Category: Tax

A Holiday Surprise for U.S. Distilleries: TTB Unveils Long-Awaited ‘American Single Malt’ Standard of Identity

Standards of identity and viticultural area designations add significant complexity to the production and labelling of alcoholic beverages. While not exactly a holiday miracle, many distillers are rejoicing over the TTB’s new rule on American whisky (or whiskey) [1].

On Dec. 13, 2024, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued its long-awaited final rule (the “Rule”) that establishes formal definitions for both “American single malt whisky” and “straight American single malt whisky”. In both cases, the TTB is requiring that the base mash or wort for the whiskey be:

1) fermented from 100 percent malted barley produced in the United States;

2) be distilled to 160 proof or less at the same distillery [2] in the United States;

3) be stored and aged in either used, new charred, or new oak barrels no greater than 700 liters (185 gallons);

4) not use any neutral spirits; and

5) not use any coloring, flavorings, or other blending materials with the exception of caramel color (which must be disclosed on the label).

Like other whiskys such as bourbon and rye, a “Straight American single malt whisky” must be aged at least two (2) years. The new Rule is scheduled to be published on Dec. 18, 2024, and takes effect on Jan. 19, 2025.

Notably, the new Rule allows distillers to use a wide range of barrel sizes, and also permits the use of new charred, new uncharred, and used barrels. This may lead to a number of different styles and expressions in the American single malt category and will allow distillers the ability to repurpose for their American single malt whiskys the same barrels they have used for other products. This brings better efficiency and, potentially, lower costs to production.

These new standards of identity help provide clarity to distilleries in Pennsylvania and beyond that are already producing whiskys made from malted barley, and may also help U.S. malt houses[3] that are already working with distilleries to better cross-market the whiskys made with local malt. Likewise, the new Rule preserves the ability of breweries and distilleries to continue to partner on fermenting malt for use in American single malt whisky by not requiring the fermentation (or storage or bottling) to occur at the place of distillation.

It is noteworthy that prior to the adoption of the Rule, many distilleries were producing and labeling products as “American Single Malt” whisky despite the absence of specific standards, and the TTB has previously approved Certificates of Label Approval (COLA) for those products that generally met the definition of a “malt whisky” before the new Rule. Because the new Rule provides additional requirements, the TTB has provided a “transition period” that allows distillers in the U.S. to continue to use the term “American Single malt whisky” or “straight American single malt whisky” for products that met the applicable standards before the new Rule, but only if those products are bottled before Jan. 19, 2030.

Distillers that are currently producing products they intend to market and label as “American Single Malt” should ensure either that those products comply with the new Rule, or that they are bottled prior to Jan. 19, 2030. The new standards will be added to Section 5.143 of the Code of Federal Regulations, which will include the following chart:

While these new standards add new requirements, the new Rule is expected to provide clarity and a boost for producers of American Single Malt. We hope you find a bottle of American Single Malt in your stocking next year!

Endnotes

  1. TTB Regulations allow the use of “whisky” or “whiskey” for products that meet the definition of “whisky”.
  2.  The new Rule does not require that fermentation and distillation occur at the same distillery, leaving open the option to have the mash fermenter at a different location such as a brewery. Likewise, aging and bottling can occur at a different location than where the distillation occurred.
  3. See, e.g. Double Eagle Malt (Montgomery County, PA) and Deer Creek Malt (Chester County, PA).
©2024 Norris McLaughlin P.A., All Rights Reserved
For more on Alcohol, visit the NLR Biotech Food Drug section

Year-End Estate Planning Update: Strategies for 2025

The 2025 transfer tax exemption will remain at a historically high level before being reduced by 50% on January 1, 2026 under current law. As it remains uncertain whether the new Congress will enact legislation to maintain the current exemption amount, taxpayers should continue planning with the current law in mind. There are a variety of strategies available to take advantage of current exemption levels.

Current Transfer Tax Laws

The federal gift/estate and generation-skipping transfer (GST) tax exemptions (i.e., the amount an individual can transfer free of such taxes) were $13.61 million per person in 2024 and will increase to an unprecedented $13.99 million in 2025. However, under current law these exemptions will be reduced by 50% on January 1, 2026 (but still inflation adjusted each year). While Congress may do nothing and maintain the current transfer tax laws (allowing the exemptions to be cut in half), or repeal the transfer taxes altogether, due to budgetary constraints, it is more likely that Congress will simply extend the timeframe for when the exemptions will be reduced, perhaps by two, four, or 10 years. The federal transfer tax exemptions can be used either during lifetime or at death. Using exemption during lifetime is generally more efficient for transfer tax purposes, as any appreciation on the gifted assets escapes estate taxation. The Illinois estate tax exemption remains at $4 million per person, as this exemption does not receive an annual inflationary increase.

For individuals concerned about estate taxation upon death, there are estate planning strategies available to utilize the current historically high exemptions. However, these strategies must also address the potential loss of a basis change on death. Estate taxes are imposed at a 40% federal rate on a decedent’s “taxable estate” not qualifying for a marital or charitable deduction, plus potential state estate taxes. In Illinois, the effective marginal tax rate ranges from 8% to approximately 29%. As with income taxes, state estate taxes are deductible for federal estate tax purposes, resulting in a cumulative federal and Illinois estate tax rate (for estates above both the federal and Illinois exemptions), taking deductions into account, of approximately 48%. The trade-off is the loss of the basis change at death (discussed below), which can result in an income tax cost on any “built in” gains aggregating 28.75% (a federal 20% capital gains tax, plus the 3.8% federal net investment income tax, plus state capital gains taxes of 4.95% in Illinois).

In 2025, a married couple can transfer up to $27.98 million free of federal transfer tax, but as discussed above, under current federal law, the estate/gift and GST tax exemptions are to be reduced by 50% in 2026. The Treasury Department has confirmed that the additional transfer tax exemption granted under current law until 2026 is a “use it or lose it” benefit, and that if a taxpayer uses the “extra” exemption before it expires (i.e., by making lifetime gifts), it will not be “clawed back” causing additional tax if the taxpayer dies after the exemption is reduced in 2026. This means that a taxpayer who has made $6.995 million or less (adjusted for inflation) of lifetime gifts before 2026 will not “lock in” any benefit of the extra exemption, while a taxpayer who makes use of the additional exemption before 2026 (e.g., by making gifts of $13.99 million before 2026) will “lock in” the benefit of the extra exemption.

Lifetime Transfer Strategies

In addition to making such annual exclusion gifts, taxpayers should strongly consider lifetime gifting strategies in 2025 in excess of those amounts. Taxpayers who have not used the “extra” exemption before January 2026 may lose it forever. Furthermore, any post-appreciation transfer on gifted assets accrues outside of the taxpayer’s estate. This is especially salient for younger individuals and for transfers of assets with high potential for appreciation. For taxpayers who live in states with a state estate tax but no state gift tax (such as Illinois), lifetime gifting will also have the effect of reducing the state estate tax liability.

New Rules for Required Minimum Distributions from Certain Inherited IRAs

The IRS issued new Final Regulations in 2024 that Required Minimum Distributions from certain retirement plans that beneficiaries must take to avoid penalties (hereinafter referred to as “inherited IRAs” even though they encompass all retirement plans). Congress enacted the SECURE Act in 2019, which set the current law for Required Minimum Distributions from inherited IRAs and other retirement plans. In general, other than a spouse, minor child of the decedent, or disabled child of the decedent for whom special “stretch rules” may apply, beneficiaries have a 10-year period within which all of the IRA funds have to be withdrawn to avoid penalties (no distributions until December 31 of the year in which the 10th anniversary of death falls). Based upon this rule, many beneficiaries intentionally planned to not withdraw IRA funds until the end of the 10-year period in order to let the funds grow income tax deferred (unless earlier distributions could be made at a lower income tax rate based upon their individual situation year by year). Effective for taxable years beginning on or after January 1, 2025, the IRS’s new Regulations change this 10-year rule for beneficiaries that inherited an IRA from a decedent that was passed his or her “required beginning date” (age 72 if the decedent was born in 1950 or before, age 73 if born 1951-1959, and age 75 if born 1960 or later). For such beneficiaries (the decedent dying past his or her required beginning date), the beneficiary is required to take annual distributions during the 10-year period based upon the beneficiary’s life expectancy and must drain whatever is left by December 31 of the 10th year after death. Failure to take the Required Minimum Distribution can result in significant penalties. This annual Required Minimum Distribution amount does not apply to spousal rollover IRAs, to IRAs for which the beneficiary qualified and was using a special life expectancy rule, to IRAs when the participant died before his or her required beginning date, or to IRAs inherited before 2020.

Planning for Basis Change

Good estate planning incorporates income tax and other considerations rather than focusing myopically on estate, gift, and GST taxes. In general, upon an individual’s death, the cost basis of any assets that are included in his or her gross estate for estate tax purposes receive an adjustment to their fair market value at the date of death. For appreciated assets, this can result in substantial income tax savings. Assets that are not included in the gross estate, however, do not receive a basis adjustment. Therefore, there is often a trade-off between making lifetime gifts (to reduce estate taxes, but with the donee receiving the donor’s “carry-over” basis) and keeping assets in the gross estate (to obtain the basis adjustment and reduce income taxes).

Fortunately, there are a number of techniques to help plan for possible change in basis while still retaining estate tax benefits. Irrevocable trusts that receive lifetime gifts can be structured to allow for a possible basis change. One way to do so is by including a broad distribution standard in the trust agreement by which an independent trustee can make distributions out of the trust to the beneficiary. Additionally, a trust can be structured to grant an independent trustee the power to grant (or not grant) the beneficiary a “general power of appointment,” which would cause the trust assets to be includible in the beneficiary’s estate for estate tax purposes and therefore receive the basis adjustment. Finally, if an irrevocable trust is structured as a grantor trust, the grantor can retain a “swap power” that can be used to transfer high-basis assets to the trust and take back low-basis assets, in order to obtain the largest possible “step up” in basis.

The Corporate Transparency Act

As of January 1, 2024, domestic and foreign entities created by filing with a Secretary of State or foreign entities registered to do business with a Secretary of State (i.e., corporations, LLCs, and limited partnerships), are required to report beneficial ownership information to the Financial Crimes Enforcement Network, subject to limited exemptions. “Reporting Companies” are required to report the full legal name, birthdate, residential address, and a unique identifying number from a passport or driver’s license (along with a copy of the passport or driver’s license) for any owner who directly or indirectly (i) owns at least 25% of the ownership interests or (ii) directly or indirectly exercises “substantial control” over the entity.

Entities in existence before January 1, 2024 have until December 31, 2024 to comply with the reporting requirement. Entities formed in 2024 have 90 days from the date of formation to comply with the reporting requirement. New entities formed on or after January 1, 2025 will have 30 days from formation to comply with the reporting requirement. There is also a supplemental filing requirement every time any information on the filed Report changes, due 30 days after each such change.

© 2024 Much Shelist, P.C.
For more on Estate Planning, visit the NLR Estates Trusts section

Disregarded Entity Eligibility for the CTA Large Operating Company Exemption

Summary: As discussed in detail below, the Corporate Transparency Act (CTA) provides an exemption to its reporting requirements for certain large operating companies (the Large Operating Company Exemption or “LOC Exemption”). In order to qualify for the LOC Exemption, a reporting company must, among other requirements, “have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales.” Certain reporting companies are “disregarded entities” (DREs) for Federal tax purposes and, as such, do not themselves directly have a Federal tax filing obligation or ability. However, based upon guidance from FinCEN and the IRS, support exists for the proposition that the Federal tax filing of a DRE’s sole individual owner or sole parent entity constitutes the filing referenced in the LOC Exemption, and that a DRE reporting company is not, per se, disqualified from utilizing the LOC Exemption.

* * * * *

Certain business entities may elect (including through default attribution under the Internal Revenue Code, (IRC) to be treated as “disregarded” from their individual owner or parent entity for U.S. federal income tax purposes. Such entities include limited liability companies (LLCs) who have a single member (unless such an LLC has elected on Internal Revenue Service (IRS) Form 8832 to be taxed as a “corporation”), or certain wholly owned subsidiaries of “S-corporations” where the parent S-corporation has made an election (referred to as a “Q-Sub election”) on IRS Form 8869 to treat the subsidiary as a qualified subchapter S subsidiary (QSub), whereby such Q-Sub is deemed to be liquidated (for federal tax purposes only) into the parent S-corporation.

These entities, often referred to simply as “disregarded entities” do not, as a distinct, juridical person, file a federal income tax return per se. Instead, DREs have their taxable income and loss reflected, on an aggregated basis, on the federal income tax return of their individual owner or (direct or indirect) parent entity. In fact, when reporting the taxpayer identification number (TIN) of a DRE on an IRS Form W-9 (Request for Taxpayer Identification Number and Certification), the DRE provides the federal employer identification number (FEIN) of a parent entity or a social security number (SSN) of an individual owner, rather than a TIN of the DRE itself. This is true even if the DRE has filed for, and has received from the IRS, its own FEIN.

Further to this point, some DREs do not, and are not required to, file for their own FEIN. As such, not all DREs possess their own FEIN or other entity distinct TIN.

The Financial Crimes Enforcement Network (FinCEN), in its Frequently Asked Question F.13 issued July 24, 2024, acknowledged this fact as follows:

“An entity that is disregarded for U.S. tax purposes—a “disregarded entity”—is not treated as an entity separate from its owner for U.S. tax purposes. Instead of a disregarded entity being taxed separately, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return. …

Consistent with rules of the Internal Revenue Service (IRS) regarding the use of TINs, different types of tax identification numbers may be reported for disregarded entities under different circumstances:

  • If the disregarded entity has its own EIN, it may report that EIN as its TIN. If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN….
  • If the disregarded entity is a single-member limited liability company (LLC) or otherwise has only one owner that is an individual with a SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.
  • If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.
  • If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities that has a TIN as its TIN.

As explained above, a disregarded entity that is a reporting company must report one of these tax identification numbers when reporting beneficial ownership information to FinCEN.”i

While the above FAQ is not offered by FinCEN specifically in the context of the LOC Exemption, this FAQ does have important implications for the LOC Exemption. In stating that a DRE is not required to obtain an FEIN merely for purposes of having such a number for purposes of filing a beneficial ownership information report (BOIR) under the CTA, and acknowledging that a DRE may provide a SSN of an individual owner, or an FEIN of a parent entity, in satisfaction of the DRE’s requirement to provide a tax identification number as required in FinCEN’s form for filing BOIRs, FinCEN has recognized that the same TIN required by the IRS to be disclosed on a Form W-9 in respect of a DRE is recognized by FinCEN as an appropriate TIN in respect of the DRE for purposes of such entity’s BOIR filing.

As such, the federal tax return filing associated with such a TIN is, therefore, the tax return associated with the DRE reporting such TIN on its BOIR filing. In other words, the fact that an individual owner or a parent entity has made a prior year’s federal tax return filing, which filing includes the U.S. generated gross receipts or sales of the DRE, should be sufficient to satisfy the DRE’s prior year’s federal tax return filing status with respect to such revenue.

As stated in FAQ F.13 above, “a DRE—is not treated as an entity separate from its owner for U.S. tax purposes…, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return…”

* * * * *

With this background, we next analyze the associated implications to a DRE that may qualify for the LOC Exemption.

For purposes of clarity, the requirements for an entity to qualify for the LOC Exemption is that the entity satisfy all three parts of the following three-part test:

“[A]n entity must have more than 20 full-time employees in the United States, must have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and must have an operating presence at a physical office in the United States.”ii

The CTA itself provides more specificity in this regard. The CTA provides that the term “reporting company” does not include any entity that:

“(I) employs more than 20 employees on a full-time basis in the United States; (II) filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate, including the receipts or sales of (aa) other entities owned by the entity; and (bb) other entities through which the entity operates; and (III) has an operating presence at a physical office within the United States.”iii

Although FinCEN has, to date, issued no formal acknowledgment or interpretation with regard to the applicability of the above “revenue prong” specifically in the DRE context, for the reasons outlined above, a reasoned and supported proposition in the DRE situation may be that the “filed Federal income tax or information return” referenced in the LOC Exemption is the federal tax return filing of the reporting company’s individual owner or parent entity, as applicable.

Further to the revenue prong, it appears that if the DRE itself generates U.S. generated gross receipts or sales in excess of five million dollars as reported on the prior year’s federal tax return filing, that the DRE meets the revenue prong of the LOC Exemption. However, based on the above analysis, it may also be a colorable position that the DRE MAY be able to assert that ALL of the U.S. generated gross revenue appearing on the individual owner’s or parent entity’s federal tax return filing may be attributable to the revenue test prong of the LOC Exemption, because all of such revenue is associated with that tax return. This situation is notionally similar to FinCEN’s interpretation that all members of a consolidated corporate taxed group (including each subsidiary) may share in credit for the aggregated gross receipts or sales of the entire group in meeting each of their respective, individual revenue requirements under the LOC Exemption. Here, both the individual and DRE or the parent entity and disregarded subsidiary would be relying upon the same federal tax return, in the individual or partnership tax context.

* * * * *

For purposes of clarity and completeness, we acknowledge a countervailing position espoused by some commentators in the marketplace. That position holds that a DRE is ab initio ineligible to qualify for the LOC Exemption merely because of such reporting company’s status as a DRE (i.e., that it, itself, as a business entity, does not directly cause the filing of its own, independent federal tax return). For the reasons outlined herein, we find this position less compelling than the proposition that disregarded entities have a filed Federal income tax or information return when filed by their individual owner or parent entity.

* * * * *

With respect to exemptions from the reporting obligations under the CTA, each such exemption is “self-executing.” In other words, if an exemption applies to a reporting company, that reporting company has no filing obligation to FinCEN under the CTA. As such, there is no BOIR filing on record documenting that the DRE is relying on its individual owner’s SSN or its parent entity’s FEIN, and, derivatively, the associated federal tax return filing, in establishing compliance with the revenue prong of the LOC Exemption test. We recommend that each DRE making such a reliance-based exemption determination maintain a record of their CTA diligence, analysis and exercise of business judgment made upon a fully informed basis, that underpins the substantiation of the DRE’s satisfaction of all parts of the LOC Exemption test.iv Such substantiation may be needed in the future if FinCEN or one of the DRE’s financial institutions requests substantiation of the DRE’s asserted position that such DRE is not required to file a BOIR under the CTA.

* * * * *

Conclusion. The compliance requirements under the CTA went live on January 1, 2024, and you have only the remainder of this year to take any action to prepare for your compliance position. Now is the time to discuss the CTA with your Polsinelli legal team for guidance.

[i] See FinCEN CTA FAQs F.13 (issued July 24, 2024)(https://www.fincen.gov/boi-faqs)

[ii] See FinCEN CTA FAQs L.7 (issued April 18, 2024)(https://www.fincen.gov/boi-faqs)

[iii] U.S.C. § 5336 (a)(11)(B)(xxi).

[iv] Note that there are other factors of the LOC Exemption that must be met in order to rely on that exemption, and such other factors are required to be met directly by the DRE. This discussion is not intended to suggest that the DRE may rely, for example, on employee counts of affiliated entities or impermissible U.S. physical address locations in qualifying for the LOC Exemption.

© Polsinelli PC, Polsinelli LLP in California
For more on the Corporate Transparency Act, visit the NLR Corporate Business Organizations section

Proposed Disregarded Payment Loss Rules Create Traps for the Unwary

Be wary: The US Department of the Treasury’s proposed disregarded payment loss (DPL) regulations lay surprising new traps for multinational taxpayers – and those ensnared are unlikely to see what’s coming.

Under the proposed regulations, disregarded payments from a foreign disregarded entity to its domestic corporate parent can give rise to a US income inclusion without any offsetting deduction.[1] This phantom income can be substantial and because the inclusion results from payments that are disregarded as a matter of US tax law, it is sure to be an unwelcome surprise for some taxpayers.

Multinational taxpayers with US corporate entities that hold or acquire interests in foreign disregarded entities should understand the proposed regulations, determine their potential exposure, and consider steps to mitigate potential tax liabilities. This article provides a high-level overview of the proposed regulations and reviews the questions that multinational companies should ask themselves before the traps are sprung.

In Depth

The DPL rules are included in proposed regulations that were published on August 7, 2024.[2] The proposed regulations address, among other topics, how the Section 1503(d) dual consolidated loss (DCL) rules apply in the context of Pillar Two taxes. Though the proposed regulations include both DCL and DPL rules and the DPL rules use similar timing and concepts as the DCL rules, the DPL rules operate separately and apply to a different set of circumstances.[3]

While the DCL rules prevent taxpayers from deducting the same loss twice (once in the United States and once in a foreign jurisdiction), the DPL rules target “deduction/no inclusion” (D/NI) outcomes. In a D/NI scenario, a domestic corporation owns a foreign disregarded entity that makes payments to its domestic corporate parent. The payments are regarded for foreign tax purposes and may give rise to a foreign deduction or loss but are disregarded for US tax purposes, so there is no corresponding US income inclusion. Under foreign tax law, the foreign deduction or loss can be used to offset other foreign income and reduce foreign tax.[4]

To prevent D/NI outcomes, the proposed DPL rules identify certain foreign tax losses attributable to disregarded payments and then require the domestic corporate parent to include a corresponding amount of income for US tax purposes. However, the rules are extremely broad and may require US income inclusions where there is no D/NI outcome or potentially when the foreign disregarded entity is not actually in a loss position from a foreign tax perspective.[5]

As explained below, the rules (1) apply only to domestic corporations that are deemed to consent to their application, (2) may require domestic corporations to include a substantial “DPL inclusion amount” as ordinary income with no offsetting deduction, and (3) will require such inclusion whenever one of two triggering events occur, namely, a “foreign use” of the DPL or a failure to satisfy the rules’ certification requirements.

DEEMED CONSENT

The DPL rules apply only to consenting domestic corporations but set a low bar for what this “consent” requires. Essentially, a domestic corporation consents to the rules if it owns a foreign disregarded entity, with the applicability date depending on when the domestic corporation acquired or checked the box on the foreign disregarded entity.

First, a domestic corporation consents to the DPL rules if it directly or indirectly owns interests in a “specified eligible entity”[6] that makes a check-the-box election on or after August 6, 2024, to be a disregarded entity.[7]

Second, a domestic corporate owner is deemed to consent to the DPL rules if, as of August 6, 2025, the entity directly or indirectly owns interests in a disregarded entity and has not otherwise consented to the rules. To avoid such deemed consent with respect to a disregarded entity, the disregarded entity may instead elect to be treated as a corporation prior to August 6, 2025. Of course, the related consequences of such an election can be significant.[8]

THE DPL INCLUSION AMOUNT

Domestic corporations that consent to the rules may be required to include a DPL inclusion amount as income. For a specified eligible entity or foreign branch of a consenting domestic corporation (such specified eligible entity or foreign branch is referred to as a “disregarded payment entity”), the DPL for a given tax year is the disregarded payment entity’s net loss for foreign tax purposes that is composed of certain items of income and deduction that are disregarded for US tax purposes.[9] The notice of proposed rulemaking (NPRM) provides the following example:

[I]f for a foreign taxable year a disregarded payment entity’s only items are a $100x interest deduction and $70x of royalty income, and if each item were disregarded for U.S. tax purposes as a payment between a disregarded entity and its tax owner (but taken into account under foreign law), then the entity would have a $30x disregarded payment loss for the taxable year.

The DPL inclusion amount is the DPL amount reduced by the positive balance of the “DPL cumulative register.” The DPL cumulative register reflects the cumulative amount of disregarded payment income attributable to the disregarded payment entity across multiple years. The NPRM also provides the following example:

[I]f a disregarded payment entity incurs a $100x disregarded payment loss in year 1 and has $80x of disregarded payment income in year 2, only $20x of the disregarded payment loss is likely available under the foreign tax law to be put to a foreign use. As such, if a triggering event occurs at the end of year 2, then the specified domestic owner must include in gross income $20x (rather than the entire $100x of the disregarded payment loss).

Taxpayers who expect to benefit from the DPL cumulative register should keep in mind that the register only reflects disregarded payments that would be interest, royalties, or structured payments if regarded for US tax purposes. It reflects no other disregarded payments, and it reflects no regarded payments of any sort.

Notably, disregarded payment entities “for which the relevant foreign tax law is the same” are generally combined and treated as a single disregarded payment entity for purposes of the DPL rules. As a result, disregarded payments between entities formed in the same foreign jurisdiction generally should not give rise to DPL inclusions. However, this rule applies only where the entities have the same foreign tax year and are owned by the same consenting domestic corporation or by consenting domestic corporations that are members of the same consolidated group. Further, to ensure the items of foreign income and deduction net against one another within the combined disregarded payment entity, taxpayers should analyze the applicable foreign tax rules to confirm that these items accrue in the same foreign taxable year.

THE TRIGGERING EVENTS

Consenting domestic corporations will be forced to include the DPL inclusion amount as ordinary income if one of two triggering events occurs within a certification period. A certification period includes the foreign tax year in which the DPL is incurred, any prior foreign tax year, and the subsequent 60-month period. These certification periods and triggering events are somewhat similar to the ones used in the DCL rules. In the case of the DPL rules, however, there is no ability to make a domestic use election, as for US tax purposes there is no regarded loss that can be used to offset US tax.

The first triggering event is a “foreign use” of the DPL. A foreign use is determined under the principles of the DCL rules. Thus, a foreign use generally occurs when any portion of a deduction taken into account in computing the DPL is made available to offset or reduce income under foreign tax law that is considered under US tax law to be income of a related foreign corporation (and certain other entities in limited circumstances).

The second triggering event occurs if the domestic corporation fails to comply with certification requirements. Specifically, where a consenting domestic corporation’s disregarded entity has incurred a DPL, the domestic corporation must certify annually throughout the certification period that no foreign use of the DPL has occurred.

HYBRID MISMATCH RULES AND PILLAR TWO

The DPL rules provide that if a relevant foreign tax law denies a deduction for an item to prevent a D/NI outcome, the item is not taken into account for purposes of computing DPL or disregarded payment income. These so-called “hybrid mismatch rules” go some way toward softening the headache the DPL rules are likely to cause taxpayers.

However, foreign countries’ adoption of Pillar Two rules will exacerbate their impact. The rules make clear that for purposes of a qualified domestic minimum top-up tax (QDMTT) or income inclusion rule (IIR) top-up tax, foreign use is considered to occur where a portion of the deductions or losses that comprise a DPL is taken into account in determining net Global Anti-Base Erosion Rules income for a QDMTT or IIR or in determining qualification for the Transitional Country-by-Country Safe Harbor.[10] There is also a transition rule providing that, for this purpose, QDMTTs and IIRs are not taken into account for taxable years beginning before August 6, 2024.[11] This means that calendar year taxpayers who have not consented early to the DPL rules generally should not have a DPL inclusion amount in 2024 solely as a result of Pillar Two taxes, but, depending on their facts, could have an inclusion next year if proactive measures are not taken.

NEXT STEPS

Now is the time for multinational taxpayers to evaluate their risk under the DPL rules. Taxpayers with a domestic corporation in their structure should think carefully before making check-the-box elections to treat foreign entities as disregarded entities.[12] Moreover, taxpayers should determine whether their domestic corporations own any foreign disregarded entities or other specified entities that will cause them to be deemed to consent to the rules as of August 6, 2025.

Multinational taxpayers also should determine whether they have disregarded interest payments, structured payments, or royalties that fall under the purview of the rules. If so, they should consider whether they will be able to avoid future triggering events or if “foreign uses” of DPLs will be unavoidable. One should pay particular attention to Pillar Two, including the Transitional Country-by-Country Safe Harbor, when considering whether there could be a foreign use.

Taxpayers who cannot avoid triggering events should consider whether, and when, to take some defensive measures. Such actions might include winding up foreign disregarded entities that could be subject to the rules, eliminating disregarded payments that would result in DPL income inclusions,[13] or taking other restructuring steps (e.g., electing to treat certain foreign disregarded entities as associations, as the Treasury suggests). When determining whether to take defensive actions, taxpayers should consider the impact that DPL inclusions could have on their overall tax profile, including sourcing issues, foreign tax credits, and the Section 163(j) limitation on business interest deductions. In terms of timing, taxpayers also should consider whether they have until August 5, 2025, to unwind any arrangements subject to the DPL rules or whether it may be prudent to unwind any such arrangements before the end of the year.

Finally, taxpayers concerned about these rules should watch for news about whether they will be issued in final form. The results of the 2024 US presidential election call into question whether the proposed rules will be finalized or, conceivably, shelved.[14] These considerations further complicate the question of whether and when multinational taxpayers should act in response to the rules, particularly as the clock continues to tick toward the deemed consent date of August 6, 2025.

Endnotes

[1] The proposed regulations also can apply to payments made by a foreign disregarded entity to other foreign disregarded entities owned by the same domestic corporate parent.

[2] REG-105128-23.

[3] Although not analyzed in detail here, the proposed changes to the DCL rules are also significant and taxpayers should consider their impact.

[4] For example, the foreign deduction or loss can be used through a loss surrender or consolidation regime.

[5] For example, this may occur when a foreign disregarded entity makes a payment that is included in another foreign disregarded entity payee’s income for foreign tax purposes.

[6] A specified eligible entity is an eligible entity that is a foreign tax resident or owned by a domestic corporation that has a foreign branch.

[7] The rules also can apply to an entity that is formed or acquired after August 6, 2024, and classified without an election as a disregarded entity.

[8] For example, Section 367 may apply to a deemed contribution to the newly regarded foreign corporation.

[9] Generally, these are items of income and deduction from certain disregarded interest, royalties, and “structured payments” within the meaning of the Section 267A regulations.

[10] A limited exception is available in certain cases where the Pillar Two duplicate loss arrangement rule applies.

[11] This favorable transition rule is subject to an anti-abuse provision that can prevent it from applying.

[12] Taxpayers also should give careful thought to any internal restructurings involving foreign disregarded entities.

[13] Eliminating these payments may, of course, result in a corresponding increase in foreign tax liability.

[14] Commentators to the proposed regulations also have raised substantive invalidity arguments under the Loper Bright framework.

© 2024 McDermott Will & Emery
For more on the Treasury, visit the NLR Tax section

Unlike a Fine Wine, Tax Issues Do Not Get Better with Age

In a recent decision, the New York State Tax Appeals Tribunal (“Tribunal”) upheld notices of deficiency issued by the New York State Department of Taxation and Finance (the “Department”) totaling approximately $15 million in additional tax, plus interest and penalties for tax years dating as far back as 2002. In the Matter of the Petition of Cushlin Limited, DTA No. 829939 (TAT Oct. 10, 2024). The notices of deficiency came on the heels of an audit that lasted a decade and at the end of which the Department computed additional corporation franchise tax due “based on the information it had available” inasmuch as the information provided by the company over the 10-year audit was “incomplete and/or unsubstantiated.” This case is a cautionary tale for taxpayers and a reminder that tax issues do not get better with age, and delaying or putting off addressing known issues only makes the situation worse in the end.

The company was a corporation organized under the laws of The Isle of Man and was in the business of acquiring and refurbishing three- and four-star hotels. The company also owned equity interests in 13 limited liability companies (“LLCs”) that were doing business in New York. In 2008, the Department began an audit of one of the LLCs and discovered that it had sold real property in New York but did not file a New York State partnership tax return. As a result of its ownership interest in the LLCs, the Department determined that the company was required to file New York corporation franchise tax returns on which it was required to report the gains and losses of the LLCs. The audit of the company initially covered the tax years 2002 through 2006 and was later expanded to include 2007 through 2009.

From 2010 through 2013, the company and the Department communicated multiple times, and the company repeatedly stated that it was preparing tax returns for the audit years for the LLCs and the company and that it required more time to prepare those returns. In 2013, the company provided the Department with draft tax returns for the company and the LLCs. In May 2016, after another three years passed without final tax returns being filed, the Department informed the company that it was assessing additional corporation franchise tax computed based on the amounts in the draft returns plus interest and penalties. In June 2016, the company filed final tax returns for all of the audit years, and the final returns reflected income and deductions that were larger than the amounts previously included in the draft returns.

The Department then issued three information document requests over the next two years that requested information substantiating the deductions claimed on the filed returns. In response to these requests, the Tribunal found that the company “provided only partial responses that lacked any externally verifiable substantiation” and repeated Department requests were “met with partial, inconclusive responses.” Finally, in 2018, the Department issued the notices of deficiency that assessed the amount of additional corporation franchise tax that the Department had previously computed using the company’s draft returns plus updated additional interest and penalties. The company appealed and the Administrative Law Judge (“ALJ”) sustained the notices finding: (1) that the company had failed to meet its burden of proving that the notices were incorrect; and (2) that penalties were properly imposed as the company also failed to demonstrate that its failure to file timely returns was a result of reasonable cause and not willful neglect.

The Tribunal agreed with the ALJ, concluding that there was a rational basis for the notices because “[w]orking without returns or supporting documentation more than six years after it began, the [Department] used the available information provided by petitioner, verified by other information contained in the [Department’s] own database, to arrive at a computation of tax due from petitioner.” Moreover, the Tribunal reasoned, the Department provided the company with numerous opportunities to substantiate the amounts that the company reported on its filed returns and the company’s failure to provide substantiating information left the Department with “little choice” but to “use another method to arrive at a determination of tax liability.” Finally, the Tribunal concluded that the ALJ correctly determined that penalties were properly imposed as the company did not meet its burden to demonstrate reasonable cause.

© 2024 Blank Rome LLP
For more on Deficiencies, visit the NLR Tax section

Post Election – Expect Tax Legislation

I. Introduction

With clear Republican victories in the White House and the Senate, and a very slim majority for either side in the House of Representatives, we can expect tax legislation in the coming year. It is expected that the President elect will likely seek to enact his economic agenda as quickly as possible. While Congress may work for bipartisan support of any such legislation, Congressional Republicans and the Administration have the ability to utilize the filibuster-proof budget reconciliation rules (that eliminate the need for 60 votes in the Senate) to pass such tax legislation. We understand that the advance preparation and work for a 2025 reconciliation bill began in Republican Leadership offices over the summer and will continue through the end of the year.

Key to the current discussions of tax policy are provisions from the 2017 Tax Cuts and Jobs Act (the “TCJA”), a large overhaul of the Internal Revenue Code during President Trump’s first term. The TCJA instituted many significant changes to U.S. tax laws, including cutting the corporate rate, lowering individual income tax rates, and introducing a new deduction for passthrough income. However, due to various reasons, including the arcana of procedural rules of Congress associated with the “reconciliation” procedures, many of these provisions were temporary and scheduled to expire at the end of 2025. Exactly which provisions are to be extended, which to be modified, which to be abandoned and how to budget for each of these provisions, is expected to be a part of the legislative agenda next year. It is important to note that, among certain other items, the reduced corporate tax rate enacted in the TCJA is not scheduled to expire.

The most significant expiring provisions of the TCJA are set forth below.

II. Expiring Provisions

A. Changes to non-corporate tax rates, credits, deductions, exemptions and exclusions

The most significant expiring provisions, at least from a political perspective, are the provisions providing significant adjustments to the various tax rates, credits, deductions and similar provisions mostly applicable to individuals, resulting in a broad-scale reversion to the pre-2017 regime for individual taxpayers. The key changes are the following, generally coming into effect in 2026, if not extended or modified:

  • The lower individual income tax rates in the TCJA will expire, and the top marginal rate will go from 37% to 39.6%;
  • The estate and gift tax exclusion amount will be cut in half to $5 million and then adjusted for inflation, so the estate tax exemption will go from approximately $14 million in 2025 to approximately $7 million in 2026;
  • The standard deduction will revert to pre-TCJA levels (almost half the current standard deduction), although the personal exemption amount (which was set to zero under the TCJA) will return to pre-TCJA levels as well;
  • The deduction for miscellaneous itemized expenses, including unreimbursed employee expenses and tax preparation fees will return, and taxpayers will be able to deduct miscellaneous itemized expenses above 2% of adjusted gross income (“AGI”);
  • The phasing-out of itemized deductions for high income taxpayers will return;
  • The TCJA’s cap on the deductibility of state and local tax will expire, so taxpayers will be able to deduct all state and local income taxes (or sales taxes, if selected by the taxpayer) and property taxes—this may be celebrated by higher-income taxpayers in high tax states, but much of the benefit could be tempered by the return of broader scope of the alternative minimum tax discussed immediately below;
  • The alternative minimum tax (the “AMT”), which under the TCJA was limited to a small number of taxpayers, will return to its pre-TCJA form (which applied to a much larger group of individual taxpayers);
  • The deduction limit for cash charitable deductions will revert to 50% of AGI (as compared the current limit of 60% of AGI);
  • The child tax credit will be cut in half so that the maximum credit is $1,000 per child, the refundable portion of the credit will decline from $1,400 to $1,000, and other various adjustments will apply; and
  • The broader mortgage interest exemption available under the pre-TCJA regime will return.

B. Employment-related provisions

Certain employment-related provisions will also expire, and many pre-TCJA rules will return, generally in 2026, if not extended or modified. The most significant changes are the following:

  • The Work Opportunity Tax Credit, which provides a credit to employers who hire members of certain groups, such as veterans, recipients of various federal welfare benefit programs, and residents of empowerment zones, would expire;
  • Employers who pay wages to employees on family and medical leave are generally eligible currently for a credit for a percentage of 12 weeks of paid leave wages—this credit would expire;
  • The deductibility of employer-provided meal expenses, currently limited to 50 percent of the meal expense, will be eliminated; and
  • The suspension of the exclusion for employer reimbursements for moving expenses for persons other than certain members of the armed services, will be lifted, at which point taxpayers will be able once again to exclude from income qualifying moving expense reimbursements received from an employer.

C. Various business provisions

Multiple provisions designed to create tax benefits or tax reductions for certain business operations or activities are also amongst the set of expiring or changing provisions. Among the key provisions that will change, generally in 2026, if not extended or modified are the following:

  • The TCJA introduced the qualified business income deduction for 20% of qualified passthrough income, excluding specified service trade or business income, and ordinary REIT dividends—this deduction would expire, so passthrough income and ordinary REIT dividends will be taxed at ordinary income rates with no deduction;
  • The TCJA’s bonus depreciation allowance will continue to decline over the next few years: only a 40% immediate deduction in 2025, 20% in 2026, and no bonus depreciation after 2026 (with some exceptions);
  • The special “opportunity zone” rules—whereby taxpayers could defer capital gains if the gains are reinvested in such an opportunity zone and exclude capital gains income after a 10-year holding period—will expire. Similarly, the empowerment zone program’s tax benefits and the New Markets Tax Credit will also expire.

D. International tax provisions

The TCJA also made some significant revisions to the international and cross-border tax rules, many of which will have changes that will automatically trigger in 2025 or 2026. The most material are:

  • The “base erosion and anti-abuse tax” (the “BEAT”) minimum tax rate will increase to 12.5% (from 10%) and the calculation of the modified income tax (on which the BEAT minimum tax rate applies) will be adjusted to eliminate the taxpayer’s ability to benefit from certain tax credits;
  • The deductions applicable to global intangible low-taxed income (“GILTI”) inclusions for corporations will be reduced (resulting in an increase in the amount of tax imposed on such inclusions)—the deductions for most income will drop from 50% to 37.5%;
  • The deduction on “foreign derived intangible income” (“FDII”) will drop from 37.5% to 21.875%; and
  • The oft extended “look through” rule (which did not originate in the TCJA) for dividends, interest, rents and royalties received by a controlled foreign corporation from another related controlled foreign corporation is set to expire.

As one can imagine on reading this long list of expiring tax provisions (and not even taking account the many more minor provisions also set to expire or change which are not included above), the likelihood of a new tax bill to address these provisions is high. Given the nature of the Congressional rules around reconciliation and the nature of budget and tax negotiations, attempts to extend many of these provisions would likely involve the addition of new revenue-raising provisions. As such, the prospects of tax reform in 2025 are high. Proskauer closely monitors legislative developments, and additional tax blog posts will be made as specific tax proposals are moved through Congress.

© 2024 Proskauer Rose LLP.
For more on Tax Legislation, visit the NLR Tax section

What Happened: Policy and Politics

Baseline: The future of the Inflation Reduction Act (IRA), signed in 2022 to boost US clean energy with new tax incentives, hangs in the balance. President-elect Trump and some Republicans in Congress have threatened to repeal all or part of it because they don’t agree with the policy, and they need the revenue savings to offset their 2017 Tax Cuts and Jobs Act (TCJA) extensions. The processing of a tax bill next year provides a rare opening for taxpayers who are dissatisfied with the IRA or with the Biden administration tax regulations which implement the IRA.

Pulse Check: Much depends on whether Republicans gain control of both chambers of Congress, enabling them to tap into the vaunted congressional budget reconciliation process and easing their path to legislative change.

What to Monitor: Expect IRA supporters to spend time educating administration officials and congressional offices about the valuable economic and other benefits provided by these tax provisions, particularly in GOP-represented congressional districts and states. Meanwhile, industries from biofuels to hydropower are lobbying for new tax credits in the 2025 tax bill, aiming to secure a place in the complex tax landscape that lies ahead.

Voters delivered a sweeping victory to Donald Trump on Tuesday, setting him up to be the 47th President, and the first since Grover Cleveland in 1892 to be elected to a second non-consecutive term. After a surprise electoral college victory in 2016 and a narrow defeat in 2020, Trump won an outright majority of the national popular vote, the first Republican to do so since George W. Bush in 2004. While his victory helped propel a pickup of at least four Senate seats, wresting back control of the chamber from Democrats, the fate of the House remains uncertain pending the counting of outstanding California mail ballots that could drag out for a week or more.

The victory was driven by disproportionate gains among key demographics and subgroups that will become clear as the dust settles, but the overall pattern was unmistakable: Trump made significant gains coast-to-coast, in urban, suburban, and rural areas, and among virtually every cohort of the electorate. His improvement in the key battlegrounds was actually dwarfed by his gains in the nation’s bluest states, with double-digit swings in places like New York, Maryland and California. In addition to avenging his 2020 loss, the President-elect can now credibly claim a popular mandate for his policies, and quite possibly the congressional majorities to pursue them legislatively.

The restoration of President-elect Trump represents a return to 2016-17, with many of the same conditions seen seven years ago: the potential for a unified Republican government, and a clear commitment from the new administration to roll back the regulatory agenda of the previous administration and institute “America-first” policies when it comes to energy, immigration and trade. The key difference is that while the outcome of the 2016 election caught even the Trump apparatus flat-footed, preparations for President-elect Trump’s second term have been underway for the past three years. Expect a second Trump administration to be savvier and more focused in carrying out its goals, installing key personnel, and implementing policy.

The expectation is that strong policy decisions are ready for implementation on Inauguration Day through Executive Orders that will clearly lay out the regulatory and policy framework for rescinding and replacing the Biden administration agenda. Examination of the Inflation Reduction Act and Infrastructure Investment and Jobs Act mechanisms will certainly occur. President-elect Trump has made clear his intentions to leverage American foreign policy through trade and tariffs rather than military means. Particularly in the energy space, President-elect Trump has pledged a return to American energy dominance backed by a foundation and focus on leveraging domestic traditional energy resources. As observed in his first term, separating campaign rhetoric from implanted policy will continue to be a critical exercise. It is a guarantee that President-elect Trump intends to staff up quickly with political loyalists who have experience in navigating the proclivities of both a Trump administration and Washington bureaucracy, one that he has yet again pledged to dismantle.

President-elect Trump re-assumes the White House with a certain Republican majority in the US Senate and a likely slim majority in the US House of Representatives, providing the ability to implement legislative initiatives while ensuring a full swath of Cabinet-level and senior-level appointees. Legislative action will be necessary for targeting provisions of the Inflation Reduction Act, and while the notion of full repeal exists in rhetoric, it is more likely that Republicans use a more precise approach, preserving legacy provisions that tend to benefit traditional energy sources and targeting those that are more renewable energy focused. However, the slim majorities in each chamber complicate the full breadth of legislation that Republicans can expect to implement. The focus in the early days of Congress will be on the aforementioned Senate confirmation process and resolutions of disapproval under the Congressional Review Act to repeal Biden administration regulations finalized in the last 60 days of the previous Congress, which are both likely to be comfortable party-aligned exercises. The tools of congressional oversight will be trained on assisting the Trump administration in implementing regulatory changes and building a record toward federal agency reforms – such as permitting, federal workforce, and agency re-organization.

© 2024 Bracewell LLP
For more on the 2024 General Election, visit the NLR Election Law Legislative News section

IRS Announces 2025 Retirement Plan Limits

The Internal Revenue Service (“IRS”) has announced the following dollar limits applicable to tax-qualified plans for 2025:

  • The limit on the maximum amount of elective contributions that a person may make to a 401(k) plan, a 403(b) tax-sheltered annuity, or a 457(b) eligible deferred compensation plan increased from $23,000 to $23,500.
  • The limit on “catch-up contributions” to a 401(k) plan, a 403(b) tax-sheltered annuity, or a 457(b) eligible deferred compensation plan for persons age 50 and older is unchanged for 2025 at $7,500.
  • As a result of change made by SECURE 2.0, for 2025, employees aged 60, 61, 62, and 63 who participate in a 401(k) plan, a 403(b) tax-sheltered annuity, or a 457(b) eligible deferred compensation have a higher catch-up contribution limit, which for 2025 is $11,250 instead of $7,500.
  • The dollar limit on the maximum permissible allocation under 401(k) and other defined contribution plans is increased from $69,000 to $70,000.
  • The maximum annual benefit under a defined benefit plan is increased from $275,000 to $280,000.
  • The maximum amount of annual compensation that may be taken into account on behalf of any participant under a qualified plan will go from $345,000 to $350,000.
  • The dollar amount used to identify “highly compensated employees” is increased from $155,000 to $160,000.

Additional information regarding benefit plan dollar limits can be obtained in Notice 2024-80, 2025 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living.

© 2024 Blank Rome LLP
For more on the IRS, visit the NLR Tax section

2025 Inflation-Adjusted Plan Limits

On Nov. 1, 2024, the IRS published its annual cost of living adjustments for various retirement plan limits. These increases are more modest than recent years, a reflection that inflation is slowing. The updated key retirement plan limits include the following items:

2025 Limit 2024 Limit
Annual Compensation Limit $350,000 $345,000
Elective Deferral Limit $23,500 $23,000
Standard Age 50 Catch-Up Contribution Limit $7,500 $7,500
Age 60-63 Special Catch-Up Contribution Limit* $11,250 N/A
DC Maximum Contribution Limit $70,000 $69,000
DB Maximum Benefit Limit $280,000 $275,000
HCE Threshold $160,000 $155,000

*Note, this is a new provision under the SECURE 2.0 Act.

The IRS previously released the updated 2025 limits applicable to certain health and welfare plans, including the following key limits:

2025 Limit 2024 Limit
Health FSA – Maximum contributions $3,300 $3,200
Health FSA – Maximum carryover of unused amounts (optional plan provision) $660 $640
HSA – maximum contributions $4,300 (self-only)

$8,550 (family)

 $4,150 (self-only)

$8,300 (family)
HDHP – Minimum Deductible $1,650 (self-only)

$3,300 (family)

 $1,600 (self-only)

$3,200 (family)
HDHP – Maximum Out of Pocket $8,300 (self-only)

$16,600 (family)

 $8,050 (self-only)

$16,100 (family)
© 2024 Miller, Canfield, Paddock and Stone PLC
For more on Plan Limits, visit the NLR Estates Trusts section.

IRS Issues FAQs Regarding Long-Term Part-Time Employees in 403(b) Plans

The IRS recently issued Notice 2024-73, which provides much-needed guidance on long-term, part-time (“LTPT”) employees in ERISA-governed 403(b) retirement plans. Following passage of the SECURE 2.0 Act, an employee is generally considered a LTPT employee if he or she works at least 500 hours per year for two consecutive years.

Among other items, the Notice sets forth the IRS position on the following key issues on which the benefits community has been seeking clarification:

  • A part-time employee who qualifies as a LTPT employee must have the right to make elective deferrals to an ERISA 403(b) plan (unless some other statutory exemption applies), notwithstanding the Tax Code’s permitted exclusion for employees who normally work less than 20 hours per week.
  • An ERISA 403(b) plan may continue to exclude from the plan part-time employees who do not qualify as LTPT employees, notwithstanding the “consistency requirement,” which generally prevents a plan from excluding some part-time employees and not others.
  • An ERISA 403(b) plan is not required to provide the right to make elective deferrals to certain student employees, even if they qualify as LTPT employees. This is because the student employee exclusion is based on an employee classification (a student performing the service), rather than an amount of service (not an hours-based exclusion).

The guidance in the Notice is effective for plan years beginning after December 31, 2024. Importantly, the Notice also provides that a previously promulgated proposed regulation relating to the handling of LTPT employees in 401(k) plans, once finalized, will apply no earlier than plan years beginning on or after January 1, 2026 (i.e., a two-year extension).

© 2024 Miller, Canfield, Paddock and Stone PLC
For more on Long-Term Part-Time Employees, visit the NLR Labor Employment section.