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IRS Issues Final Regulations Regarding Timing of Qualified Plan Loan Offset Amount Rollovers

The IRS recently issued final regulations relating to amendments made to Code Section 402(c) by the Tax Cuts and Jobs Act of 2017 (the ?Ç£TCJA?Ç¥).?á The TCJA provides an extended rollover period for plan loan offset amounts that are treated as distributed from a qualified plan due to (i) termination of the plan or (ii) failure to repay the loan due to the participant?ÇÖs severance from employment, each a ?Ç£qualified plan loan offset?Ç¥ (?Ç£QPLO?Ç¥).?á Although most of the general rules relating to plan loan offsets apply to QPLO amounts, the permissible rollover period is extended.?á Generally, a participant has only 60 days to contribute the loan offset amount in a tax-free rollover to another qualified retirement plan.?á However, a participant may roll over QPLO amounts into another qualified retirement plan until the due date for his or her personal income tax return for the year in which the QPLO occurred.… Continue Reading

IRS Issues Additional Guidance on Certain Coronavirus-Related Tax Credits

In a new series of FAQs, the IRS issued additional guidance on tax credits for qualified family leave wages and qualified sick leave wages provided under the Families First Coronavirus Response Act (the ?Ç£FFCRA?Ç¥). The first set of FAQs explains what amounts can be counted as qualified family leave wages for purposes of the tax credit granted for such amounts. The second set of FAQs explains how to determine the amount of qualified health plan expenses for purposes of the tax credits for qualified family leave wages and qualified sick leave wages, including how health plan expenses may be calculated for self-funded and fully insured plans, as well as how to calculate health plan expenses when an employer offers more than one health plan or other health-related benefits, such as health flexible spending accounts and health savings accounts. Links to the guidance are below, and more detailed information on the… Continue Reading

IRS Guidance on the Business Expense Deductions for Meals and Entertainment

On September 30, 2020, the IRS issued final regulations providing guidance on the business expense deductions for meals and entertainment under Section 274 of the Internal Revenue Code in light of changes made by the Tax Cuts and Jobs Act (the ?Ç£TCJA?Ç¥). The TCJA eliminated most deductions for business expenses related to entertainment, amusement, or recreational activities, but allowed taxpayers to continue to deduct certain business expenses for food and beverages, as we discussed in our prior blog post here. The final regulations (i) address the elimination of the deduction for most entertainment, amusement, or recreational activity expenses; (ii) provide guidance on what constitutes entertainment for such purposes; and (iii) address the limitation on the deduction for meal expenses. The final regulations will be effective on the date of their publication in the Federal Register, which is scheduled for October 9, 2020. Taxpayers who pay or incur business expenses for… Continue Reading

Employee Layoffs Due to COVID-19 Can Trigger Partial Retirement Plan Termination

Under current IRS guidance, when a ?Ç£significant?Ç¥ number of participants cease to be eligible to participate in a tax qualified retirement plan, such as due to involuntary terminations of employment, a partial plan termination has occurred, and the affected participants must be made 100% fully vested in their account balances. The IRS considers an involuntary reduction in the number of plan participants by more than 20% in a given plan year to be significant for that purpose. In light of the significant disruptions to many employers?ÇÖ businesses due to the COVID-19 pandemic, the question arises whether any of their workforce reductions also triggered a partial plan termination. The IRS recently issued FAQs which clarify that employees who are laid off or terminated in 2020 but are rehired by their employer by the end of 2020 will not have incurred an involuntary termination of employment for purposes of determining whether a… Continue Reading

Proposed Rule Addressing Fiduciary Duties of Prudence and Exclusive Purpose with Respect to Proxy Voting and the Exercise of Shareholder Rights

The DOL?árecently published a proposed rule (the ?Ç£Proposed Rule?Ç¥) that would amend the current investment duties regulations to provide guidance regarding how plan fiduciaries should exercise their duties of prudence and exclusive purpose with respect to proxy voting and the exercise of shareholder rights. Prior to the Proposed Rule, the DOL had addressed such fiduciary duties in sub-regulatory guidance and individual letters, which did not provide plan fiduciaries with consistent and clear guidance on how they must exercise their duties for proxy voting and other exercises of shareholder rights. Specifically, the Proposed Rule: Codifies the DOL?ÇÖs long-standing position that plan ?Ç£fiduciaries must carry out their duties prudently and solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan?Ç¥ when deciding whether, and when, to exercise shareholder rights, including the voting… Continue Reading

Extended Time to Supplement Determination Letter Applications for Amended Individually Designed Statutory Hybrid Plans

On August 24, 2020, the IRS announced that applicants that submit determination letter applications for amended individually designed statutory hybrid plans, such as cash balance plans (“Hybrid Plans“), under Rev. Proc. 2019-20 may supplement such applications through the end of the year. Under Rev. Proc. 2019-20, applicants could submit determination letter applications for Hybrid Plans during the 12-month period ending on August 31, 2020. Now, an applicant may provide additional documents or information to supplement their initial submission, if it was filed by August 31, 2020, so long as: the initial application includes the Form 5300; Form 8717, including the appropriate user fee; and Form 8821 or Form 2848, if applicable; the cover letter to the initial application indicates that the application is made pursuant to Rev. Proc. 2019-20 Amended Hybrid Plan; and the cover letter to the initial application provides an address or fax number to which the IRS… Continue Reading

May I or Must I: Questions Remain on Implementing Payroll Tax Deferral Executive Order

On Friday, August 28th, just two business days prior to the September 1st effective date of the executive order (the ?Ç£Executive Order?Ç¥) directing the Treasury Secretary to defer the withholding and payment of the employee portion of Social Security taxes otherwise due on wages paid to eligible employees for the last four months of 2020, the IRS issued Notice 2020-65 (the ?Ç£Notice?Ç¥), which provides additional guidance (discussed in the following paragraph) on implementing that tax deferral. Notably, however, the Notice did not answer two key questions for employers and employees alike: (1) is the tax deferral mandatory, and (2) who is ultimately responsible for remitting any deferred taxes to the IRS when they become due (i.e., what if an employee?ÇÖs future paycheck is insufficient to cover the deferred taxes or if the employer is unable to recoup deferred taxes from a former employee). The Executive Order permits the deferral of… Continue Reading

Increased User Fees for Certain Letter Ruling and Determination Letter Requests in 2021

The IRS recently issued Announcement 2020-14 (the ?Ç£Announcement?Ç¥), which provides notice of increased user fees for certain letter ruling and determination letter requests. The increased user fees will be included in Rev. Proc. 2021-4 and will be effective January 4, 2021. The Announcement also includes a chart showing the current user fee amounts and the increased amounts for 2021 for various types of letter ruling and determination letter requests. The Announcement is available here.

Approaching Deadline for Cash Balance Plans to Submit IRS Determination Letter Applications

Sponsors of retirement plans that use a statutory hybrid benefit formula (e.g., cash balance plans) have until August 31, 2020 to submit such plans to the IRS for a favorable determination letter. However, because ?Ç£interested parties?Ç¥ must be notified of the filing at least ten days in advance of the submission, the decision on whether to file must be made sooner (within the next week or so). Among other things, under this special determination letter cycle for cash balance plans, the IRS will review plan provisions implementing the final cash balance plan regulations. This is true even if the plan?ÇÖs cash balance formula was in place when the plan received a prior favorable determination letter. The guidance allowing for the special cycle for cash balance plans is available here.

IRS Proposed Regulations Address the Elimination of the Deduction for Certain Qualified Transportation Fringe Expenses

On June 23, 2020, the IRS released proposed regulations regarding the deduction of certain employer-provided transportation and commuting benefits to reflect changes made to Section 274 of the Internal Revenue Code by the Tax Cuts and Jobs Act (the ?Ç£TCJA?Ç¥). The TCJA eliminated deductions by employers for qualified transportation fringe (?Ç£QTF?Ç¥) expenses for amounts paid or incurred in the taxable years beginning after December 31, 2017. Key issues addressed in the proposed regulations include: (i) the amount of parking expenses that is not deductible when an employer owns or leases the parking facility; (ii) the amount of QTF expenses that is not deductible when an employer pays a third party to provide QTF benefits; (iii) the amount of certain expenses or reimbursements relating to transportation between an employee?ÇÖs residence and place of employment that is not deductible; and (iv) the application of exceptions that may allow certain QTF expenses to… Continue Reading

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