017


Guest submission of Hale Stewart JD, LL.M. Houston, Texas 77009 www.halestewartlaw.com

In Re: Portnoy[1] — a 1996 Bankruptcy case – was the first in a series of decisions with a foreign asset protection trust.  As with most foreign trust cases, the fact pattern alludes to several areas of law – asset protection, bankruptcy, conflict of laws and trusts.  Here are the relevant events in chronological order.

  1. 3/87: Portnoy guarantees all loans and debt of his company Mary Drawers (MD)
  2. 3/88: MD receives a $1 million dollar loan
  3. 2/89: Portnoy becomes aware that MD will not be able to repay loan
  4. 8/89: P forms offshore Jersey Trust. P is the primary beneficiary.  Jersey is known as asset protection haven.
    1. The trust document specifically states that Jersey law will govern the trust’s interpretation
    2. During 1990 and 1992, P transferred his salary and real estate to his wife and daughter.
  5. 2/90: Lawsuit against MD for defaulted loan proceeds
  6. 9/91: Judgement against MD for ~$183,000
  7. 10/95: P files for bankruptcy. As part of his bankruptcy filings, he discloses the existence of the offshore Jersey trust.  This is the first time his creditors have been informed of the trust’s existence.

Two points should be made before discussing the case’s legal reasoning.

First, Portnoy formed the trust after becoming aware that MD could not repay the loan.  The court specifically noted this timing[2] because it was clearly a fraudulent transfer.   Although the court did not connect this fact to specific badges of fraud contained in the Uniform Fraudulent Transfer Act, several are possible.  For example, Portnoy concealed the transfer, only revealing it during bankruptcy proceedings 5 years after the trust’s formation.[3]  In addition, as part of a unified series of transactions, Portnoy transferred most of his assets to the trust or family members,[4] essentially bankrupting himself in the process.[5]

Second, to attract asset protection business, some international offshore financial centers have amended their statutes to be more lenient towards debtors.  Hoping to capitalize on the friendlier legal environment, planners add a clause to transactional documents stating offshore laws will govern the transaction.  But these clauses aren’t the final choice of law arbiter; that rests with the court using the Restatement of the Conflict of Laws.  In fact, several foreign asset protection trust cases – including Portnoy — ruled against the debtor due to the conflict of laws analysis.

The court ruled against Portnoy and his structure.  The decision contains two important lines of reasoning; the first focused on the choice of law analysis, which required the court to determine whether Jersey or New York law would govern their interpretation.  It began with the court noting that settlors are allowed to specify which laws govern their trusts and, that this should not be defeated “…unless this is required by the policy of a state which has such an interest in defeating his intention, as to the particular issue involved, that its local law should be applied.[6]  Later in the case, the court observes, “`[i]t is against [New York] public policy to permit the settlor-beneficiary to tie up her own property in such a way that she can still enjoy it but can prevent her creditors form [sic] reaching it.”

The importance of the preceding line of reasoning cannot be overstated: it strongly implies that planners attempts to invoke the laws of a debtor favorable jurisdiction will be defeated if the jurisdiction hearing the case has a public policy preventing a debtor from enjoying his assets at the expense of his creditors.  Courts use this rationale in later asset protection trust cases, almost always to the debtor’s detriment.

The second important line of reasoning involved the court’s Conflict of Law’s factor analysis used to determine “the state whose interests are more deeply affected” – a factor in a Conflict of Law analysis.  Here, the court noted that Portnoy settled the trust in Jersey, and had a Jersey firm administer the trust.  But they then observed that all parties were U.S. residents.  Additionally, the creditors had no contact with Jersey while Portnoy had extensive U.S contact when he established the trust.  Due to the large number of U.S. contacts, the U.S. had the “weightier concern” about the litigation, thereby allowing the court to base its decision on U.S. law.

This part of the ruling shows the importance of “home court advantage.”  Despite the assets being subject to a foreign jurisdiction, the parties are physically located in the U.S.  Just as importantly, the creditors have no contact with trust’s jurisdiction.  Here, the court ruled that the large number of U.S. contacts shifted the factual weight, meaning the court ruled for the U.S creditors.  Finally, Portnoy’s jurisdictional contact pattern — an individual or group of U.S. based creditors sue a U.S. resident who has assets offshore – is very common in foreign asset protection trust cases.

Portnoy’s general reasoning laid a very strong groundwork for future court’s deciding FAPT trust cases.  Future courts would decide against FAPT holders on several other grounds, but at the core of future reasoning is a general disdain for debtors who try to structure their affairs in a way to defrauds creditors.  It’s simply not a practice that courts want to condone through their decisions.

[1] In re Portnoy, 201 B.R. 685 (Bankr. S.D.N.Y., 1996)

[2] (“An inference can be drawn that the timing was purposeful, for in June, two months before the trust’s creation, Portnoy knew that Mary Drawers was in trouble and by December of that same year, Mary Drawers had defaulted on its obligations to Marine.”)

[3] UFTA §4(b)(7) the debtor removed or concealed assets

[4] UFTA §4(b)(5)

[5] UFTA §4(b)(9)

[6] Portnoy at 698

Author bio: Before law school, Mr. Hale Stewart was a bond broker with Vining Sparks, where his clients were comprised of mutual funds, insurance companies and money managers.  He returned to law school in 2001, graduating from the South Texas School of Law in 2003.  After law school, he opened his law practice focusing on transactional work.  He continued his education at the Thomas Jefferson School of Law in 2007 where he obtained an LLM in domestic and international taxation, graduating Magna Cum Laude.   He has three certifications from the American Academy of Financial Management: Chartered Trust and Estate Planner, Chartered Wealth Manager and Chartered Asset Manager.  Mr. Stewart is also a member of the AAFM’s Board of Standards.  He is the author of the book U.S. Captive Insurance Law and is currently working on his Ph.D.  Mr. Stewart’s clients range the gamut from high net worth individuals who utilize one or all of his estate planning, asset protection or captive insurance skills, to small companies forming a captive, to larger associations looking for lower insurance costs. When not practicing law, he is usually writing on the economy at his blog, the Bonddad Blog.

Posted in Wealth Management | Tagged: | Leave a Comment »

weekly financial planning strategies

Posted by William Byrnes on March 24, 2015


Deferred Income Annuities’ Flex Pay Appeals to Younger Investors

A flurry of regulatory activity has put deferred income annuities (DIAs) in the spotlight frequently in the past year, with many billing DIAs as the up-and-coming option for clients to ensure sufficient income even at an advanced age. Often overlooked,…

QLACs Change the Game in Social Security Timing

Qualified longevity annuity contracts (QLACs) have, in theory, existed for nearly three years, but it’s only in recent months that insurance carriers have begun to offer these products—finally making the QLAC a realistic planning option. While the purpose behind the…
5 Hot Retirement Planning Topics for 2015

Here are some of the top retirement planning trends that your clients need to be aware of in order to maximize their retirement account values in 2015 and beyond. 1: QLACs Become a Reality … 2) Split 401(k) Rollovers Maximize…

Posted in Retirement Planning, Wealth Management | Leave a Comment »

United Capital Expands $2B Through Hiring

Posted by William Byrnes on February 27, 2015


read about United Capital’s hiring strategy, reported on by Investment News Service – on the International Financial Law Prof Blog

 

Posted in Wealth Management | Tagged: | Leave a Comment »

The FDIC Wants to Sell You a Failing Bank – Interested?

Posted by William Byrnes on January 20, 2015


The FDIC has opened an online market place to dispose of failing banks — read about it at International Financial Law Prof Blog.

The ability to bid applies to FDIC-insured financial institutions of any size that may be interested in acquiring a failing institution from the FDIC.

Posted in Compliance, Wealth Management | Tagged: | Leave a Comment »

International Wealth Management Considerations for American Expatriates

Posted by William Byrnes on October 10, 2014


by Edward D. Nieto

Expatriates often require international financial services to manage their investments, minimize their tax burdens, comply with offshore tax reporting requirements, and manage their wealth through tax and estate planning. An expatriate’s financial and tax situation becomes more complex when assets are acquired, investments are made, and-or business activities are conducted overseas. American expatriates have additional banking and tax reporting requirements that require special considerations when managing wealth. International banking is vastly becoming more difficult for Americans due to new reporting requirements under the Foreign Account Tax Compliance Act. In many cases, foreign banks are closing the bank accounts of Americans and preventing the purchase of investment products due to the cost and time involved with compliance. …

read Edward Nieto’s article at AdvisorFYI

Posted in Wealth Management | Tagged: , | Leave a Comment »

Inside the New York Fed: Secret Recordings from a Whistle Blower

Posted by William Byrnes on September 29, 2014


International Financial Law Prof Blog.

Segarra had made a series of audio recordings while at the New York Fed. Worried about what she was witnessing, Segarra wanted a record in case events were disputed. So she had purchased a tiny recorder at the Spy Store and began capturing what took place at Goldman and with her bosses.

Posted in Compliance, Wealth Management | Leave a Comment »

Credit Suisse Expands Private Banking to Canada

Posted by William Byrnes on September 11, 2014


International Financial Law Prof Blog –

The number of Canadian millionaires increased 7.2 percent last year, helping make North America the wealthiest region in the world, according to a June 18 report by consulting firm Cap Gemini SA and Royal Bank of Canada. Canadians with at least $1 million in investable assets climbed to 320,000 people, about 1 percent of the country’s population, with a collective wealth of $979 billion, according to the report.

Posted in Wealth Management | Tagged: | Leave a Comment »

Recharacterizing Roth IRAs Smartly: Use Multiple Roths

Posted by William Byrnes on September 11, 2014


International Financial Law Prof Blog –

The benefits of creating a stream of tax-free income during retirement is key to most successful retirement income strategies, and a Roth conversion that allows the client to “undo” the transaction if investments perform poorly is an attractive option for accomplishing this goal. However, despite the benefits that recharacterizing a Roth conversion can offer, this route can sometimes function as a double-edged sword by erasing the gains on successful investments within the account. Despite this, …

Posted in Retirement Planning, Wealth Management | Tagged: | Leave a Comment »

Fixed Annuity Sales Rising in 2014, but Why ?

Posted by William Byrnes on September 10, 2014


International Financial Law Prof Blog – New studies show that, despite relatively stable conditions, fixed annuity sales have increased considerably in 2014 over 2013, as a perhaps unexpected number of clients flock toward these traditional guaranteed income products. 

Posted in Retirement Planning, Wealth Management | Tagged: , , | Leave a Comment »

Using IRS income stats for where to locate your financial planning firm

Posted by William Byrnes on August 7, 2014


IRS logoCombing through the IRS’ income tax data by county and by zipcode can provide valuable insight for, by example, where to locate a business that depends on foot traffic, where to live (for a well funded local public school) and where to direct marketing efforts for financial planning and wealth management.

Take for instance California.  Some counties have substantially more tax filers in the category above $200,000 income, than others.  The entire state has 802,100 tax filers reporting $200,000 and greater income, 83% being married couples (665,110).   That’s almost twice New York State’s with just 413,720 (of course, to understand New York City, I would need to add in the metropolitan stats from the tri-state Connecticut and New Jersey suburbs of the City).  However, Texas beat out New York at 433,150 high earner returns, whereas Florida only had 278,560.

Read my analysis by country and metropolitan area in my International Finance Professor Blog article.

Posted in Tax Policy, Wealth Management | Tagged: , , | Leave a Comment »

Indexed Annuities and Guaranteed Lifetime Withdrawal Benefits (GLWBs)

Posted by William Byrnes on July 23, 2014


While finding the most suitable products to meet a client’s retirement income goals is fundamental to developing an appropriate retirement planning strategy, discovering the most desirable mixture of product features can prove equally critical.

In this vein, advisors should take note that indexed annuity sales have gained steam in recent months.  New studies suggest that while the base product itself may be attractive to many, in the vast majority of cases it is the optional features that are actually propelling sales.

Understanding how the guarantee features that can accompany indexed annuities have made these products competitive against more traditional bank-sponsored products has, therefore, become crucial to determining how these options can help an indexed annuity rise to the occasion.

Read the intelligence about guaranteed lifetime withdrawal benefits (GLWBs) and annuities of Professor William Byrnes and Robert Bloink at ThinkAdvisor

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 

 

 

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com

Posted in Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

Dodd Frank Progress Report – 4th Year Anniversary

Posted by William Byrnes on July 18, 2014


On July Wall_Street_Sign18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Progress Report concluded that a total of 280 Dodd-Frank rulemaking requirement deadlines have passed.  Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.

In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.

 

Contents of Davis Polk’s Dodd Frank Progress Report

o   Dodd-Frank Rulemaking Progress by Agency

o   Title VII Progress on Required Rulemakings

o   Dodd-Frank Rulemaking Progress on Passed Deadlines

o   Dodd-Frank Rulemaking Progress in Select Categories

o   Dodd-Frank Rulemaking Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Rulemakings

o   Dodd-Frank Study Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Studies

o   Tasks for Swap Dealers and Major Swap Participants

 

Posted in Compliance, Financial, Wealth Management | Tagged: , , | Leave a Comment »

Indexed Variable Annuities (IVAs) v. Structured Annuities

Posted by William Byrnes on July 14, 2014


Indexed variable annuities (IVAs) and structured annuities are two relatively new types of hybrid annuity products that are causing rampant confusion in today’s annuity marketplace. Used properly, these products can perform a significant role in a client’s portfolio, making it more important than ever to understand the nuances of these two annuity types.

The investment options offered by IVAs and structured annuities are extremely varied — in terms of opportunities for both market participation and downside protection — making the issue of client suitability particularly important. Today’s clients are looking for a customized product.

So it is time to begin asking: When it comes to IVAs and structured annuities, which product is the right fit?  Read the answer of Professor William Byrnes and Robert Bloink at LifeHealthPro

 

tax-facts-online_medium

Because of the constant changes to the tax law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

 

Posted in Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

Teaching an old dog a new trick: the modified endowment contract (MEC) and the modern portfolio

Posted by William Byrnes on June 6, 2014


The MEC 

A MEC is essentially a type of cash value life insurance policy that is subject to less favorable tax rules because it has been funded with premiums during the first seven years of the policy’s existence that exceed certain maximum amounts (depending on the policy’s benefit level and cost).  Despite this, the MEC’s worth today can remain substantial.

In some cases, dismissing the MEC too quickly can cause your clients to miss out on a valuable product.  For clients with sufficient means, the opportunity to rapidly fund a life insurance contract so as to become subject to the rules governing MECs may actually provide a powerful strategy in the well-rounded planner’s arsenal.

read this analysis in the article “The MEC and the Modern Portfolio

 

If you are interested in discussing the Master or Doctoral degree in the areas of financial planning, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Insurance, Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

What are the tax advantages of owning exchange-traded funds (ETFs)? 10 tax tips to investments …

Posted by William Byrnes on June 5, 2014


What are the tax advantages of owning exchange-traded funds (ETFs)?

ETFs enjoy a more favorable tax treatment than mutual funds due to their unique structure. …

How are ETFs taxed? …

How are dividends received from a mutual fund taxed?

… may pay three types of dividends to their shareholders …

These and 7 other tax questions about investments are answered in our article and analysis on LifeHealthPro

 

If you are interested in discussing the Master or Doctoral degree in the areas of financial planning, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Taxation, Wealth Management | Tagged: , , , , | Leave a Comment »

GLWBs and LIBRs: Which annuity rider?

Posted by William Byrnes on May 29, 2014


Guaranteed Lifetime Withdrawal Benefit Riders (GLWBs) and Lifetime Income Benefit Riders (LIBRs) are two of the more easily confused rider options in a market where understanding the nuances can make or break a client’s financial plan. Even the most astute financial professional may have difficulty navigating the maze of features that can attach to an annuity.

Read the analysis of > GLWBs versus LIBRs < 

 

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

For an indepth analysis of deductions for donations to U.S. charities, download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

 

Posted in Insurance, Retirement Planning, Wealth Management | Tagged: , , , , , | Leave a Comment »

110 Swiss client accounts turned over to IRS

Posted by William Byrnes on May 13, 2014


Swisspartners Enters into Non Prosecution Agreement and Turns Over US clients account information

The Tax Division of the US Department of Justice (DOJ) and the IRS’ Criminal Investigation (IRS-CI) announced a major victory in their joint campaign “… to identify U.S. tax cheats who have hidden behind phony offshore trusts and foundations,” said Deputy Attorney General Cole in the Friday, May 9, 2014 release by the DOJ’s Office of Public Affairs.

“This office will continue to work aggressively to hold accountable not only those U.S. taxpayers who evade their tax obligations by hiding money overseas, but also those abroad who make such tax evasion possible,” said U.S. Attorney Bharara.

The asset management firm, Swisspartners, entered into a non-prosecution agreement (NPA), the terms of which were verified by signature in a May 8, 2014 DOJ letter attached to the May 9th  complaint filed with the New York Southern District.  Almost a year ago, the DOJ reported that in July 2013 Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein that owns 71% of Swisspartners, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.

“I am very pleased that we have successfully concluded negotiations with the Swisspartners Group,” said IRS-CI Chief Weber .  “In making amends, the Swisspartners Group has turned over 110 account files relating to U.S. taxpayer-clients who maintained undeclared assets overseas….”

Swisspartners Group confessed to assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from in or about 2001 through in or about 2011.  The DOJ provided the following factors as the basis of the NPA:

  • the Swisspartners Group’s voluntary implementation of various remedial measures beginning in or about May 2008;
  • the Swisspartners Group’s voluntary self-reporting in 2012 of its criminal conduct at a time when it was neither a subject nor target of any investigation by the U.S. Department of Justice;
  • the Swisspartners Group’s voluntary and extraordinary cooperation, including its voluntary production of account files that include the identities of U.S. taxpayer-clients;
  • the Swisspartners Group’s willingness to continue to cooperate to the extent permitted by applicable law;
  • the Swisspartners Group’s representation, based on an investigation by outside counsel, the results of which have been shared with the U.S. Attorney’s Office and the Tax Division, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts; and
  • the NPA requires the Swisspartners Group to continue to cooperate with the United States for at least three years from the date of the agreement.

The NPA requires the Swisspartners Group to forfeit $3.5 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $900,000 in restitution to the IRS, representing the approximate amount of unpaid taxes arising from the tax evasion by the Swisspartners Group’s U.S. taxpayer-clients from 2001 to 2011.  In the complaint, Swisspartners admitted to:

  1. establishing sham corporate entities whereby the clients continued to maintain control of accounts,
  2. smuggling cash, in the tens of thousands, without reporting into the US to deliver to its clients, and
  3. establishing sham insurance policies with premiums from undeclared sources and in which the clients continued to control the underlying investments.

On its website, Swisspartners states: “swisspartners analyzes your tax and fiscal law situation and provides structuring services at an international level – complementary to the services provided by your tax advisor in your home country.”  Regarding insurance policies, its website states: “swisspartners designs private-placement insurance contracts that take into account the legal and tax requirements of the countries in which the family members involved have their fiscal domiciles.  Not only are our efficiently designed contracts not subject to ongoing taxation in the asset owner’s country of residence, they are also non-taxable in several other countries.

In the DOJ release statements, Deputy Attorney General Cole stated, “Swisspartners avoided criminal charges as a direct result of its decision to self-report its misconduct at a time when it was not even under investigation and its extraordinary cooperation, including its decision to turn over voluntarily the files and identities of U.S. taxpayer clients it helped hide money from the IRS.  The case serves as a clear example of the benefits that can be obtained from early and complete cooperation with federal law enforcement.”

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 that strongly encouraged Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) had issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.

106 Swiss Banks Enter DOJ’s NPA program

David Voreacos of Bloomberg News reported that Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, in her keynote remarks to the American Bar Association Section of Taxation mid-year  (January 25, 2014), stated that 106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney and Professor Jack Townsend reported on his blog on April 30, 2014 a list of 52 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-eight for category 2.

However, while 106 may be a large jump from a mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few Swiss banks had filed for non prosecution with the DOJ’s program, William R. Davis and Lee A. Sheppard of Tax Analysts’ Worldwide Tax Daily reported that “one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in.” (see “ABA Meeting: Keneally Reports Success With Swiss Bank Program”, Jan. 28, 2014, 2014 WTD 18-3.)

Framework of Swiss Bank NPA Program

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DOJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.  Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November 2013 comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

SwissInfo reported that Migros Bank selected Program Category 2 because “370 of its 825,000 clients, mostly Swiss citizens residing temporarily in the US or clients with dual nationality”, met the criteria of US taxpayer.  Valiant told SwissInfo that “an internal review showed it had never actively sought US clients or visited Americans to drum up business. The bank said less than 0.1% of its clients were American.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

  1. Existing accounts on 01.08.2008: 20%
  2. New accounts opened between 01.08.2008 and 28.02.2009: 30%
  3. New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance program in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in FATCA, Wealth Management | Tagged: , , , , , | Leave a Comment »

Court Approves New Planning Techniques for Investment Income Tax Trap for Trusts

Posted by William Byrnes on April 22, 2014


The Tax Court recently handed down a decision that could prove to be just the break that trusts participating in business activities need to escape liability for the new 3.8 percent tax on investment-type income (the NIIT) enacted with the ACA / ObamaCare.

Many trusts with business-related income are finally feeling the sting of the tax, which applied to all trust investment income for trusts with income in excess of a low $11,950 in 2013 ($12,150 for 2014).* The decision paves the way for new planning techniques in 2014 and beyond …

Read about the new planning techniques for the new investment tax: https://www.lifehealthpro.com/2014/04/21/court-untangles-investment-income-tax-trap-for-tru

Also see previous planning analysis at https://profwilliambyrnes.com/2014/01/02/irs-gives-high-income-taxpayers-a-break-on-new-3-8-tax/

See also: 10 things to know about how investments are taxed

* Estates and trusts are subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year under section 1(e) (for tax year 2013, this threshold amount is $11,950). For 2014, the threshold amount is $12,150.

<— Subscribe to this blog on the left side menu for unique weekly tax planning articles and tax facts tips

 

 

 

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , | Leave a Comment »

Why Are Many Baby Boomer Retirees Worried?

Posted by William Byrnes on April 21, 2014


“The 10,000 baby boomer that reach retirement age each day in America are waking up to the probability that they will outspend their retirement plan designed twenty or thirty years ago, forcing a drastic reduction in quality of life style for the ‘golden years’” revealed William Byrnes, author of National Underwriter’s Tax Facts.

“By example, social security increases since Ronald Reagan’s presidency, when many Baby Boomers crafted their family retirement plans, did not keep up with the actual inflation.  Also, baby boomers are outliving their retirement plans by ten or more years”, continued William Byrnes.  “Stretching the retirement savings available for an additional twenty years of life expectancy requires correctly managing the complex retirement taxation rules established by Congress and the IRS.”

Robert Bloink added, “Baby boomers retirement taxation questions include: How are earnings on an IRA taxed? What is the penalty for making excessive contributions to an IRA? How are amounts distributed from a traditional and from a ROTH IRA taxed?  How is the required minimum distribution (RMD) calculated?”

“By example of managing the retirement taxation rules, if the baby boomer engages in a prohibited transaction with his IRA, his or her individual retirement account may cease to qualify for the tax benefits.  Thus, then baby boomer needs to understand what is a prohibited transaction?  When can the baby boomer tax pull retirement funds as a loan from a retirement account or policy without it being prohibited?”

“For complex modern families with multiple marriages and various children, a retirement and estate planner should analyze the non-probate assets”, interjected Dr. George Mentz.  “Such assets may include the client’s 401k, 403b, 459, annuities, property and joint tenancy, among others.  Regarding insurance policy designations, the client may need to reexamine the beneficiaries, contingent and secondary, and percentages among them, based on current circumstances.”

“Because client’s are outliving their life expectancy and thus outliving their retirement planning, and medical expenses certainly factor into retirement planning, long term care for family members must also be addressed,” said William Byrnes.  “Moreover, recent press has focused client’s attention on tragic incident and end of life issues, such as a durable power of attorney for health care (DPA/HC), living will, or advance directives that explain the patient’s wishes in certain medical situations.  Finally in this regard, a client may require a Limited Powers of Attorney to address situations of incapacity, as well as orderly continuation of immediate family needs upon death.“

Robert Bloink included, “Other important issues to address with the client include pre-marital property contracts/pre-nuptials involving the second marriage(s), IRA beneficiary planning in blended families, spousal lifetime access trust (SLATs), and planning for unmarried domestic partners.”

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.” said Rick Kravitz.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

Posted in Estate Tax, Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

Master Limited Partnerships’ (MLPs)

Posted by William Byrnes on March 20, 2014


By Theron West and William Byrnes.

Why Are Wealth Managers Interested In MLPs?

According to the National Association of Publicly Traded Partnerships, Master Limited Partnerships (“MLPs”) have reached a market capital of $400 billion, with over 100 MLPs traded on major exchanges.  Generally established as LLCs with advantageous partnership flow through tax treatment, MLPs present attractive return vehicles to attract long term capital to the energy extraction, energy transportation (“midstream”), and most recent, energy distribution (“downstream”), markets.

MLPs have offered profitable vehicles for “midstream” businesses, that is, businesses that own assets which focus primarily on the transportation of natural resources like natural gas or crude oil.  One reason that midstream assets have been so profitable is that the pipelines and ships act as toll roads for the natural resources.  By owning these midstream assets many MLPs can avoid the volatility of the oil and gas markets directly by charging a fixed price for the units shipped.  However, in recent years many MLPs have entered into the “downstream” asset business, that is, the refining, processing or marketing of natural resources.

What is an MLP?

At the most basic level, the MLP is a type of publicly traded entity that is taxed as a partnership, but publicly traded on a national securities market in the same manner as corporate stock. M any investors are attracted to invest in MLPs because of this type of security’s high yield offer of return.  MLPs entice investors by contractually agreeing to distribute quarterly all available cash.

How is an MLP Taxed?

IRC Section 7704 provides that a publicly traded partnership will be taxed as a corporation unless the partnership meets certain gross income requirements.  A partnership satisfies the gross income requirements when at least 90 percent of the partnership’s gross income is “qualified income.”  Some forms of qualified income include interest, dividends, real property rents, income and gains derived from the exploration, development, mining or production, processing, refining, transportation (pipelines, ships, trucks), or the marketing of any mineral or natural resource.

Mutual Funds Investors?

IRC Section 851 was amended by the American Jobs Creation Act of 2004, and now provides that a RIC may include “net income derived from an interest in a qualified publicly traded partnership” in calculating its 90 percent income requirement.  Essentially, this amendment provided mutual funds the ability to diversify their portfolios because any income derived from the MLP will not affect its status as a RIC.  Still, there are significant limitations imposed on the ability of a mutual fund to invest in MLPs.  A mutual fund is not permitted to invest more than twenty-five percent of its assets in a MLP.  Nor are mutual funds permitted to own more than 10 percent of the interests issued by a MLP.


2014_tf_on_investments-m

 

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Investments delivers the latest guidance on:

tax-facts-online_medium

  • Mutual Funds, Unit Trusts, REITs
  • Incentive Stock Options
  • Options & Futures
  • Real Estate
  • Stocks, Bonds
  • Oil & Gas
  • Precious Metals & Collectibles
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting investments, including changes from the American Taxpayer Relief Act of 2012
  • Expanded coverage of Reverse Mortgages
  • Expanded coverage of Real Estate Investment Trusts (REITs)
  • More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
    • Limitations on Loss Deductions
    • Charitable Gifts
    • Reverse Mortgages
    • Deduction of Interest and Expenses
    • REITs

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

 

 

Posted in Wealth Management | Tagged: , , , | 1 Comment »

Trustee’s Investment Strategy: Prudent Investor Rule vs. Legal List

Posted by William Byrnes on March 19, 2014


by Roland Ortiz

The fiduciary duty of a trustee must respond to the overall financial goals established by a trust.  The grantor typically provides guidelines of purpose of the trust at the same time allowing the trustee the ability to respond to changing beneficiary needs.  According to the trust, assets are disbursed or can be facilitated as providing life time income, or both.  The trustee is obligated to fulfill the fiduciary duties by proper administration of the trust.

In order to achieve proper fiduciary duty, a trustee is required to provide the beneficiary with performing investments but with consideration of overall risk.  Diversification provides performance while also reducing unsystematic risk.  There are two types of investment strategies which are used to provide this diversification: the Prudent Investor Rule or Legal List.

Read the article at http://www.advisorfyi.com/2014/02/trustees-investment-strategy-prudent-investor-rule-vs-legal-list/

Posted in Wealth Management | Tagged: , , | Leave a Comment »

Conflict of Interest: Sole interest or Best Interest

Posted by William Byrnes on March 17, 2014


by Roland Ortiz

One of the most fundamental tools for estate planners, either professional or individuals, is a trust.    Specifically, an inter vivos trust which is a legal arrangement by which property under state law can be transferred by a grantor to a trustee for management and stewardship.  Typically used to transfer grantor assets away from their gross estate, while allowing beneficiaries the benefit of life income, distribution of grantor’s assets or both.  This benefit begins and ends with a trustee’s administration of all assets in the trust.

When accepting this position, the trustee must adhere to the trust provisions and the Uniform Trust Code when evaluating investments, distributions, as well as the termination of the trust.  These provisions and codes are the guidelines for the trustee to administer the trust with fidelity and prudence.  For a trustee, duty of loyalty and good faith for the betterment of the beneficiaries are the cornerstones by which their position exists.

Read the full article at http://www.advisorfyi.com/2014/02/conflict-of-interest-sole-interest-or-best-interest/

Roland Ortiz currently provides clients with evaluations on fixed income trading, derivative trading, security trading, accounting, and portfolio valuations.  You can reach him at:  www.linkedin.com/pub/roland-ortiz/27/622/806/

Posted in Wealth Management | Tagged: , , | Leave a Comment »

Can Your Business Help its Employees Save in 2014 Via an Automatic Payroll Deduction IRA?

Posted by William Byrnes on February 3, 2014


This artticle discusses one avenue for retirement planning solutions for small businesses. Financial Planners who have small business clients may consider a discussion on the automatic payroll deduction IRAs as one simple way to help employees save for retirement.

A payroll deduction individual retirement account (IRA) is one simple way for businesses to give employees an opportunity to save for retirement. The program is easy to implement; the employer sets up the payroll deduction IRA program with a bank, insurance company or other financial institution, and then the employees choose whether and how much they want deducted from their paychecks and deposited into the IRA. Depending on the IRA service provider, some employees may also have a choice of investments depending on the IRA provider. Wealth managers can add value to employees and employers by, not only establishing a plan, but by also working with employees to help them manage their IRAs.

Under a payroll deduction IRA, the employee makes all of the contributions, thus there are no employer contributions. By making regular payroll deductions, employees are able to contribute smaller amounts each pay period to their IRAs, rather than having to come up with a larger amount all at once.

One advantage of these accounts is that there is little administrative cost and no annual filings with the government. Moreover, businesses of any size can participate as there is no requirement that an employer have a certain number of employees to set up a payroll deduction IRA.

Another element that makes the program attractive to some small businesses is that the program will not be considered an employer retirement plan subject to Federal requirements for reporting and fiduciary responsibilities as long as the employer keeps its involvement to a minimum.

Here’s how the IRAs generally work: The employer sets up the payroll deduction IRA program with a financial institution, such as a bank, mutual fund or insurance company. The employee establishes either a traditional or a Roth IRA (based on the employee’s eligibility and personal choice) with the financial institution and authorizes the payroll deductions. The employer withholds the payroll deduction amounts that the employee has authorized and promptly transmits the funds to the financial institution. After doing so, the employee and the financial institution are responsible for the amounts contributed.

Generally however, the employer needs to remain neutral with respect to the IRA provider. It cannot negotiate with an IRA provider to obtain special terms for its employees, exercise any influence over the investments made or permitted by the IRA provider, or receive any compensation in connection with the IRA program except reimbursement for the actual cost of forwarding the payroll deductions.

Commonly, any employee who performs services for the business (or “employer”) can be eligible to participate. The decision to participate is left exclusively up to the employee. The employees should understand that they have the same opportunity to contribute to an IRA outside the payroll deduction program and that the employer is not providing any additional benefit to employees who participate.

Employees’ tax-deferred contributions are generally limited to a maximum annual calendar year contribution, for 2014 that maximum is $5,500.00. Additional “catch-up” contributions of currently $1,000.00 a year are permitted for employees age 50 or over, thus a total of $6,500.00 a year for 2014.

Example of time value of money

Saving $500.00 per month, for 20 years, at 6% annual return over that time will provide you $232,176.00 for retirement.  See the US government’s Tools and Calculators for Investors

The new Presidential myRA to be established by Treasury in 2014

The new myRA, to be established by Treasury under request of President Obama, is covered previously in this blog at > myRA <  Several blog subscribers have emailed me with policy and operational questions about the “myRA“.   A vein of questions that I find particularly interesting is whether tax policy rests with the executive instead of Congress?  The myRA has a tax benefit (tax exemption during the earnings period) and a cost (no fees to be passed onto the employee, but as the adage goes: “there is no free lunch”).  Tax Policy (tax imposition and tax benefit) should be established by Congress as part of the democratic process of establishing a fiscal budget.   Yet, this norm is not absolute because Congress handed over of both establishing and enforcing regulation to the Executive (Treasury in this case).  Establishing and enforcing the regulations also impacts policy.  If you care to comment directly in the blog, do so below or feel free to continue sending me your comments directly. 

2013_tf_insurance_emp_benefits_combo_covers-m_2Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Insurance & Employee Benefits delivers the latest guidance on:

  • Estate & Gift Tax Planning
  • Roth IRAs
  • HSAs
  • Capital Gains, Qualifying Dividends
  • Non-qualified Deferred Compensation Under IRC Section 409A
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting insurance and employee benefits including changes from the American Taxpayer Relief Act of 2012
  • Concise updated explanation and highlights of the Patient Protection and Affordable Care Act (PPACA)
  • Expanded coverage of Annuities
  • New section on Structured Settlements
  • New section on International Tax
  • More than thirty new Planning Points, written by practitioners for practitioners, in the following areas:
    • Life Insurance
    • Health Insurance
    • Estate and Gift Tax
    • Deferred Compensation
    • Individual Retirement Plans

Plus, you’re kept up-to-date with online supplements for critical developments.  Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

Posted in Retirement Planning, Wealth Management | Tagged: , , , , , | Leave a Comment »

 
%d bloggers like this: