Soon, many District of Columbia employers will be subject to a new “parking cash-out” law designed to promote environmentally friendly commuting options, i.e., other than individual commutes by automobile.  At a high-level, parking cash-out laws generally require employers that provide free or subsidized parking to offer to pay employees cash in lieu of the subsidized parking if the employee uses another commuting method. Failure to satisfy the act’s requirements may result in the imposition of civil fines and penalties.

The Transportation Benefits Equity Amendment Act of 2020 (the “Act”) became effective June 24, 2020, but originally contained a funding provision that delayed its operational effect.  Similar legislation has been in place in some areas for over 20 years.  The D.C. Council has since repealed the funding provision, and we expect the Act’s requirements to take effect in mid-November 2020.  The timing of the Act’s adoption has raised some eyebrows, as many employers and employees are seeking ways for employees to commute that avoids crowded public transportation in light of the ongoing COVID-19 pandemic.

As this post discusses, the Act’s requirements pose difficult compliance questions for employers.  Guidance would be welcome in helping employers implement the Act, and will hopefully be forthcoming soon.  Employers are encouraged to consult with tax and benefits counsel as they evaluate their fringe benefit programs for compliance with the Act.
Continue Reading New D.C. Transportation Benefits Law Creates Potentially Bumpy Road for Employer Compliance

On June 23, Proposed Treasury Regulations §§ 1.274-13 and 1.274-14 were published in the Federal Register addressing the disallowance of employer deductions for the cost of providing commuting and parking benefits to employees.  The proposed regulations are a mixed bag with some clarifications being helpful and others less so.  Proposed Treasury Regulation § 1.274-13 addresses the deduction disallowance under section 274(a)(4) for the cost of qualified transportation fringe benefits (QTFs) provided under section 132(f), i.e., qualified parking, transit passes, and other tax-free commuting benefits.  Proposed Treasury Regulation § 1.274-14 addresses the deduction disallowance for employee transportation costs under section 274(l).  Both deduction disallowance provisions were adopted as part of the Tax Cuts and Jobs Act (“TCJA”), and took effect for tax years beginning after December 31, 2017.
Continue Reading Proposed Regulations Regarding TCJA Disallowance for Employee Commuting and Parking Costs a Mixed Bag

On May 28, 2020, the IRS issued Notice 2020-35, postponing deadlines for more time-sensitive actions until July 15, 2020.  Notice 2020-35 is the latest in a series of IRS notices issued since mid-March providing for delays under the authority of section 7508A due to the COVID-19 emergency declaration.  Specifically, the relief relates to employment tax returns and returns filed by employee benefit plans exempt organizations due on or after March 30, 2020, and before July 15, 2020.  The big news arising out of the notice—although certainly not broadcast by the IRS—pertains to the extension of the period for correcting errors that occurred in prior calendar years until July 15, 2020.  This extension of time until July 15, 2020, permits employers to correct errors ascertained with respect to calendar year 2016 employment taxes, which ordinarily would have to have been corrected on or before April 15, 2020—the day on which the period of limitations would otherwise have lapsed.
Continue Reading IRS Adds Employment Tax Corrections to Expanding List of Postponed Time-Sensitive Actions Due to COVID-19

UPDATE: We have provided an updated analysis of the issues surrounding the availability of Section 139.  Our original post is below.

On March 13, 2020, the President declared the COVID-19 pandemic to be an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).  The decision to declare an emergency is addressed in a letter from the President to Administration officials in which he explained that his decision to issue an emergency declaration was “based on the fact that our entire country is now facing a significant public health emergency.”
Continue Reading COVID-19 Emergency Declaration: Code Section 139 Uncertain; Leave-Sharing Policies Permitted

Holding true to its holiday tradition, the IRS yet again decided to extend the deadline by which providers of minimum essential coverage (including certain applicable large employers (“ALEs”)) must furnish information statements to individuals regarding their 2019 insurance coverage. However, due to the effective elimination of the ACA’s individual mandate penalty through the Tax Cuts and Jobs Act (“TCJA”), the IRS went one step further than in past years by allowing certain providers to forgo the individual furnishing requirement, if certain notice requirements are met instead.
Continue Reading Notice 2019-63 Delivers Relief for Providers of Minimum Essential Coverage

In May, the IRS issued a private letter ruling to an individual taxpayer regarding the deductibility of 23andMe’s at-home DNA test kits under section 213(d) of the Code, which permits the deduction of medical expenses.  In the ruling, the IRS determined that an allocable portion of the purchase price may be treated as a deductible medical expense and the taxpayer may use a medical flexible spending account to purchase the kit.

23andMe provides a DNA collection kit that is used to collect a DNA sample from an individual and to send the sample to 23andMe for genetic testing.  The sample is then tested by a third-party laboratory.  The genetic information from the test is then analyzed by 23andMe and a report is provided to the individual with results from the laboratory and general information regarding genetic health risks, carrier status, wellness, and traits. The individual may then provide the information to a healthcare provider for additional testing, diagnosis, or treatment.

The IRS determined that the health services provided by 23andMe may be deductible medical expenses based on three revenue rulings, Revenue Ruling 54-457, Revenue Ruling 71-282, and Revenue Ruling 2007-72.  Revenue Ruling 54-457 determined that an allocable share of a lump-sum fee charged by a university for medical care and other expenses is eligible for deduction under section 213(d). Revenue Ruling 71-282 holds that the fee paid for storage of medical information in a computer data bank is deductible under section 213(d). Revenue Ruling 2007-72 determined that full-body scans performed without a doctor’s recommendation and for an individual experiencing no symptoms falls within the broad definition of “diagnosis,” which encompasses determinations that a disease may or may not be present, and includes testing of changes to the function of the body that are unrelated to disease.


Continue Reading IRS Rules 23andMe’s Home DNA Kit Eligible for Partial FSA Reimbursement

In 2017, the District of Columbia passed the Universal Paid Leave Amendment Act of 2016 (the “Act”), which called for the creation of a paid-leave program for private sector employees who work in D.C. Earlier this year, the D.C. Office of Paid Family Leave adopted final regulations to implement this new paid-leave program. One of the most notable requirements implemented by the regulations is the imposition of the Act’s 0.62% payroll tax assessed on employers subject to the Act beginning today, July 1, 2019. Employers subject to the Act will have until July 31, 2019, to file the appropriate return and pay the tax without incurring a penalty.

With this upcoming deadline, employers with employees in D.C. need to determine whether they are subject to this tax, and if they are, timely report and pay the tax to avoid potential penalties.
Continue Reading D.C. Starts Collecting Taxes to Fund New Paid-Leave Program

Yesterday, the full House passed its tax reform proposal, the Tax Cuts and Jobs Act (H.R. 1), on a party-line vote, 227-205.  In addition to the headline changes to the corporate and individual tax systems, the bill would make numerous changes to various fringe benefit exclusions, employer deductions for fringe benefits and executive compensation, cross-border

Yesterday, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  Section 3307 of the Bill makes several changes to the deduction limitations under section 274 related to meals and entertainment expenses.  The Bill also expands the reach of the deduction limitations to disallow deductions for de minimis fringe benefits excluded from income under Code section 132(e), unless the employer includes such amounts in the employee’s taxable income. With respect to tax-exempt entities, section 3308 of the Bill would treat funds used to provide employees transportation fringe benefits and on-premises gyms and other athletic facilities as unrelated business taxable income.

Total Disallowance of Deductions for Entertainment Expenses.  Under Code section 274(a), a taxpayer may not deduct expenses for entertainment, amusement, or recreation (“entertainment expenses”), unless the taxpayer establishes that the item was directly related to the active conduct of the taxpayer’s business, subject to a number of exceptions in Code section 274(e) (e.g., reimbursed expenses; expenses treated as compensation to (or included in the gross income of) the recipient; recreational, social, and similar activities primarily for the benefit of employees other than highly compensated employees; entertainment sold to customers).  If the taxpayer establishes that the entertainment expenses were directly related to the active conduct of its trade or business, section 274(n) limits the deduction to 50 percent of expenses relating to entertainment, subject to a number of exceptions, many of which are the same exceptions that apply to the 100 percent disallowance under Code section 274(a) (e.g., reimbursed expenses; expenses treated as compensation to (or included in the gross income of) the recipient; recreational, social, and similar activities primarily for the benefit of employees other than highly compensated employees; entertainment sold to customer).

The Bill would amend section 274(a) to eliminate the exception for entertainment expenses directly related to the active conduct of the taxpayer’s business.  Accordingly, deductions for entertainment expenses would be fully disallowed unless one of the exceptions under Code section 274(e) applies.  The Bill would also make changes to some of the exceptions under Code section 274(e), described below.
Continue Reading Impact of Tax Cuts and Jobs Act: Part II – Deduction Disallowances for Entertainment Expenses and Certain Fringe Benefits

As college graduates struggle under the weight of larger student loan burdens, some employers have begun to offer student loan repayment benefits intended to help employees repay their loans.  In May, House Ways and Means Committee member Robert Dold (R-IL) introduced legislation that would, among other changes, amend Section 127 of the Internal Revenue Code