U.S. tax reform – retirement plan provisions finalized

The tax reform bill is done.  President Trump signed the bill on December 22, meeting his deadline for completion by Christmas.

While there is much to be said about the Tax Cuts and Jobs Act (the “Act”), the update on the retirement plan provisions is relatively unexciting.  Recall that when the tax reform process started, there was a lot of buzz about “Rothification” and other reductions to the tax advantages of retirement savings plans.  For now, that pot of potential tax savings remains untapped (perhaps to pay for tax cuts in the future).  Nonetheless, the Act that emerged from the Conference Committee reconciliation continues to include a section entitled “Simplification and Reform of Savings, Pensions, Retirement”. The provisions that remain are effective on December 31, 2017.

Recharacterization of Roth IRA Contributions.

Current law allows contributions to a Roth or Traditional IRA (individual retirement account) to be recharacterized as a contribution to the other type of IRA using a trust-to-trust transfer prior to the IRA-owner’s income tax deadline for the year.

Under the Act, taxpayers can no longer unwind Roth IRA contributions that had previously been converted from a Traditional IRA.  In other words, if a taxpayer converts a Traditional IRA contribution to a Roth contribution, it cannot later be recharacterized back to a Traditional IRA.  Other types of recharacterizations between Roth and Traditional IRAs are still permitted.

Plan Loans. 

The Act gives qualified plan participants with outstanding plan loans more time to repay the loans when they terminate employment or the plan terminates.  In these situations, current law generally deems a taxable distribution of the outstanding loan amount to have occurred unless the loan is repaid within 60 days.  The Act gives plan participants until their deadline for filing their Federal income tax returns to repay their loans.

Length of Service Awards for Public Safety Volunteers. 

Under current law these awards are not treated as deferred compensation (and, thus, are not subject to the rules under Section 409A of the Internal Revenue Code) if the amount of the award does not exceed $3,000.  The Act increases that limit to $6,000 in 2018 and allows for cost-of-living adjustments in the future.

That’s all folks!  Happy Holidays!

© Copyright 2017 Squire Patton Boggs (US) LLP

Tax Bill Causes Alarm for Some Charities and Tax-Exempt Organizations

The Tax Cuts and Jobs Act, which has been renamed the Amendment of 1986 Code, was signed into law by President Trump on December 22, 2017. Many are calling it the most sweeping overhaul to the United States tax system in decades. The Act positively impacts many sectors, including corporations with the significant reduction in corporate rates. In the case of tax-exempt organizations, however, the Act may have a significant negative impact.

Impact on Charitable Giving

An increase in the standard deduction amount for individual filers and the increase in the estate tax exclusion are predicted to cause a meaningful decrease in overall charitable giving. A higher standard deduction means fewer taxpayers will itemize deductions, reducing their incentive to make charitable donations. Only taxpayers who itemize their deductions receive a tax benefit from charitable contributions. The Tax Policy Center has estimated that before the Act, more than 46 million tax filers would itemize their 2018 returns, but with the passage of the Act, this number could drop to less than 20 million. In the short-term, donors are advised to consider making additional charitable contributions in 2017 since it is uncertain whether their charitable gifts will create a tax benefit in future years. Similarly, the doubling of the estate tax exclusion will reduce the incentive to make testamentary gifts to charities.

New Excise Tax on Executive Compensation Paid by Certain Tax-Exempt Organization; Medical Services Excluded

The Act imposes a 21 percent excise tax on most tax-exempt organizations (defined as “applicable tax-exempt organizations”) on the sum of compensation paid to certain employees in excess of $1 million plus any excess parachute payments paid to that employee (defined as a “covered employee”).

An applicable tax-exempt organization means any organization that:

  • is exempt from tax under Section 501(a) (such as Section 501(c)(3) charitable organizations),
  • is a Section 521(b)(1) farmers’ cooperative organization,
  • has income excluded from tax under Section 115(1) (this includes certain governmental entities), or
  • is a political organization described in Section 527(e)(1) for the taxable year.

A “covered employee,” is any current or former employee who:

  • is one of the tax-exempt organization’s five highest compensated employees for the current taxable or
  • was a covered employee of the organization (or any predecessor) for any preceding tax year beginning after December 31, 2016.

Compensation is referred to as “remuneration” under the new provision and is defined as “wages” for federal income tax withholding purposes. It also includes remuneration paid by related organizations of the applicable tax-exempt organization.

There are certain exceptions to the inclusion in remuneration under the definition including compensation attributable to medical services of certain qualified medical professionals and any designated Roth contribution.

The new Section 4960 is effective for taxable years beginning after Dec. 31, 2017. Year-end compensation planning, such as accelerating incentive compensation, should be considered to help avoid or reduce the 2018 excise tax. Calendar year taxpayers have only a few days to engage in this planning while fiscal year-end taxpayers may have a few more months to plan.

Separate Computation of UBTI for Each Trade or Business Activity

Certain tax-exempt organizations are subject to income tax on their unrelated business taxable income (“UBTI”). Under the current unrelated business income (“UBI”) rules, an organization that operates multiple UBI activities computes taxable income on an aggregate basis. As a result, the organization may use losses from one UBI activity to offset income from another, thus reducing total UBI. The Act requires tax-exempt organizations with two or more UBI activities to compute UBI separately for each activity. Accordingly, the losses generated by UBI activities computed on a separate basis may not be used to offset the income of other UBI activities. Under the new provision, a net operating loss deduction will be effectively allowed only with respect to the activity from which the loss arose. The inability to offset losses from one UBI activity against income from another may increase an organization’s overall UBI, but the lower corporate tax rate may otherwise reduce the amount of tax paid.

Provisions Affecting Tax-Exempt Bonds

The Act provides some welcome certainty for many tax-exempt organizations relative to tax-exempt bond financing. The House version of the Act had proposed an elimination of the ability of entities to issue “private activity bonds” Section 501(c)(3) bonds that are issued for the benefit of many tax-exempt Section 501(c)(3) organizations. This proposed elimination did not make it into the final bill. The Act does, however, adversely affect many tax-exempt organizations by eliminating their ability to undertake “advance refunding” transactions, where new tax-exempt bonds are issued to refinance existing tax-exempt bonds more than 90 days in advance of the redemption date or maturity date of such existing tax-exempt bonds.Under current law, tax-exempt Section 501(c)(3) organizations could undertake one “advance refunding” transaction, but the Act eliminates all “advance refundings” after Dec. 31, 2017.

Other Noteworthy Provisions

  • The Act imposes a new 1.4 percent excise tax on the investment income of private colleges and universities and their related organizations with at least 500 students and which have investment assets, including those of related entities, of at least $500,000 per student.
  • The existing income tax deduction for donations made in exchange for college athletic event seating rights will be repealed.
  • The charitable contribution deduction of an electing small business trust will be determined by the rules applicable to individuals, rather than those applicable to trusts.
  • The Act modifies the partnership rules to clarify that a partner’s distributive share of loss takes into account the partner’s distributive share of charitable contributions for purposes of the basis limitation on partner losses.
  • The top corporate tax rate for UBI is reduced to 21 percent.
  • The Act increases the annual limit on cash contributions to most public charities from 50 percent to 60 percent.
  • UBI will be increased by the amount of certain qualified transportation fringe benefit expenses for which a deduction is disallowed.
  • The Act repeals the deduction for local lobbying expenses which could impact Section 501(c)(6) rules.
  • The contribution limitation as to ABLE accounts is increased under certain circumstances.
  • The Act now allows for rollovers between qualified tuition programs and qualified ABLE programs.

The Act could have a significant impact on your tax-exempt organization.

© Polsinelli PC, Polsinelli LLP in California
For more Breaking Legal News go to the National Law Review.

BREAKING NEWS: Congress Sends Tax Cuts and Jobs Act to President Trump’s Desk for Signing

The Tax Cuts and Jobs Act (TCJA) has been passed by both houses of Congress and is now set to be signed into law by President Trump. The vote was 224-201 in the House with all the Democrats joined by twelve Republicans voting “no” and 51-48 in the Senate along party lines. Although the TCJA isn’t exactly great news for the renewable energy industry, it is far better than what was originally proposed in the House and Senate bills. Here are the main takeaways:

  • PTC Inflation Adjustment – The TCJA preserves the current 2.4¢/kWh PTC amount for wind with an annual inflation adjustment. The House bill would have reduced the PTC to 1.5¢/kWh with no annual inflation adjustment.

  • ITC Phase-out Schedule – The TCJA does not eliminate the permanent 10% solar ITC beginning 2023.

  • Continuous Construction Requirement – The TCJA does not include the statutory continuous construction requirement that was included in the House bill. Despite clarification from the House there was some concern as to whether the House bill would eliminate the four-year safe harbor that wind developers rely on under IRS guidance.

  • Orphaned Technologies – The TCJA does not include the ITC extension for orphaned technologies (e.g., fuel cell, small wind, micro turbine, CHP, and thermal energy) that were left out of the 2015 PATH Act. However, the Senate Finance Committee is proposing to include an extension for these technologies in its tax extenders package.

  • 100% Bonus Depreciation – The TCJA provides 100% bonus depreciation through 2022 for both new and used property. 100% bonus applies to property acquired and placed in service after September 27, 2017 with a transition rule permitting taxpayers to elect 50% bonus instead during the taxpayer’s first taxable year ending after September 27, 2017. This provides a big incentive to place projects in service this year in order to take advantage of depreciation deductions at the current 35% corporate tax rate.

  • BEAT Provision – The TCJA provides a Base Erosion Anti-Abuse Tax (BEAT) whereby a bank that makes 2% (or 3% for companies) of its deductible payments to a foreign affiliate is subject to the BEAT when those payments reduce its U.S. tax liability to less than 10% (12.5% beginning in 2025). The good news is that the TCJA provides that tax equity investors can use the PTC and ITC to off-set up to 80% of their tax liability under the BEAT. The bad news is that the 80% offset expires in 2025, so tax-equity investors in wind projects that generate PTCs over a 10-year time horizon could potentially have all of their credits clawed-back in the future.

  • Interest Deductibility – The TCJA generally limits the amount of interest that can be deducted to 30% of the business’s adjusted taxable income. In the case of partnerships, this limitation would apply at the entity level. Deductions that are disallowed are carried forward and used as a deduction in subsequent years. As we discussed in our blog post here on the House bill, this limitation could have an adverse impact on back leveraged transactions, which developers utilize to reduce their cost of capital and free up cash to invest in new projects.

  •  Corporate Tax Rate/AMT – The TCJA slashes the corporate tax rate from 35% to 21%, effective for tax years beginning after 2017, with no sunset. The TCJA does not include the corporate AMT that was in the Senate bill and which would have had a negative impact on projects generating PTCs after four years in operation. It remains to be seen whether the lower corporate rate will reduce demand for renewable energy credits among tax-equity investors in the market, which now have less tax liability to offset with credits.

© 2017 Foley & Lardner LLP
For more on Tax, go to the Tax Practice Group page.

Maryland’s Montgomery County Joins Jurisdictions Increasing Minimum Wage to $15.00

Montgomery County, Maryland, where the minimum wage already is $11.50, is set to join two states (California and New York), the neighboring District of Columbia and at least six local jurisdictions (Flagstaff (Arizona), Los Angeles, Minneapolis, San Francisco, San Jose, SeaTac and Seattle) that have enacted legislation increasing the minimum wage for some or all private sector employees to $15 over the next several years.

On November 7, 2017 the Montgomery County Council unanimously passed Bill 28-17, which increases the minimum wage for “large employers” — those with 51 or more employees in the county — to $15.00 by July 1, 2021, with intermediate increases to $12.25 on July 1, 2018, $13.00 on July 1, 2019, and $14.00 on July 1, 2020.

The bill also increases the minimum wage to $15.00 by July 1, 2023 for “mid-sized employers,” those who (1) employ 11 to 50 employees; (2) have tax exempt status under IRC Section 501(c)(3) of the Internal Revenue Code; or (3) provide “home health services” or “home or community based services,” as defined under federal Medicaid regulations and receive at least 75% of gross revenues through state and federal medical programs.

The bill additionally increases the minimum wage to $15.00 by July 1, 2024 for “small employers” — those with 10 or fewer employee (including non-profits and Medicaid funded home health and home or community based service providers of that size) — with intermediate increases to $12.00 on July 1, 2018, $12.50 on July 1, 2019, $13.00 on July 1, 2020, $13.50 on July 1, 2020, $14.00 on July 1, 2022 and $14.50 on July 1, 2023.

Notably, the rates of increases  is considerably slower than in the neighboring District of Columbia, which is already at $12.50 and will reach $15.00 on July 1, 2020 for all private sector employers.

In addition, the bill includes an “opportunity wage” that allows payment of a wage equal to 85% of the County minimum wage to an employee under the age of 20 for the first six months of employment.

The bill further adopts provisions to automatically adjust the minimum wage rate (1) for large employers annually starting July 1, 2022 to reflect average increases in the CPI-W for Washington-Baltimore for the previous year, and (2) for mid-sized and small employers starting July 1, 2024 and 2025, respectively, to reflect the same CPI-W increase for the previous year, plus one percent of the previous year’s required minimum wage, up to a total increase of $0.50, until the rate is equal to the amount for large employers. An employer’s size is calculated as of the time it first becomes subject to the law, and it remains subject to the applicable schedule regardless of the number of employees employed in subsequent years.

In addition, the Director of Finance must make certifications by January 31 of each year from 2018 through 2022 regarding certain reductions in county private employment, negative growth in the gross domestic product, or whether the U.S. economy is in recession. If certain targets are for that year, for no more than two times.

The bill specifically addresses concerns the County Executive expressed in vetoing a prior version of the bill that passed by a narrow majority in January 2017, by postponing the prior effective dates for large and small employers by one and two years, respectively; increasing from 26 to 51 the number of employees required to be a larger employer; creating a new mid-size employer category of 11 to 50 employees and defining a small employer as one with ten or fewer employees; and adding non-profits and Medicaid funded home health and home health services providers with more than ten employees to the extended schedule for mid-size employers. The County Executive has stated that he will sign the bill.

Notably, it is likely that an effort will be made in the upcoming state legislative session to further increase the state minimum wage, already at $9.25 and set to go to $10.10 on July 1, 2018.

This post was written by Brian W. Steinbach of Epstein Becker & Green, P.C. All rights reserved.,©2017

For more Labor & Employment legal analysis, go to The National Law Review

Death and Taxes: House Bill Eliminates “Death” Tax in 2024

On November 2, 2017, the U.S. House of Representatives’ Ways and Means Committee released its proposal for tax reform via the Tax Cuts and Jobs Act. The House’s draft legislation contains a number of provisions that, if enacted, would significantly change the wealth transfer landscape, including the total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024.

Under the proposal, commencing on January 1, 2018, the individual lifetime gift and estate tax exemption amount will be doubled to $10 million ($20 million for married couples), indexed for inflation—$11.2 million per person in 2018 ($22.4 million for married couples). This increase in the exemption amount also applies to the generation-skipping transfer tax.

The draft legislation calls for a total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024, while preserving the ability of beneficiaries to obtain a basis adjustment as to inherited property. Although the gift tax is set to remain in place, a reduction in the rate from 40% to 35% is provided for. Similarly, the annual exclusion—scheduled to increase to $15,000 per individual in 2018 ($30,000 for married couples who elect to split their gifts)—looks certain to survive.

This post was written by the Tax, Estate Planning & Administration  of Jones Walker LLP., © 2017
For more Family, Estates & Trusts legal analysis, go to The National Law Review

Telemedicine – Are There Increased Risks With Virtual Doctor Visits?

“Telemedicine” or “Telehealth” are the terms most often used when referring to clinical diagnosis and monitoring that is delivered by technology. Telemedicine encompasses healthcare provided via real time two-way video conferencing; file sharing, including transmission of health history, x-rays, films, or photos; remote patient monitoring; and consumer mobile health apps on smart phones, tablets, and devices that collect data and transmit it to a healthcare provider. Telemedicine is increasingly being used for everything from diagnosing common viruses to monitoring patients with serious long-term health issues.

The American Telemedicine Association reports that majority of hospitals now use some form of telemedicine. Two years ago, there were approximately 20 million telemedicine video consultations; that number is expected to increase to about 160 million by 2020. An estimated one-third of employer group plans already cover some type of telehealth.

Telemedicine implicates legal and regulatory issues as licensing, prescribing, credentialing, and cybersecurity. Pennsylvania recently passed legislation joining the Interstate Medical Licensing Compact, an agreement whereby licensed physicians can qualify to practice medicine across state lines within the Compact if they meet the eligibility requirements. The Compact enables physicians to obtain licenses to practice in multiple states, while strengthening public protection through the sharing of investigative and disciplinary information.

Federal and state laws and regulations may differ in their definitions and regulation of telemedicine. New Jersey recently passed legislation authorizing health care providers to engage in telemedicine and telehealth. The law establishes telemedicine practice standards, requirements for health care providers, and telehealth coverage requirements for various types of health insurance plans. Earlier this year, Texas became the last state to abolish the requirement that patient-physician relationships must first be established during an in-person patient/doctor visit before a telemedicine visit.

As telemedicine use increases, there will likely be an increase in related professional liability claims. One legal issue that arises in the context of telemedicine involves the standard of care that applies. The New Jersey statute states that the doctor is held to the same standard of care as applies to in-person settings. If that is not possible, the health care provider is required direct the patient to seek in-person care. However, the standard of care for telemedicine is neither clear nor uniform across the states.

Another issue that arises in the context of telemedicine is informed consent, especially in terms of communication, and keeping in mind that the Pennsylvania Supreme Court recently held that only the doctor, and not staff members, can obtain informed consent from patients. Miscommunication between a healthcare provider and patient is often an underlying cause of medical malpractice allegations in terms of whether informed consent was obtained.

In addition, equipment deficiencies or malfunctions can mask symptoms that would be evident during an in-person examination or result in the failure to transmit data accurately or timely, affecting the diagnosis or treatment of the patient.

Some of these issues will likely ultimately be addressed by legislative or regulatory bodies but others may end up in the courts. According to one medical malpractice insurer, claims relating to telemedicine have resulted from situations involving the remote reading of x-rays and fetal monitor strips by physicians, attempts to diagnose a patient via telemedicine, delays in treatment, and failure to order medication.

recent Pennsylvania case illustrates how telemedicine may also impact the way medical malpractice claims are treated in the courts. In Pennsylvania, a medical malpractice lawsuit must be filed in the county where the alleged malpractice occurred. Transferring venue back to Philadelphia County, the Superior Court in Pennsylvania found that alleged medical malpractice occurred in Philadelphia — where the physician and staff failed to timely transmit the physician’s interpretation of an infant’s echocardiogram to the hospital in another county where the infant was being treated.

The use of telemedicine will likely have wide-reaching implications for health care and health care law, including medical malpractice.

This post was written by Michael C. Ksiazek of STARK & STARK, COPYRIGHT ©
2017
For more Health Care legal analysis, go to The National Law Review 

GM Labeling Update: Ingredient Disclosure Debate

  • As previously reported on this blog, legislation requiring labeling of genetically modified (GM) foods and food ingredients was signed into law on July 29, 2016.  This law directs the U.S. Department of Agriculture (USDA) to develop regulations and standards to create mandatory disclosure requirements for bio-engineered foods by July 2018. On June 28, 2017, USDA’s Agricultural Marketing Service (AMS) posted a list of 30 questions to obtain stakeholder input to facilitate the drafting of mandatory disclosure requirements to implement the National Bioengineered Food Disclosure Law. One of those questions is:
    • “Will AMS require disclosure for food that contains highly refined products, such as oils or sugars derived from bioengineered crops?”
  • USDA has not yet posted the comments it has received, which were due by August 25, 2017; however, several organizations have posted the comments they submitted in response to the questions. Among the organizations supporting disclosure were the Grocery Manufacturers Assn. (GMA), the International Dairy Foods Assn. (IDFA)and the Consumers Union. Noting that excluding highly refined ingredients (HRI) from the scope of the mandatory disclosure standard would result in roughly 80% fewer products being subject to the disclosure requirements under the federal law, GMA wrote, “A clear, simple, and consistent mandatory disclosure standard that includes HRI will assist manufacturers in educating consumers about biotechnology as a safe and beneficial method of plant breeding.”
  • In contrast, the Information Technology & Innovation Foundation (ITIF) and The Biotechnology Innovation Organization (BIO) are opposed to mandatory disclosure of HRI. ITIF suggested that some refined products do not contain residual DNA sequences and that “[t]here are not analytical methods that would allow such products to be identified as coming from ‘GM’ plants or animals vs. others.”
  • While USDA develops mandatory disclosure requirements for bio-engineered foods, a number of class action laws suit have been filed suggesting that products containing GM ingredients are falsely labeled as natural. For example, last week, the U.S. Supreme Court refused to hear a bid by Conagra Brands Inc. to avoid a class-action lawsuit concerning cooking oil labeled 100% natural that contains GM ingredients (see S. News). And earlier this month, Frito-Lay North America agreed to not make any non-GMO claims on certain products “unless the claim is certified by an independent third-party certification organization”(see Food Navigator).
  • We will continue to monitor developments on the National Bioengineered Food Disclosure Standard and report them to you here.
This post was written by the Food and Drug Law at Keller and Heckman of Keller and Heckman LLP., © 2017
For more Biotech, Food & Drug legal analysis, go to The National Law Review