Category: Tax

Considerations For International Clients Who Intend to Buy A Home In the U.S.

Sheppard Mullin 2012

International buyers invested $82.5 billion in U.S. residential real estate (4.8% of total U.S. sales) according to the most recent survey conducted by the National Association of Realtors for the 12 month period ending with March 2012. According to that survey, the top states in the U.S. for international buyers were Florida, California, Arizona and Texas. That survey also finds that the top-five international buyers were from Canada, China, Mexico, India, and the United Kingdom and that Brazil also remains a major source of purchasers. Homes are bought in the U.S. for investment, vacation-use, temporary use for professional, educational (which could include providing a home to a child who is pursuing his or her education in the U.S.), and a myriad of other reasons.

U.S. home buying and ownership, without proper planning, can have unexpected and unintended consequences. Many international clients are not aware that ownership of a U.S. home triggers U.S. estate tax on death and a gift of the property during lifetime triggers U.S. gift tax. U.S. estate and gift tax is imposed at a rate of 40%. An individual who is neither a U.S. citizen nor domiciled in the U.S. can shelter only $60,000 of U.S. situs assets on death (i.e. assets located or deemed to be located within the U.S.). In terms of gifting, an individual who is neither a U.S. citizen nor domiciled in the U.S. can make annual exclusion gifts of $14,000 per year to anyone and can currently pass $143,000 per year to a spouse who is not a U.S. citizen free of gift tax. That is in contrast to the $5,250,000 that a U.S. citizen or domiciliary can pass free of estate tax on death or by gift during lifetime as well as unlimited transfers to a U.S. citizen spouse.

To avoid triggering U.S. estate tax on death, many international clients are counseled to take title to the home in a foreign “blocker” corporation which, if respected, is not subject to U.S. estate tax on death. This form of title has the added advantage of providing anonymity and liability protector to the shareholder . Owning a home in a foreign corporation triggers other more immediate tax concerns such as application of the corporate tax rate (up to 35%) in lieu of the preferential long-term capital gains rates on sale (up to 20%), possible imputed rental income for use of corporate property by the shareholder, loss of step-up in the income basis of the home on the death of the owner (the basis of the stock in the corporation would be adjusted but the inside basis—the home itself would not be entitled to a basis adjustment), and loss of the ability to avoid the home being reassessed for California real property tax purposes on transfer from parent to a child. In addition, a U.S. person who will inherit shares in a corporation that will either become a Controlled Foreign Corporation (CFC) or a passive foreign investment company (PFIC) faces numerous special compliance obligations and substantive tax issues as a result of the ownership of those shares. There are many other ways to take title, such as through a LLC or a trust and each option should be explored in depth to achieve the client’s objectives to the maximum extent possible. Consideration should also be given to planning aimed at avoiding a public court proceeding that would be necessary to convey title to the beneficiaries of an international client who dies holding title directly to a U.S. home.

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Investment Regulation Update – April 2013

GT Law

The Investment Regulation Update is a periodic publication providing key regulatory and compliance information relevant to broker-dealers, investment advisers, private funds, registered investment companies and their independent boards, commodity trading advisers, commodity pool operators, futures commission merchants, major swap participants, structured product sponsors and financial institutions.

This Update includes the following topics:

  • SEC Adopts Rules to Help Protect Investors from Identity Theft
  • Increased Attention to Broker-Dealer Registration in the Private Fund World
  • SEC Issues Guidance Update on Social Media Filings By Investment Companies
  • AIFMD — Effect on U.S. Fund Managers
  • SEC Announces 2013 Examination Priorities
  • Reminder — Upcoming Form PF Filing Deadline
  • Reminder — Upcoming Dodd-Frank Protocol Adherence Deadline
  • Are you a Lobbyist?
  • Recent Events

SEC Adopts Rules to Help Protect Investors from Identity Theft

On April 10, 2013, SEC Chairman Mary Jo White’s official first day on the job, the SEC, jointly with the CFTC, adopted rules and guidelines requiring broker-dealers, mutual funds, investment advisers and certain other regulated entities that meet the definition of “financial institution” or “creditor” under the Fair Credit Reporting Act (FCRA) to adopt and implement written identity theft prevention programs designed to detect, prevent and mitigate identify theft in connection with certain accounts. Rather than prescribing specific policies and procedures, the rules require entities to determine which red flags are relevant to their business and the covered accounts that they manage to allow the entities to respond and adapt to new forms of identity theft and the attendant risks as they arise. The rules also include guidelines to assist entities subject to the rules in the formulation and maintenance of the required programs, including guidelines on identifying and detecting red flags and methods for administering the program. The rules also establish special requirements for any credit and debit card issuers subject to the SEC or CFTC’s enforcement authority to assess the validity of notifications of changes of address under certain circumstances. Chairman White stated, “These rules are a common-sense response to the growing threat of identity theft to all Americans who invest, save or borrow money.” The final rules will become effective 30 days after date of publication in the Federal Register and the compliance date will be six months thereafter.

Increased Attention to Broker-Dealer Registration in the Private Fund World

The role of unregistered persons in the sale of interests in privately placed investment funds is an area of great interest for the SEC and the subject of recent enforcement actions. On March 8, 2013, the SEC filed and settled charges against a private fund manager, Ranieri Partners, LLC, one of the manager’s senior executives and an external marketing consultant regarding the consultant’s failure to register as a broker-dealer. The Ranieri Partners enforcement actions are especially interesting for two reasons: (i) there were no allegations of fraud and (ii) the private fund manager and former senior executive, in addition to the consultant, were charged.

On April 5, 2013, David Blass, the Chief Counsel to the SEC’s Division of Trading and Markets, addressed a subcommittee of the American Bar Association. His remarks have been posted on the SEC website. Mr. Blass referenced a speech by the former Director of the Division of Investment Management, who expressed concern that some participants in the private fund industry may be inappropriately claiming to rely on exemptions or interpretive guidance to avoid broker-dealer registration.

In addition, Mr. Blass noted Securities Exchange Act Rule 3a4-1’s safe harbor for certain associated persons of an issuer generally is not or cannot be used by private fund advisers. He suggested that private fund managers should consider how they raise capital and whether they are soliciting securities transactions, but he did acknowledge that a key factor in determining whether someone must register as a broker-dealer is the presence of transaction-based compensation. The Chief Counsel also raised the question of whether receiving transaction-based fees in connection with the sale of portfolio companies’ required broker-dealer registration. He suggested that private fund managers may receive fees additional to advisory fees that could require broker-dealer registration, e.g., fees for investment banking activity.

On a related note, in two recent “no-action” letters, the SEC has established fairly clear rules regarding how Internet funding network sponsors may operate without being required to register as broker-dealers. On March 26 and 28, 2013, the SEC’s Division of Trading and Markets addressed this narrow, fact-specific issue in response to requests from FundersClub Inc. and AngelList LLC seeking assurances that their online investment matchmaking activities would not result in enforcement action by the SEC. The April 10, 2013 GT Alert—SEC Clarifies Position on Unregistered Broker-Dealer Sponsors of Internet Funding Networks is availablehere.

SEC Issues Guidance Update on Social Media Filings by Investment Companies

On March 15, 2013, the SEC published guidance from the Division of Investment Management (IM Guidance) to clarify the obligations of mutual funds and other investment companies to seek review of materials posted on their social media sites. This report stems from the SEC’s awareness of many mutual funds and other investment companies unnecessarily including real-time electronic materials posted on their social media sites (interactive content) with their Financial Industry Regulatory Authority filings (FINRA). In determining whether a communication needs to be filed, the content, context, and presentation of the communication and the underlying substantive information transmitted to the social media user and consideration of any other facts and circumstances are all taken into account, such as whether the communication is merely a response to a request or inquiry from the social media user or is forwarding previously-filed content. The IM Guidance offers examples of interactive content that should or should not be filed with FINRA. The IM Guidance is the first in a series of updates to offer the SEC’s views on emerging legal issues and to provide transparency and enhance compliance with federal securities laws and regulations. You may find a link to the SEC Press Release and IM Guidance here.

On a related note, on April 2, 2013, the SEC released a report of an investigation regarding whether the use of social media to disclose nonpublic material information violates Regulation FD. The SEC has indicated that, in light of evolving communication technologies and habits, the use of social media to announce corporate developments may be acceptable; however, public companies must exercise caution and undertake careful preparation if they wish to disseminate information through non-traditional means. The April 5, 2013 GT Alert—Social Media May Satisfy Regulation FD But Not Without Risk and Preparation by Ira Rosner is available here.

AIFMD – Effect on U.S. Fund Managers

New European Union legislation that regulates alternative asset managers who manage or market funds within the EU comes into force on July 22, 2013. The Alternative Investment Fund Managers Directive (AIFMD) will have a significant impact on U.S. fund managers if they actively fundraise in Europe after July 21, 2013 (or if they manage EU-domiciled fund vehicles). Historically, U.S. private equity firms raising capital in Europe have relied on private placement regimes that essentially allowed marketing to institutions and high net worth investors. Beginning July 22, 2013, U.S. fund managers may continue to rely on private placement regimes in those EU jurisdictions that continue to operate them; however, they will now be under an obligation to meet certain reporting requirements and rules set out in the AIFMD relating to:

  • transparency and disclosure, and
  • rules in relation to the acquisition of EU portfolio companies.

The transparency and disclosure rules require, for the most part, the disclosure of information typically found in a PPM; however, additional items are likely to be required such as the disclosure of preferential terms to particular investors and level of professional indemnity cover. The rules also require reports to be made to the regulator in each jurisdiction in which the fund has been marketed. The reports will need to include audited financials, a description of the fund’s activities, details of remuneration and carried interest paid, and details of changes to material disclosures. Acquisitions of EU portfolio companies also lead to reporting obligations on purchase – an annual report – and a rule against “asset stripping” for 24 months after the acquisition of control. Firms with less than €500 million in assets under management are exempt from the reporting requirements and reverse solicitation is potentially an option, as the directive does not prevent an EU institution from contacting the U.S. fund manager, but in practice it may be difficult to apply systematically.  Fund managers may choose to register in the EU on a voluntary basis from late 2015. This will allow marketing across all EU member states on the basis of a single registration. However, registration will come with a significant compliance burden. If you plan to market in the EU after July 23, 2013, ensure that you review your marketing materials, evaluate your likely reporting obligations and consider how the portfolio company acquisition rules are likely to impact your transactions.

SEC Announces 2013 Examination Priorities

On February 21, 2013 the SEC’s National Examination Program (NEP) published its examination priorities for 2013. The examination priorities address issues market-wide, as well as issues relating to particular business models and organizations. Market-wide priorities include fraud detection and prevention, corporate governance and enterprise risk management, conflicts of interest, and technology controls.  Priorities in specific program areas include: (i) for investment advisers and investment companies, presence exams for newly registered private fund advisers, and payments by advisers and funds to entities that distribute mutual funds; (ii) for broker-dealers, sales practices and fraud, and compliance with the new market access rule; (iii)for market oversight, risk-based examinations of securities exchanges and FINRA, and order-type assessment; and (iv) for clearing and settlement, transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets, and; (iv) for clearing agencies, designated as systemically important, conduct annual examinations as required by the Dodd-Frank Act. The priority list is not exhaustive. Importantly, priorities may be adjusted throughout the year and the NEP will conduct additional examinations focused on risks, issues, and policy matters that are not addressed by the release.

Reminder—Upcoming Form PF Filing Deadline

SEC registered investment advisers who manage at least $150 million in private fund assets with a December 31st fiscal year end should be well underway in preparing their submissions for the approaching April 30, 2013 deadline. Filings must be made through the Private Fund Reporting Depository (PFRD) filing system managed by the Financial Industry Regulatory Authority (FINRA). As a reminder, advisers to three types of funds must file on Form PF: hedge funds, liquidity funds and private equity funds. Hedge funds are generally defined as a private fund that has the ability to pay a performance fee to its adviser, borrow in excess of a certain amount or sell assets short. Liquidity funds are defined as a private fund seeking to generate income by investing in short-term securities while maintaining a stable net asset value for investors. Private equity funds are defined in the negative as not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not generally provide investors with redemption rights. When classifying its funds, advisers should carefully read the fund’s offering documents and definitions on Form PF and should seek assistance of counsel. Particularly, we have seen the broad definition of hedge fund cause a fund considered a private equity fund by industry-standards to be a hedge fund for purposes of Form PF, thus subjecting the fund to more expansive reporting requirements. As is the case with filing Form ADV through IARD, the $150 Form PF filing fee is paid through the same IARD Daily Account and must be funded in advance of the filing. FINRA recently updated their PFRD System FAQs. The SEC has also posted new Form PF FAQs, which should be referred to for upcoming filings.

Reminder — Upcoming Dodd-Frank Protocol Adherence Deadline

All entities, including private funds, engaged in swap transactions must adhere to the ISDA Dodd-Frank Protocol no later than May 1, 2013 in order to engage in new swap transactions on or after May 1. Adherence to the Dodd-Frank Protocol will result in an entity’s ISDA swap documentation being amended to incorporate the business conduct rules that are applicable to swap dealers under Dodd-Frank.  Adherence to the Protocol involves filling out a questionnaire to ascertain an entity’s status under Dodd-Frank (e.g., pension plan, hedge fund and corporate end-user).  Further information on adherence to the Protocol can be obtained at ISDA’s website by clicking here.

Are you a lobbyist?

Over the last decade, many state and municipal governments have enacted new laws regarding how businesses may interact with government officials. These laws often establish new rules expanding the activities that are deemed to be “lobbying,” who is required to be registered as a lobbyist and what information must be publicly disclosed. Approximately half of the states, and countless municipalities, now define lobbying to include attempts to influence government decisions regarding procurement contracts – including contracts for investment advisors and placement agents – and impose steep penalties for companies that fail to register and disclose their “lobbying” activities and expenditures. Although some lobbying laws include exceptions for communications that occur as part of a competitive bidding process, the rules are inconsistent and not always clear. For example, although New York City’s lobbying law long included procurement lobbying, in 2010 the City’s Corporation Counsel and the City Clerk issued letters warning businesses that “activities by placement agents and other persons who attempt to influence determinations of the boards of trustees by the City’s . . . pension funds” are likely to be considered lobbying activity that requires registration and disclosure. Similarly, California’s lobbying law was expanded in 2011 to expressly include persons acting as “placement agents” in connection with investments made by California retirement systems, or otherwise seek to influence investment by local public retirement plans. Greenberg Traurig’s Investment Regulation Group, in conjunction with our Political Law Compliance team, is available to assist clients with questions regarding how to navigate increasingly complex lobby compliance laws and rules across the country and beyond. GT has a broad range of experience in advising to some of the world’s leading corporations, lobbying firms, public officials and others who seek to navigate lobbying and campaign finance laws.

Recent Events

On April 18, 2013, GT hosted the seminar, “The Far Reaching Impact of FATCA Across Borders and Across Industries” as both a webinar and live program in NY and Miami. The seminar explored the latest FATCA regulations and key intergovernmental agreements as well as their applications to a variety of industries. Click here to view the presentation.

On April 10, 2013, GT sponsored Artisan Business Group’s EB-5 Finance seminar at our NYC office. The program exposed participants to a unique alternative financing opportunity for projects that lend themselves to the EB-5 immigrant investor program and featured several GT speakers, including Steve Anapoell and Genna Garver, Co-Chair of the Investment Regulation Group, who provided a securities law update and considerations in the EB-5 area. Guest speakers included Jeff Carr from EPR, Phil Cohen from the EB-5 Resource Center, and Reid Thomas from NES Financial.

On April 2, 2013, GT co-hosted a Global Compliance seminar with Dun & Bradstreet on Foreign Corrupt Practices Act (FCPA) issues. The program included an overview of the FCPA, with a specific emphasis on the Department of Justice’s recently released Resource Guide to the FCPAand recent enforcement activities. A link to the Resource Guide can be found here.

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Internal Revenue Service (IRS) Capitalized Legal Fees Incurred by Pharmaceutical Company

 

McDermottLogo_2c_rgbIn a recently released Field Attorney Advice, the Internal Revenue Service (IRS) Office of Chief Counsel concluded that a pharmaceutical company must capitalize legal fees incurred to obtain Food and Drug Administration approval for marketing and selling generic drugs and to prevent the marketing and sale of a competing generic drug.  The IRS Office of Chief Counsel also concluded that it could impose an adjustment on audit to capitalize legal fees that the taxpayer expensed in prior years, including years closed by statute of limitations.

In a recently published Internal Revenue Service (IRS) Field Attorney Advice (FAA 20131001F, March 8, 2013), the IRS Office of Chief Counsel concluded that a pharmaceutical company must capitalize legal fees incurred to obtain U.S. Food and Drug Administration (FDA) approval for marketing and selling new generic drugs and to prevent the marketing and sale of a competing generic drug.  The IRS also concluded that the Commissioner could change the taxpayer’s method of accounting for the legal fees and impose an adjustment on audit to capitalize legal fees that the taxpayer expensed in prior years, including years closed by the statute of limitations.

NDA and ANDA

In order to market or sell a new drug in the United States, a New Drug Application (NDA) must be submitted to and approved by the FDA.  An NDA consists of clinical and nonclinical data on the drug’s safety and effectiveness, as well as a full description of the methods, facilities and quality controls employed during manufacturing and packaging.  An NDA also must disclose all the patents that cover the drug.

To market or sell a generic version of an existing FDA-approved drug, the maker of the generic drug must submit an Abbreviated New Drug Application (ANDA) for FDA approval.  An ANDA generally is not required to include preclinical and clinical trial data to establish safety and effectiveness.  Instead, an ANDA applicant must show that its generic drug is bioequivalent to an existing drug.  In addition, an ANDA applicant is required to provide certification that the ANDA will not infringe on the patent rights of a third party.  Specifically, if an applicant seeks approval prior to the expiration of patents listed by the NDA holder, then a “paragraph IV certification” must be submitted by the applicant to certify that it believes its product or the use of its product does not infringe on the third party’s patents, or that such patents are not valid or enforceable.  The first generic drug applicant that files an ANDA containing a paragraph IV certification is granted, upon approval, 180 days of marketing exclusivity.

For an ANDA with a paragraph IV certification, the applicant must send notices to the NDA holder for the referenced drug and to all patentees of record for the listed patents within 20 days of FDA notification that the ANDA is accepted for filing.  If neither the NDA holder nor the patent holders bring an infringement lawsuit against the ANDA applicant within 45 days, the FDA may approve the ANDA.  If the NDA holder or the patent holders file a patent infringement lawsuit against the ANDA applicant within 45 days, a stay prevents the FDA from approving the ANDA for up to 30 months.  If, however, the patent infringement litigation is still ongoing after the 30 months, the FDA may approve the ANDA.

The Facts

The taxpayer is a pharmaceutical company engaged in developing, manufacturing, marketing, selling and distributing generic and brand name drugs.  In the process of filing ANDAs with a paragraph IV certification, the taxpayer incurred legal fees in lawsuits filed by patent and NDA holders for patent infringement.  In addition, the taxpayer as an NDA holder incurred legal fees in a lawsuit it filed against an ANDA applicant with a paragraph IV certification to protect its right to sell its branded drug until all patents expired.  The taxpayer sought to deduct its legal fees as ordinary and necessary business expenses.

The IRS Analysis

Legal Fees Incurred in the Process of Obtaining FDA Approval of ANDAs

The IRS concluded that the legal fees incurred by the taxpayer as an ANDA applicant to defend actions for patent infringement in the process of filing the ANDA with paragraph IV certification must be capitalized under Treas. Reg. § 1.263(a)-4.  The IRS characterized the fees as incurred to facilitate the taxpayer obtaining the FDA-approved ANDAs with paragraph IV certification, which granted the applicant the right to market and sell a generic drug before the expiration of the patents covering the branded drugs, and by filing early, potentially with a 180-day exclusivity period.  As such, the IRS concluded, the fees are required to be capitalized as amounts paid to create or facilitate the creation of an intangible under Treas. Reg. § 1.263(a)-4(d)(5).  In so concluding, the IRS rejected the taxpayer’s argument that its fees did not facilitate obtaining FDA-approved ANDAs because it could have commercialized its generic drugs after the 30-month stay expired regardless of the outcome of the lawsuits.  The IRS reasoned that the filing of the ANDAs with paragraph IV certification and the defense of the patent infringement lawsuit were a part of a series of steps undertaken in pursuit of a single plan to create an intangible.

The IRS further concluded that the cost recovery of the capitalized legal fees incurred to obtain the FDA-approved ANDAs must be suspended until the FDA approves the ANDAs, and the capitalized fees must be amortized on a straight-line basis over 15 years as section 197 intangibles.

Legal Fees Incurred to Protect Its Right Against Other ANDA Applicants with Paragraph IV Certification

With respect to the legal fees incurred by the taxpayer as an NDA holder in the litigation against another ANDA applicant, the IRS characterized the fees incurred to defend the validity of the patents owned by the taxpayer as amounts paid to defend or perfect title to intangible property that are required to be capitalized under Treas. Reg. § 1.263(a)-4(d)(9).  In contrast, the fees incurred by the taxpayer in the litigation relating to determining whether valid patents have been infringed are not required to be capitalized under Treas. Reg. § 1.263(a)-4(d)(9).

The IRS further concluded that the capitalized fees incurred to protect the patents and the FDA-approved NDA must be added to the basis of the patents to be depreciated under section 167.  The cost recovery begins in the months in which the legal fees were incurred and is allocated over the remaining useful lives of the patents.

In characterizing the legal fees incurred by the taxpayer in defending the validity of its patents as costs of defending or perfecting title to intangible property, the IRS distinguished the legal fees at issue from the litigation expenses incurred by the taxpayers in defending a claim that their patents were invalid in Urquhart v. Comm’r, 215 F.2d 17 (3rd Cir. 1954).  In Urquhart, the taxpayers were participants in a joint venture that was engaged in the business of inventing and licensing patents.  The taxpayers obtained two patents involving fire-fighting equipment and, after threatening litigation against Pyrene Manufacturing Company, brought an infringement suit against a customer of Pyrene, seeking an injunction and recovery of profits and damages.  The case was dismissed, and Pyrene subsequently commenced an action against the taxpayers seeking a judgment that the taxpayers’ patents were invalid and that its own apparatus and methods did not infringe the patents.  A counterclaim was filed for an injunction against infringement, and an accounting for profits and damages.  Pyrene did not raise any questions as to title to, or ownership of, the patents and was successful in the lawsuit.  The patents held by the taxpayers were found to be invalid.  In holding that the legal fees incurred by the taxpayer were deductible as ordinary and necessary business expenses, the U.S. Court of Appeals for the Third Circuit rejected the IRS’s contention that the litigation was for the defense or protection of title.

Distinguishing the FAA from Urquhart, the IRS focused on the fact that the taxpayers in Urquhart were professional inventors engaged in the business of exploiting and licensing patents, and that Urquhart involved the taxpayers’ claims for recovering lost profits.  By emphasizing that Pyrene did not raise any issue as to title to the patents in Urquhart, the IRS seemed to ignore the fact that, like the taxpayer in the FAA, Pyrene sought a judgment on the validity of the taxpayers’ patents and that the outcome of the litigation in Urquhart also focused on the validity of the patents.

Change of Accounting Method for Legal Fees Incurred by the Taxpayer 

The IRS also concluded that the taxpayer’s treatment of its legal fess associated with each ANDA or patent as either deductible or capitalizable is a method of accounting that the Commissioner can change on an ANDA-by-ANDA or patent-by-patent basis.  The consequence of this conclusion, if valid, is that the IRS can impose on audit an adjustment to capitalize legal fees that the taxpayer deducted in prior years, including years closed by the statute of limitations.  For example, the IRS can include in the taxpayer’s gross income for the earliest year under examination an adjustment equal to the amount of the legal fees the taxpayer previously deducted, less the amount of amortization that the taxpayer properly could have taken had the taxpayer capitalized the legal fees.

A taxpayer that voluntarily changes its method of accounting, however, receives more favorable terms and conditions than a taxpayer that has its method of accounting changed by the IRS on examination.  For example, a taxpayer that changes its method of accounting voluntarily can spread the adjustment resulting from the change over four taxable years, and the first year of the adjustment is the current taxable year as opposed to the earliest open taxable year.

The publication of this FAA likely will bring the attention of examining agents to this issue.  Therefore, if a taxpayer believes it is using an improper method of accounting for legal fees (or any other item), it should carefully consider whether to voluntarily change its method of accounting before the IRS proposes to change the taxpayer’s method of accounting on examination.

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SEC Staff Meets with IRS to Discuss Tax Implications of a Floating Net Asset Value (NAV)

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SEC staff recently met with staff members of the IRS to discuss the tax implications of adopting a floating net asset value (NAV) for money market funds. The discussion centered on the tax treatment of small gains and losses for investors in money market funds, and the IRS reportedly told the SEC there is limited flexibility in interpreting current tax law. A floating NAV could require individual and institutional investors to regard every money market fund transaction as a potentially taxable event.

Investors would have to determine how to match purchases and redemptions for purposes of calculating gains, losses and share cost basis. The SEC reached out to the IRS as it continues to consider measures, including a floating NAV, to enable money market funds to better withstand severe market disruptions.

For additional discussion of money market reform, please see “SEC Debates on Money Market Reforms Continue” in our January 2013 and October 2012 updates.

Sources: John D. Hawke, Jr., Economic Consequences of Proposals to Require Money Market Funds to ‘Float’ Their NAV, SEC Comment Letter File No. 4-619, November 2, 2012; Christopher Condon and Dave Michaels, SEC Said to Discuss Floating NAV for Money Funds with IRS, Bloomberg, March 7, 2013; Joe Morris, SEC Sounding Out IRS on Floating NAV, Ignites, March 7, 2013.

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340B Drug Pricing Program Notices on Group Purchasing Organizations and Medicaid Exclusion File

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Following the recent release of new Program Notices regarding the Group Purchase Organization (GPO) prohibition and Medicaid Exclusion File, 340B participating entities should review their 340B program policies and procedures to ensure compliance with new and clarified guidance regarding GPO purchasing and dispensing of 340B drugs to Medicaid patients.

On February 7, 2013, the Health Resources and Services Administration Office of Pharmacy Affairs (OPA) issued new Program Notices related to the Group Purchasing Organization (GPO) prohibition and the Medicaid Exclusion File (the Program Notice).

GPO Prohibition 

Disproportionate Share Hospitals, children’s hospitals and freestanding cancer hospitals that participate in the 340B program are prohibited from purchasing “covered outpatient drugs” through a GPO or other group purchasing arrangement.  Covered outpatient drugs include most outpatient drugs obtained by written prescription, with the exception of vaccines and certain drugs classified as devices by the U.S. Food and Drug Administration.

Prior to the release of the new Program Notice, OPA had provided little guidance regarding the scope and enforcement of the GPO prohibition.  The Program Notice appears to have resulted from OPA concern that certain hospitals may have been routinely using outpatient GPO accounts when unable to purchase drugs at 340B prices.  With the Program Notice, OPA has now formally established policies regarding the application of the GPO prohibition to drug shortages, outpatient clinics and virtual inventory/replenishment purchasing models.

With the new Program Notice, and accompanying FAQs released subsequent to the publication of the Program Notice, OPA advises that the GPO prohibition applies even when a covered outpatient drug is not available at the 340B price due to a manufacturer shortage.  In such cases, hospitals are instructed to notify OPA of the issue, but may not obtain the drug through a GPO.

The Program Notice also provides that the GPO prohibition does not extend to certain off‑site outpatient clinics.  A hospital may use a GPO to purchase covered outpatient drugs for an off-site outpatient clinic if all of the following requirements are met:

Further, OPA establishes that a hospital may not use a GPO to purchase covered outpatient drugs for dispensing to patients through a contract pharmacy.  This guidance does not prohibit a contract pharmacy that is not owned by a hospital (which is the entity that would be subject to the GPO prohibition) from accessing GPO pricing through its own account, so long as the hospital is not involved in the pharmacy-GPO arrangement and does not benefit from the pharmacy’s GPO pricing.

  • The off-site outpatient clinic is located at a different physical address than the hospital
  • The off-site outpatient clinic is not registered in the OPA 340B database as participating in the 340B program
  • Covered outpatient drugs for the off-site outpatient clinic are purchased through a separate pharmacy wholesaler account than the hospital
  • The hospital maintains records demonstrating that drugs purchased through a GPO for the off-site outpatient clinic are not utilized by or transferred to the hospital or any off-site outpatient location registered in the OPA 340B database

Hospitals, including their outpatient sites, subject to the GPO prohibition must discontinue GPO purchasing of covered outpatient drugs before the first day of their respective 340B program eligibility, although each may continue to dispense previously purchased GPO inventory.  Those hospitals that maintain pharmacy inventory through a virtual inventory/replenishment model, in which 340B drugs are purchased based on prior dispensing to 340B-eligible patients, are also prohibited from using a GPO to purchase covered outpatient drugs.  OPA has advised that hospitals utilizing a replenishment model in “mixed use” (inpatient and outpatient) pharmacies must now account for (“accumulate”) dispensed drugs for inventory replenishment as either inpatient, 340B-eligible or outpatient non-340B.  Drugs accumulated for outpatient non-340B replenishment may only be purchased through a non-340B, non-GPO account.  In addition, a hospital may not purchase drugs on a 340B account until the 340B-eligible accumulator reaches a full package size and/or minimum order quantity.  The result is that such drugs typically must be purchased at wholesale acquisition cost (WAC) or prices individually negotiated between the hospital and manufacturer.

The new Program Notice advises that hospitals subject to the GPO prohibition that are found in violation of the prohibition may be immediately removed from the 340B program and subject to repayment to manufacturers for the period of non-compliance.  However, in a separate FAQ on the OPA website, OPA advises that it will not enforce the GPO prohibition until after April 7, 2013.  Those hospitals that are unable to meet the compliance deadline are advised to either notify OPA of non-compliance and submit a corrective action plan (such submissions will be handled on a case-by-case basis) or disenroll either the entire hospital or, if applicable, non-compliant off-campus locations, from the 340B program.

Medicaid Exclusion File

Drug manufacturers are not required to provide a 340B discount and Medicaid rebate on the same drug.  In order to prevent these “duplicate discounts,” OPA maintains the Medicaid Exclusion File.  This database lists all 340B participating entities (covered entities) and indicates whether the covered entity has elected to dispense 340B drugs to Medicaid patients (carve-in) or obtain drugs for Medicaid patients at non-340B pricing (carve-out).  Covered entities that have elected to carve-in are listed in the Medicaid Exclusion File by Medicaid billing number.

State Medicaid programs are instructed to access the Medicaid Exclusion File to ensure they do not seek manufacturer rebates from those covered entities that are listed in the database.  In the Program Notice, OPA reminds states to use the Medicaid Exclusion File to prevent duplicate discounts and to report any discrepancies between provider billing practices and the information in the database to OPA.

The Program Notice advises covered entities of a change in OPA policy regarding the timing of changes to a covered entity’s decision to carve-in or carve-out.  While changes previously could be made at any time, OPA will now only permit changes on a quarterly basis.  OPA also clarifies that a covered entity may choose to carve-in or carve-out for a subset of 340B enrolled locations, but if it does so, must obtain a separate Medicaid provider number for any eligible locations that carve-in.  Covered entities are also reminded that they must ensure their information is accurately reflected in the Medicaid Exclusion File and that they may be subject to manufacturer repayment if the database reflects that the covered entity opted to carve-out, but the covered entity has been dispensing 340B drugs to Medicaid patients.

Next Steps

340B participating hospitals subject to the GPO exclusion should review their current operations and policies and procedures to evaluate compliance with the guidance released in the new Program Notice and FAQs, with particular attention to use of GPO purchasing to obtain covered outpatient drugs that are not available at 340B pricing and for replenishment inventory.  As necessary, hospitals should cease purchasing covered outpatient drugs through a GPO and begin revising purchasing procedures to ensure compliance by April 8, 2013.

Hospitals should also evaluate current policies regarding use of GPOs at off-site outpatient clinics not registered in the OPA 340B database to determine whether such locations may be eligible to purchase covered outpatient drugs through a GPO.  Previously, many such off-site outpatient clinics were restricted to only purchasing at WAC pricing due to the GPO exclusion.  The new Program Notice makes clear that, so long as purchasing is conducted through a separate pharmacy wholesaler account (not the hospital’s), hospitals subject to the GPO exclusion can use a GPO to purchase drugs for off-campus outpatient clinics that are not registered in the OPA 340B database.  Therefore, outpatient sites now have the flexibility to purchase drugs through a GPO for those clinics that are not yet eligible for 340B enrollment (e.g., they have not yet appeared on a filed Medicare cost report) and to opt-out of enrolling off-site outpatient clinic sites if certain locations would see greater benefit from GPO purchasing than from 340B participation.  Further, hospitals may wish to explore opportunities for selective enrollment of off-site outpatient locations to ensure patient access to certain drugs, such as intravenous immunoglobulin, that have historically been difficult to obtain at 340B pricing and cost-prohibitive to obtain at WAC.

All covered entities should review their information in the Medicaid Exclusion File to ensure the database reflects current Medicaid billing practices and be aware that any changes will only be effective as of the next quarter beginning January 1, April 1, July 1 or October 1.  Covered entities should also use this opportunity to review state Medicaid program requirements regarding carve-in or carve-out restrictions and billing rules related to 340B drugs.

© 2013 McDermott Will & Emery

DOL, IRS, and HHS Put the Brakes on Stand-Alone Health Reimbursement Arrangements Used to Access Health Insurance Coverage in the Individual Market

The National Law Review recently featured an article regarding Health Reimbursement Arrangements written by Alden J. Bianchi and Gary E. Bacher of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.:

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In a set of Frequently Asked Questions1 (FAQs) posted to the Department of Labor’s website on January 24, the Departments of Health and Human Services, Labor, and Treasury (the “Departments”) put a stop to an approach to health plan design under which employers furnish employees with a pre-determined dollar amount (a “defined contribution”) that employees can apply toward the purchase of health insurance coverage in the individual health insurance market.

An arrangement under which an employer provides an amount of money to employees to pay for unreimbursed medical expenses or for individual market premiums is itself a “group health plan.” Such an arrangement is referred to and regulated under the Internal Revenue Code as a “health reimbursement arrangement” or “HRA.”2 The HRA approach described above is referred to as a “stand-alone HRA” to distinguish it from arrangements in which the HRA is paired with an employer’s group health plan. This latter HRA design is referred to as an “integrated HRA.”

The rules governing HRAs stand in contrast to cafeteria plans and medical flexible spending arrangements, which pave the way for employee contributions to be paid with pre-tax dollars. Where employee contributions are limited to premiums, the cafeteria plan is referred to colloquially as a “premium-only” plan. Where employees can set aside their own money to pay for certain medical expenses including co-pays and co-insurance with pre-tax dollars, the arrangement is referred to as a “medical flexible spending arrangement” or “medical FSA.” Medical FSAs can include employer money (typically in the form of “flex credits”), but they cannot be used to pay health insurance premiums.

While some vendors have begun to market stand-alone HRAs, it was never clear that HRAs used to access individual market coverage could pass muster under the Patient Protection and Affordable Care Act (the “Act”) or other applicable laws. The regulatory hurdles, both before and after 2014, include the following:

  1. Before 2014, carriers issuing coverage in the individual market are free to impose all manner of underwriting conditions, which raise the specter of discrimination based on health status in violation of Title I of the Health Insurance Portability and Accountability Act (HIPAA). These concerns disappear commencing in 2014 as a consequence of the Act’s comprehensive overhaul of health insurance underwriting practices.
  2. The Act generally prohibits group health plans and health insurance carriers from imposing lifetime or annual limits on the dollar value of essential health benefits. In prior guidance, the regulators gave a “pass” to integrated HRAs, but not to stand-alone HRAs.
  3. Because individual market products are age rated, the same coverage will cost more in the hands of an older employee than in the hands of a similarly-situated younger employee. Before 2014, the variations in premium costs are a matter of state law; from and after 2014, the Act establishes a federal floor under “modified community rating” rules that permit a disparity of no more than 3:1. Under either regulatory regime, a flat dollar amount is thought to raise questions under the Age Discrimination in Employment Act (ADEA). Under the ADEA, variations in premiums are permitted only where the added cost charged to an older employee is justified by the actuarially-adjusted cost of providing the benefits to the older employee.

The FAQs cite the Act’s ban on lifetime and annual limits as the basis for their objection to stand-alone HRAs used to access individual market coverage. Specifically, the FAQs note that—

“[A]n HRA is not considered integrated with primary health coverage offered by the employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage provided by the employer. …”

The Departments state their objections unequivocally: an HRA used to purchase coverage in the individual market cannot be considered integrated with that individual market coverage. Therefore, such an arrangement does not satisfy the requirements Act prohibiting group health plans and health insurance carriers from imposing lifetime or annual limits on essential health benefits. The Departments also made clear that an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in that coverage. Thus, if an HRA credits additional amounts to an individual only when he or she does not enroll in the employer’s group health plan, the HRA will not comply with the Act.

Recognizing the potential hardship to existing stand-alone HRAs, the FAQs include a special rule for amounts credited or made available under HRAs in effect prior to January 1, 2014. Whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014 may be used after December 31, 2013 to reimburse medical expenses without running afoul of the Act. If the HRA did not prescribe a set amount or amounts to be credited during 2013, then the amounts credited cannot exceed the amount credited for 2012.

©1994-2013 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

District Court Holds IRS Lacks Authority to Issue and Enforce Tax Return Preparer Regulations

The National Law Review recently featured an article, District Court Holds IRS Lacks Authority to Issue and Enforce Tax Return Preparer Regulations, written by Gale E. Chan and Robin L. Greenhouse with McDermott Will & Emery:

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On January 18, 2013, the District Court for the District of Columbia (District Court) issued a surprising decision in Loving v. Internal Revenue Service, No. 12-385 (JEB), holding that the Internal Revenue Service (IRS) lacked the authority to issue and enforce the final Circular 230 tax return preparer regulations that were issued in 2011 (Regulations).  The District Court also permanently enjoined the IRS from enforcing the Regulations.

Background

As part of the IRS’s initiative to increase oversight of the tax return preparer industry by creating uniform and high ethical standards of conduct, the IRS created a new category of preparers, “registered tax return preparer,” to be subject to the rules of Circular 230.  Attorneys, certified public accountants, enrolled agents and enrolled actuaries were already subject to IRS regulation under Circular 230, and thus, were not affected by the issuance of the Regulations.

In June 2011, the IRS and the U.S. Department of the Treasury (Treasury) issued the Regulations relating to registered tax return preparers and practice before the IRS.  T.D. 9527 (June 3, 2011).  Under these rules, registered tax return preparers have a limited right to practice before the IRS.  A registered tax return preparer can prepare and sign tax returns, claims for refunds and other documents for submission to the IRS.  A registered tax return preparer who signs the return may represent taxpayers before revenue agents and IRS customer service representatives (or similar officers or employees of the IRS) during an examination, but the registered tax return preparer cannot represent the taxpayer before IRS appeals officers, revenue officers, counsel or similar officers or employees of the IRS.  In addition, a registered tax return preparer can only advise a taxpayer as necessary to prepare a tax return, claim for refund or other document intended to be submitted to the IRS.

The Regulations also impose additional examination and continuing education requirements on registered tax return preparers in addition to obtaining a preparer tax identification number (PTIN).  Under the rules, to become a “registered tax return preparer,” an individual must be 18 years old, possess a current and valid PTIN, pass a one-time competency examination, and pass a federal tax compliance check and a background check.  The Regulations require a registered tax return preparer to renew his or her PTIN annually and to pay the requisite user fee.  To renew a PTIN, a registered tax return preparer must also complete a minimum of 15 hours of continuing education credit each year that includes two hours of ethics or professional conduct, three hours of federal tax law updates and 10 hours of federal tax law topics.

Loving v. Internal Revenue Service

In Loving, three individual paid tax return preparers (Plaintiffs) filed suit against the IRS, the Commissioner of Internal Revenue and the United States (collectively, Government) seeking declaratory relief, arguing that tax return preparers whose only “appearance” before the IRS is the preparation of tax returns cannot be regulated by the IRS, and injunctive relief, requesting the court to permanently enjoin the IRS from enforcing the Regulations.  In filed declarations, two of the Plaintiffs indicated that they would likely close their tax businesses if they were forced to comply with the Regulations, and the third Plaintiff, who serves low-income clients, indicated that she would have to increase her prices if forced to comply with the Regulations, likely resulting in a loss of customers.  The Plaintiffs and the Government each filed separate motions for summary judgment.

At issue in the case was the IRS’s claim that it can regulate individuals who practice before it, including tax return preparers.  The IRS relied on an 1884 statute, 31 U.S.C. § 330, which provides the Treasury with the authority to regulate the people who practice before it.  The statute currently provides that the Treasury may “regulate the practice of representatives of persons before the Department of the Treasury.”  31 U.S.C. § 330(a)(1) (emphasis added).  The statute further requires that a representative demonstrate certain characteristics prior to being admitted as a representative to practice, including “competency to advise and assist persons in presenting their cases.”  31 U.S.C. § 330(a)(2)(D) (emphasis added).  The statute also gives the Treasury authority to suspend or disbar a representative from practice before the Treasury in certain circumstances, as well as to impose a monetary penalty.  31 U.S.C. § 330(b).

The District Court’s Application of Chevron

The District Court applied the framework of Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), and concluded that the text and context of 31 U.S.C. § 330 unambiguously foreclosed the IRS’s interpretation of the statute.  Chevron applies a two-step inquiry to determine whether a statute is ambiguous.  The first step asks whether the intent of Congress is clear in the statute—i.e., has Congress “directly spoken to the precise question at issue.”  Chevron, 467 U.S. at 842.  If a court determines that the intent of Congress is clear, under the Chevron framework, that is the end and the court “must give effect to the unambiguously expressed intent of Congress.”  Id. at 842–43.  However, if the court determines that the statute is silent or ambiguous, the court must proceed to step two of Chevron and ask whether the agency’s interpretation “is based on a permissible construction of the statute.”  Id. at 843.  An agency’s construction under step two is permissible “unless it is arbitrary or capricious in substance, or manifestly contrary to the statute.”  Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704, 711 (2011) (citation omitted).

In Loving, the District Court concluded that 31 U.S.C. § 330 was unambiguous as to whether tax return preparers are “representatives” who “practice” before the IRS for three reasons.  First, the District Court stated that 31 U.S.C. § 330(a)(2)(D) defines the phrase “practice of representatives” in a way that does not cover tax return preparers.  As noted above, 31 U.S.C. § 330(a)(2)(D) requires a representative to demonstrate that he or she is competent to advise and assist taxpayers in presenting their “cases.”  The District Court stated that the statute thus equates “practice” with advising and assisting with the presentation of a case, which the filing of a tax return is not.  Thus, the District Court concluded that the definition in 31 U.S.C. § 330(a)(2)(D) “makes sense only in connection with those who assist taxpayers in the examination and appeals stages of the process.”

Second, the District Court stated that the IRS’s interpretation of 31 U.S.C. § 330 would undercut various statutory penalties in the Internal Revenue Code (Code) specifically applicable to tax return preparers.  The District Court noted that if 31 U.S.C. § 330(b) is interpreted as authorizing the IRS to penalize tax return preparers under the statute, the statutory penalty provisions in the Code specific to tax return preparers would be displaced, thereby allowing the IRS to penalize tax return preparers more broadly than is permissible under the Code.  Thus, the District Court stated that the specific penalty provisions applicable to tax return preparers in the Code should not be “relegated to oblivion” and trumped by the general penalty provision of 31 U.S.C. § 330(b).

The District Court also stated that 31 U.S.C. § 330(b) does not authorize penalties on tax return preparers because Section 6103(k)(5) of the Code, which provides that the IRS may disclose certain penalties to state and local agencies that license, register or regulate tax return preparers, does not identify 31 U.S.C. § 330(b) as one of the reportable statutory penalty provisions.

Finally, the District Court stated that if the IRS’s interpretation of 31 U.S.C. § 330 is accepted, Section 7407 of the Code would be duplicative.  Section 7407 of the Code provides the IRS with the right to seek an injunction against a tax return preparer to enjoin the preparer from further preparing returns if the preparer engages in specified unlawful conduct.  This right is similar to the authority under 31 U.S.C. § 330(b) to penalize if the IRS’s interpretation of 31 U.S.C. § 330 is accepted.  Under the IRS’s interpretation of 31 U.S.C. § 330, the IRS could disbar a representative from practice before the IRS if a tax return preparer engages in the conduct described in 31 U.S.C. § 330(b) (incompetence, being disreputable, violating regulations and fraud).  Thus, the District Court noted that disbarment under 31 U.S.C. § 330(b) is wholly within the IRS’s control and would be an easier path to penalize a tax return preparer than offered by Section 7407 of the Code.  The District Court stated that under the IRS’s interpretation, the IRS likely would never utilize the remedies available under Section 7407 of the Code, thereby rendering the statute pointless.

Conclusion

The District Court granted the Plaintiffs’ motion for summary judgment, holding that the IRS lacked statutory authority to issue and enforce the Regulations against “registered tax return preparers,” and permanently enjoined the IRS from enforcing the Regulations.  The Government will likely appeal the District Court’s decision.  Nevertheless, the District Court’s decision will have a great impact on the hundreds of thousands of tax return preparers ensnared by the Regulations and the clients they serve.

© 2013 McDermott Will & Emery

Employers Can Obtain Refund for Excess FICA Tax Paid as Result of Increased Excludable Limit for Transit Benefits

The National Law Review recently published an article, Employers Can Obtain Refund for Excess FICA Tax Paid as Result of Increased Excludable Limit for Transit Benefits, written by Maureen O’Brien and Ruth Wimer, Esq., CPA with McDermott Will & Emery:

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On January 11, 2013, the Internal Revenue Service published Notice 2013-8 providing a special administrative procedure for employers with respect to 2012 transit pass benefits.  The American Taxpayer Relief Act retroactively increased the monthly transit benefit exclusion under Section 132(f)(2)(A) of the Internal Revenue Code for commuter highway vehicles or transit passes from $125 per participating employee to $240 per participating employee for the 2012 calendar year (the monthly transit benefit exclusion for parking remains at $240).  The notice addresses employers’ questions regarding the retroactive application of the increased exclusion, which can result in both decreased FICA and federal income tax liability.  Employers acting promptly, in many cases by January 31, may have less administrative burden in obtaining a benefit for themselves and their employees with respect to the retroactive increase for employer-provided transit benefits.

Background

Section 132(a)(5) of the Internal Revenue Code provides that any fringe benefit that is a qualified transportation fringe is excluded from gross income for federal income tax purposes, and the FICA rules allow for the same exclusion.  The term “qualified transportation fringe” includes (when provided by an employer to an employee) transportation in a commuter highway vehicle between home and work and any transit pass (Transit Benefits), or qualified parking.  Prior to the enactment of the American Taxpayer Relief Act (ATRA), the 2012 monthly limit for qualified parking was $240, and the monthly limit for other Transit Benefits was $125.  ATRA amended Section 132(f)(2) to increase the maximum monthly excludable amount for Transit Benefits to an amount equal to the maximum monthly excludable amount for qualified parking (i.e., $240), effective retroactively beginning on January 1, 2012.

As a result of ATRA, employers that provided Transit Benefits in excess of the pre-ATRA maximum monthly excludable amount may be able to obtain a refund of FICA amounts paid on such benefits.  Generally, corrections of overpayments of FICA tax are made when an error has been ascertained using either the adjustment process or using the refund claim process, and requires a Form 941-X to be filed for each quarter in which excess FICA taxes were reported.  (Correction of over-withheld federal income tax can not be made until after the year-end in which the over-withholding occurred.)

IRS Notice 2013-8 provides a special administrative process to obtain a refund for excess FICA tax paid as a result of the retroactive amendment on the monthly excludable limit for Transit Benefits.  To benefit from the retroactive increase in the excludable limits for Transit Benefits, the employer must have actually paid amounts for Transit Benefits in excess of the limit either from its own resources or from employee salary deferrals.

Employers that have not yet filed their fourth quarter Form 941 for 2012 must repay or reimburse their employees the over-collected FICA tax on the excess transit benefits for all four quarters of 2012 on or before filing the fourth quarter Form 941.  The employer, in reporting amounts on its fourth quarter Form 941, may then reduce the fourth quarter wages, tips and compensation reported on line 2, the taxable social security wages reported on line 5a and Medicare wages and the tips reported on line 5c by the excess transit benefits for all four quarters of 2012.  By taking advantage of this special administrative procedure, employers will avoid having to file Forms 941-X, and will also avoid having to file Forms W-2c.

Employers that have already filed the fourth quarter Form 941 must use Form 941-X to make an adjustment or claim a refund for any quarter in 2012 with regard to the overpayment of tax on the excess transit benefits after repaying or reimbursing the employees or, for refund claims, securing consents from its employees.  Similarly, employers that, on or before filing the fourth quarter Form 941, have not repaid or reimbursed some or all employees who received excess transit benefits in 2012 must use Form 941-X to make an adjustment or claim for refund with respect to the excess transit benefits provided to those employees, and must follow the normal procedures.

Employers that have not furnished 2012 Forms W-2 to their employees should take into account the increased exclusion for transit benefits in calculating the amount of wages reported in box 1, Wages, tips, other compensation; box 3, Social security wages; and box 5, Medicare wages and tips.  Employers that have repaid or reimbursed their employees for the over-collected FICA taxes prior to furnishing Form W-2 should reduce the amounts of withheld tax reported in box 4, Social security tax withheld, and box 6, Medicare tax withheld, by the amounts of the repayments or reimbursements.

In all cases, however, employers must report in box 2, Federal income tax withheld, the amount of income tax actually withheld during 2012.  The additional income tax withholding will be applied against the taxes shown on the employee’s individual income tax return (Form 1040, U.S. Individual Income Tax Return).  The same procedures are available to filers of other employment tax returns reporting FICA taxes (e.g., the related Spanish-language return or return for U.S. possessions) and to filers of employment tax returns reporting taxes under the Railroad Retirement Tax Act.

© 2013 McDermott Will & Emery

Operational and Technical Changes for FACTA Compliance – January 30 – February 1, 2013

The National Law Review is pleased to bring you information about the upcoming Global Financial Markets – Operational and Technical Changes for FACTA Compliance:

key topics

  • Assess the full implications of the finalized FATCA regulation
  • Coordinate an optimal approach to operational, infrastructural and technical changes under FATCA
  • Identify strategies to effectively manage client accounts
  • Integrate existing internal procedures with FATCA compliance
  • Understand what is expected by the IRS

key features

  • Pre-Conference Workshop on January 30, 2013 for an Additional Cost:
  • Pre-Conference Workshop: The Intergovernmental Agreements: Changing the Face of International Tax lead by JP&MF Consulting and Mopsick Tax Law LLP

event focus

FATCA is amongst the biggest topics of debate in financial institutions across the globe. The effect that it will have on these institutions cannot be underestimated and its operational impact on the existing systems is set to be both time consuming and costly. The ability to successfully align all key stakeholders, including operations, technology, risk, legal and tax, will determine the ultimate cost of FATCA compliance. Moving on from mere interpretive matters, this GFMI conference will not only address key FATCA requirements but also discuss the practical impacts of IGAs and strategies for achieving operational and infrastructural efficiency.

The Operational and Technical Changes for FATCA Compliance Conference will be a two and half day, industry focused event, specific to Senior Executives working in Banks, Insurance and Asset Management Companies. Attendees will address key FATCA requirements, while discussing the practical implications of IGAs and strategies for achieving operational and infrastructural efficiency.

Key Themes of the Operational and Technical Changes for FATCA Compliance Conference Include:

1. Challenges of FATCA regulations and prospects for the final regulation

2. Achieving operational and infrastructural efficiency

3. Coordinating existing AML/KYC procedures with FATCA compliance

4. FATCA from the FFI’s perspective 5. Beyond banking: the challenges of FATCA implementation

6. Coping with the withholding obligation under FATCA

This is not a trade show; our conference series is targeted at a focused group of senior level executives to maintain an intimate atmosphere for the delegates and speakers. Since we are not a vendor driven conference, the higher level focus allows delegates to network with their industry peers.

Operational and Technical Changes for FACTA Compliance – January 30 – February 1, 2013

The National Law Review is pleased to bring you information about the upcoming Global Financial Markets – Operational and Technical Changes for FACTA Compliance:

key topics

  • Assess the full implications of the finalized FATCA regulation
  • Coordinate an optimal approach to operational, infrastructural and technical changes under FATCA
  • Identify strategies to effectively manage client accounts
  • Integrate existing internal procedures with FATCA compliance
  • Understand what is expected by the IRS

key features

  • Pre-Conference Workshop on January 30, 2013 for an Additional Cost:
  • Pre-Conference Workshop: The Intergovernmental Agreements: Changing the Face of International Tax lead by JP&MF Consulting and Mopsick Tax Law LLP

event focus

FATCA is amongst the biggest topics of debate in financial institutions across the globe. The effect that it will have on these institutions cannot be underestimated and its operational impact on the existing systems is set to be both time consuming and costly. The ability to successfully align all key stakeholders, including operations, technology, risk, legal and tax, will determine the ultimate cost of FATCA compliance. Moving on from mere interpretive matters, this GFMI conference will not only address key FATCA requirements but also discuss the practical impacts of IGAs and strategies for achieving operational and infrastructural efficiency.

The Operational and Technical Changes for FATCA Compliance Conference will be a two and half day, industry focused event, specific to Senior Executives working in Banks, Insurance and Asset Management Companies. Attendees will address key FATCA requirements, while discussing the practical implications of IGAs and strategies for achieving operational and infrastructural efficiency.

Key Themes of the Operational and Technical Changes for FATCA Compliance Conference Include:

1. Challenges of FATCA regulations and prospects for the final regulation

2. Achieving operational and infrastructural efficiency

3. Coordinating existing AML/KYC procedures with FATCA compliance

4. FATCA from the FFI’s perspective 5. Beyond banking: the challenges of FATCA implementation

6. Coping with the withholding obligation under FATCA

This is not a trade show; our conference series is targeted at a focused group of senior level executives to maintain an intimate atmosphere for the delegates and speakers. Since we are not a vendor driven conference, the higher level focus allows delegates to network with their industry peers.