IRS Reminds Employers and Business Owners of Upcoming Filing Deadline
Forms that must be filed with the Social Security Administration due by January 31 include Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. In addition, forms to report non-employee compensation to independent contractors are also due by January 31. This includes Form 1099-MISC, Miscellaneous Income (payments to non-employees are reported in box seven of this form).
While paper forms are available, the easiest, quickest and most accurate way to file these forms is to use the IRS’s e-file system. If employers plan to file paper Forms W-2, then they should order the forms early. Automatic extensions of time to file Forms W-2 are not available and extensions will only be granted for very specific reasons.
Providing this information by January 31 enables the IRS to verify the amount of income that individuals report on their tax returns and helps prevent fraud. As such, it is important that employers carefully review the forms for accuracy.
Employers should check to make sure that their employees’ names, addresses and Social Security or individual taxpayer identification numbers are accurate. In addition, the employer should verify that his or her company’s account information on file with the Social Security Administration is current and active.
For more information visit IRS.gov and review the instructions for Forms W-2 and W-3 on the “Forms & Instructions” page.
Nonprofit Group Urges Incoming Congress to Reconsider New UBIT Rules
On November 27, the National Council of Nonprofits sent a letter to incoming Congressional tax-writing committee leaders asking them to eliminate certain provisions of the Tax Cuts and Jobs Act (TCJA) that impose new taxes on tax-exempt organizations.
The letter was addressed to incoming Senate Finance Committee Chair Chuck Grassley (R-IA) and the next expected chair of the House Ways and Means Committee, Representative Richard E. Neal (D-MA). The letter addressed a number of issues, including two unrelated business income tax (UBIT) changes from the TCJA.
The TCJA added Sec. 512(a)(7), which imposes a 21% UBIT on “certain expenses paid by an exempt organization employer for certain employee fringe benefits, including qualified transportation benefits and on-site athletic facilities.” This includes things like parking and transit passes.
The purported objective is to ensure “parity” between for-profits and nonprofits regarding qualified transportation benefits. Tim Delaney, President of the National Council of Nonprofits, and David L. Thompson, the National Council of Nonprofits’ Vice President of Public Policy, say this justification is “flawed at its core” and a “false equivalency.”
“The 2017 tax law dramatically lowered the taxes that for-profit businesses will now pay, if and when they have profits, and, as a minor reduction in the cost of the overall tax legislation, repealed the deductibility of the costs of the transportation benefits,” Delaney and Thompson wrote. “Nonprofit employers, on the other hand, never had a deduction for these expenses and, importantly, never provided transportation benefits to gain a tax deduction. Rather, nonprofits have always provided transportation benefits to attract and retain workers, while helping to reduce traffic and air pollution.”
The TCJA also added Sec. 512(a)(6), which requires exempt organizations with more than one unrelated trade or business to compute unrelated business income (UBI) and losses for each unrelated trade or business separately. Before passage of the TCJA, income and losses of multiple unrelated trades or business could be calculated together. Now, the loss in one separate business may not be used to offset gains in other businesses.
“The law does not define what constitutes a ‘separate’ trade or business, creating uncertainty about how nonprofits are supposed to document, compute, and report unrelated business income and losses,” Delaney and Thompson explain. “[T]he guidance [the Treasury Department and IRS] have provided — calling on nonprofits to sort through hundreds of possible classification codes in the North American Industry Classification System — would inject further uncertainty, complexity, and expense into an already burdensome tax regime. The new tax is unfair and unjustified; it must be repealed.”
Delaney and Thompson also asked the incoming Congressional tax-writing committee leaders to support tax-incentives aimed at increasing charitable giving, including creating a universal charitable deduction that would be available to both itemizers and nonitemizers. They also urged Congress to consider, either now or in the upcoming session, the Legacy IRA Act. The Legacy IRA Act would extend the IRA charitable rollover to allow tax-free distributions to life-income charitable gifts, such as charitable remainder trusts and charitable gift annuities. Delaney and Thompson explained, “In addition to providing resources for charitable works, the approach would promote greater retirement security for seniors to help ensure they do not outlive their resources.”
House GOP Releases Year-End Tax Plan
On November 26, House Ways and Means Committee Chairman Kevin Brady (R-TX) released a 297-page package of bills that includes technical corrections to the Tax Cuts and Jobs Act (TCJA) and renews a number of expired tax extenders. The legislation also provides incentives for retirement savings, tax relief for disaster victims and proposes various changes to the IRS.
To become law, the proposed legislation, titled the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018, would need 60 votes in the Senate and must be passed before Congress adjourns for the year. After introducing the package, Brady released a statement voicing his optimism regarding the bill’s bipartisan support.
“This broad, bipartisan package builds on the economic successes we continue to see throughout our country,” Brady said in a statement. “The policy proposals in this package have support of Republicans and Democrats in both chambers. I look forward to swift action in the House to send these measures to the Senate.”
The legislation would retroactively extend a number of tax provisions, including provisions related to alternative fuels, private mortgage insurance and the depreciation of race horses and NASCAR facilities. It also includes technical corrections to the TCJA that clarify issues with the net operating loss deduction and the deduction for qualified business income.
Some members of Congress are critical of tackling technical corrections to the TCJA in this bill, preferring instead that the corrections be part of a larger piece of legislation geared at more substantive changes to the TCJA. On Tuesday, Sen. Chris Van Hollen (D-MD) stated, “As to the overall vehicle being used as an opportunity to ‘fix’ some of the problems from the other tax bill, that’s going to require a lot larger effort.”
The proposed legislation also includes a number of changes to retirement accounts. It would allow individuals to continue to make contributions to IRAs after the age of 70½ and permit account holders to withdraw up to $7,500 from their retirement accounts in the event of a birth or adoption of a child penalty-free.
Disaster relief assistance provisions are also included in the package. The bill provides assistance to victims of natural disasters in 2018, including the California wildfires, Hurricane Florence, Hurricane Michael and the eruption of the Kilauea volcano in Hawaii.
In addition, the bill proposes a number of significant changes to the IRS. The changes include requiring the IRS to develop a customer service plan to submit to Congress, as well as a complete overhaul and reorganization of the agency by September 2020.
On Wednesday, the House Rules Committee adopted a manager’s amendment to the tax plan. The amendment, introduced by Ways and Means Committee Chairman Kevin Brady (R-TX), would eliminate the increase in unrelated business taxable income related to exempt organizations’ transportation fringe benefits and modify the rules related to business holdings of private foundations. Brady released a statement after introducing the amendment in which he stated, “We are proactively eliminating any potential uncertainty for our churches and community organizations so nothing distracts them from their core mission.”
The House originally planned to vote on the legislation on Friday, November 30. Late Thursday, however, the House announced that the vote would be delayed. The House is now expected to vote on the measure sometime the week of December 3.
Applicable Federal Rate of 3.6% for December — Rev. Rul. 2018-30; 2018-49 IRB 1 (16 November 2018)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2018. The AFR under Section 7520 for the month of December is 3.6%. The rates for November of 3.6% or October of 3.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return.