Emboldened by significant victories in three Tax Court cases involving micro-captive insurance companies, on Jan. 31, 2020, the IRS announced that it is establishing 12 new examination teams to assist in the audits of abusive micro-captive insurance transactions. The IRS expects the audit teams to immediately begin new examinations that will impact several thousand taxpayers involved in micro-captive insurance transactions. The IRS also announced that it expects to hire an executive to coordinate and oversee promoter and material advisor investigations, which include micro-captive insurance transactions.
The Further Consolidated Appropriations Act, 2020, signed into law Dec. 20, 2019, includes a division that is known as the SECURE Act,1 which made major changes to the required minimum distribution (RMD) rules applicable to both qualified plans and individual retirement accounts (IRAs). For purposes of this GT Alert, qualified plan participants and IRA owners are sometimes collectively referred to as “participants.”
Under the new rules: (1) the age at which RMDs generally must commence during the lifetime of a participant has been pushed back from 70½ to 72; (2) a beneficiary will not be entitled to stretch the distributions out over his or her life expectancy unless the beneficiary is an eligible designated beneficiary, which is narrowly defined to include only a beneficiary who is: (a) the participant’s surviving spouse; (b) the participant’s minor child; (c) “disabled”; (d) a “chronically ill individual”; or (e) not more than 10 years younger than the participant, or a so-called “see through trust” established for the sole benefit of an individual eligible designated beneficiary; and (3) death benefits payable to “designated beneficiaries” who do not qualify as “eligible designated beneficiaries” must be paid over a period not longer than 10 years.
Because the new rules are effective in 2020, IRA owners (and participants in qualified plans) who have incorporated the so-called “stretch-IRA” approach into their retirement planning should promptly review those plans and the impact that these new rules may have.
The Tax Cuts and Jobs Act included a provision increasing taxes on tax-exempt organizations. New Internal Revenue Code Section 512(a)(7) required that tax-exempt organizations include in computing unrelated business taxable income any amount incurred by the tax-exempt organization (i) for any qualified transportation fringe benefit for an employee (generally, costs of mass transit passes and parking near the employer place of business), (ii) any parking facility used by employees, or (iii) any on-premises athletic facility used by employees, in each case to the extent that such amounts would not have been deductible by the tax-exempt organization if it were a for-profit organization.
The impact of Code Section 512(a)(7) was to impose tax on the amount of these fringe benefits provided to employees on organizations that might otherwise be exempt from income tax. Religious organizations that previously were not required to file federal income tax returns were required under this Code provision to file income tax returns to report and pay tax. Many tax-exempt organizations lobbied extensively to have this tax repealed. Organizations argued that this was unfair to charitable organizations and diverted money away from charitable activities.
This lobbying by tax-exempt organizations was successful.
On Sept. 18, 2019, Governor Gavin Newsom signed Assembly Bill No. 5 (AB 5) into law in California. The landmark legislation, which came into effect Jan. 1, 2020, promises to significantly expand the number of workers treated as employees for state tax and labor purposes. Although the legislation was aimed at participants in the “gig economy” (i.e., freelancers) it has much broader application. Early estimates suggest that as many as one million workers in California will be affected by this legislation. Moreover, for some businesses, it may result in workers having an inconsistent treatment for federal and state purposes.
Under the prior law, California’s Employment Development Department (EDD) and courts would apply an 11-factor analysis from S.G. Borello & Sons, Inc. v. Department of Industrial Relations to determine whether a worker should be classified as a worker or independent contractor. AB 5 codifies the three-part test for determining independent contractor status as established in Dynamex Operations West, Inc. v. Superior Court.
On Dec. 19, the United States Department of the Treasury released final regulations related to investment in Qualified Opportunity Zones and Qualified Opportunity Funds (544 pages). These highly anticipated regulations and related guidance provide critical information to investors, Qualified Opportunity Funds (QOFs), and project sponsors/operators involved in real estate, venture capital, operating businesses, and project finance in Qualified Opportunity Zones (QOZs). Many provisions of two rounds of prior proposed regulations were finalized or amended, and new provisions and guidance offer further clarity in areas critical for investor evaluation.
Greenberg Traurig has broad experience working with clients in QOF fund formation and investor utilization of QOZ benefits, along with sponsor, developer, and operator project qualification under this emerging tax incentive program for economic revitalization.
Click here for the full GT Alert, which summarizes the final regulations. Stay tuned for our detailed analysis and webinars describing the impact of these new regulations.
Welcome to In the Zone: GT Qualified Opportunity Zone News. Our monthly digest of the latest federal and state developments in Qualified Opportunity Zones and Qualified Opportunity Funds and related Greenberg Traurig news and events will keep stakeholders apprised of the most pressing issues in this burgeoning space. Continue Reading
Many real estate investors hoping for clarity on whether they will be eligible for the tax break for pass-through entities under the Tax Cuts and Jobs Act (TCJA) will be disappointed that guidance from the Internal Revenue Service (IRS) will not help much for projects leased on a triple-net basis. Read Marvin A. Kirsner’s article for the Daily Business Review, “Final IRS Guidance for Rental Deduction Still Leaves Triple Net Leases Out in the Cold.” (subscription).
Law360 recently published an article by Greenberg Traurig’s Barbara T. Kaplan, Michelle Ferreira, and Jennifer Vincent, titled “Prepare For Greater IRS Scrutiny On Conservation Easements.” While the Internal Revenue Service has been focused on syndicated conservation easements for over 10 years, earlier this year IRS Commissioner Chuck Rettig announced several campaign issues on which the IRS would heighten its focus. These campaigns included compliance in the areas of cryptocurrency, syndicated conservation easements, captive insurance companies, offshore filings and more. To read the full article, please click here.
While the IRS has been cracking down on syndicated conservation easements for over ten years, earlier this year Chuck Rettig, the Commissioner of the IRS, announced several campaign areas upon which the IRS would heighten focus in the coming year. Following through on this promise, on Nov. 12, 2019, the IRS announced a significant increase in enforcement actions for syndicated conservation easements in Issue Number IR-2019-182. This GT Alert explains what a syndicated conservation easement is and discusses how the IRS is now throwing significant resources behind the hunt for these transactions.
In South Dakota v. Wayfair, Inc., et al., 138 S. Ct. 2080 (decided June 21, 2018), the Supreme Court of the United States held that physical presence in a state was not necessary for retailers to be required to collect and remit state sales and use tax. Many states, including New York, have passed statutes implementing that decision. On Nov. 5, 2019, the New York State Department of Taxation and Finance issued TSB-M-19(4)S, providing guidance for businesses making sales of tangible personal property delivered in New York.