Tax Reform

On October 2, 2019, Treasury and the IRS issued proposed regulations relating to the repeal of section 958(b)(4) by the Tax Cuts and Jobs Act (“TCJA”).  On September 22, 2020, Treasury and the IRS issued final regulations largely following the proposed regulations, along with additional proposed regulations.
Continue Reading Regulations Addressing Section 958(b)(4) Repeal Provide Relief for U.S. Payors but Hold the Line on the Portfolio Interest Exception

The Treasury and IRS have published final regulations governing federal income tax withholding from periodic payments of deferred income made after December 31, 2020. The new regulations follow changes made by the Tax Cuts and Jobs Act of 2017 (TCJA) to the default withholding rate rules. Payors and plan administrators who hoped that the IRS would set out predictable and uniform standards will be disappointed: while the regulations remove the pre-TCJA default withholding rate, they do not replace it with a new default rate. Instead, the Commissioner of the IRS will be responsible for providing sub-regulatory guidance to determine the default rate. At least for calendar year 2021 distributions, however, there appears to be no need for payors and plan administrators to worry about the transition to a new default-rate-determination method.
Continue Reading IRS Final Regulations on Default Withholding Rates for Periodic Deferred Income Distributions: No Changes for 2021, but Future Rates Not Clarified

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

For decades, employers and employees have been effectively precluded from using two of the handiest special valuation rules—the fleet-average and vehicle cents-per-mile valuation rules—to value employees’ personal use of employer-provided vehicles.  The 1989 fringe benefit regulations imposed modest maximum vehicle values ($16,500 and $12,800, respectively, as adjusted for inflation) to limit the use of the rules, which have not kept pace with rising vehicle costs.

When the 2017 Tax Cuts and Jobs Act (“TCJA”) increased the dollar limitations on the depreciation deductions for luxury automobiles under section 280F(a), the permitted maximum value of a vehicle, when using either special valuation rule, increased to $50,000, which is adjusted for inflation beginning with calendar year 2019.  On February 5, 2020, Treasury published final regulations amending Treasury Regulation § 1.61-21 to align the increased limitations on the maximum vehicle fair market values with the TCJA changes.  Consistent with earlier guidance in proposed regulations, Notice 2019-08, and Notice 2019-34, the final regulations also provide transition rules for employers who desire to retroactively use either special value rule for 2018 or 2019, if the vehicle would have met the increased maximum value requirement in the year the vehicle was first made available to any employee of the employer.
Continue Reading New Treasury Regulations Ease Payroll Administration Related to Employer-Provided Vehicles

Today, the IRS published proposed regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes on his or her Form W-4 (Employee’s Withholding Certificate). The Form W-4 was redesigned for 2020 to reflect the TCJA changes to how income tax withholding from wages must be calculated.

The proposed regulations update existing regulations under section 3402 to reflect TCJA’s shift from relying on “withholding exemptions” to determine an employee’s income tax withholdings to the more complicated “withholding allowance” methodology that is putatively designed to neutralize the impact of other changes, such as the elimination of certain Schedule A adjustments to gross income for employees. Before settling on a final Form W-4 implementing these changes, the IRS received feedback on multiple draft form revisions that criticized the form as being complex and confusing. In addition, concerns were raised about the amount of personal information regarding an employee’s other jobs and earnings required to complete early drafts of the form. The 2020 Form W-4 addressed some of these criticisms, but still remains more complicated than the earlier form. Time will tell whether employees are able to easily adapt to the new form, or if errors in completing the form could result in employee underwithholding.

Select portions of the proposed regulations are discussed below. We will continue to update our readers on significant developments as the regulations are finalized. We discuss other effects of the TCJA elsewhere on our blog.
Continue Reading IRS Releases Proposed Regulations on the Mechanics of Income Tax Withholding

Earlier this year, the IRS issued IR-2020-09, in which it announced the launch of a new and improved Tax Withholding Estimator. The Tax Withholding Estimator (the “Estimator”) is designed to help employees adjust their federal income tax withholdings by performing a “Paycheck Checkup.”  The process also helps employees  target the refund they want by adjusting the amount of federal income tax taken out of their pay. The Estimator incorporates changes from the redesigned Form W-4, Employee’s Withholding Certificate that employees can complete and give to their employers this year. To adjust for the amount of refund desired, the Estimator features a customized refund slider that the employee can use to select a refund from a range of amounts available. Based on the refund amount selected, the Estimator will give the employee instructions on how to fill out their Form W-4 or allow the employee to download a pre-filled Form W-4 based on the Estimator’s recommendations.
Continue Reading IRS Launches New Tax Withholding Estimator

To corporations hoping for a holiday reprieve from the IRS’s narrow interpretation of the grandfathering rules included in the Tax Cut and Jobs Act (“TCJA”) amendment of section 162(m), the IRS has said “Bah… Humbug!”  To those foreign private issuers, publicly traded partnerships, and issuers of public debt hoping for relief from the expanded definition of publicly held corporation, the IRS has said the same.  On December 16, the IRS released proposed regulations addressing the changes made to section 162(m) of the Internal Revenue Code as part of TCJA, which are certain to disappoint many taxpayers.  The regulations also address the definitions of covered employee and “predecessor of a publicly held corporation,” as well as, the treatment of amounts paid by a partnership in which a publicly held corporation is a partner and director compensation. The regulations are generally proposed to apply to compensation that is otherwise deductible for taxable years beginning on or after December 20, 2019, the date of expected publication in the Federal Register. 
Continue Reading Proposed 162(m) Regulations are a “Lump of Coal”

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

Treasury Assistant Secretary for Tax Policy David Kautter attended the AICPA National Tax Conference on November 13, 2019, and commented that significant TCJA-related guidance should be expected to be released before the end of 2019.  Such guidance is likely to include proposed regulations addressing (1) federal income tax withholding under section 3402, (2) the executive compensation deduction limitation under section 162(m), and (3) computation of unrelated business taxable income (UBTI) under section 512. 
Continue Reading Significant TCJA Guidance Due Before End of Year, Kautter Says

Reminiscent of Kermit’s lament, “it’s not easy to be green,” it has not been easy to be the Form W-4 since personal exemptions were eliminated by tax reform in 2017.  Two days after unveiling its new Tax Withholding Estimator, which is discussed in our post of August 6, 2019, today the IRS released “the second early release draft” of the 2020 Form W-4.  This latest version of the 2020 Form W-4 eliminates “Allowance” from its name, so that it will now be known as the “Employee’s Withholding Certificate.”  This revision to the name is consistent with the fact that employees may no longer claim withholding allowances.  In addition, for employees claiming exemption from withholding, the new draft of the 2020 Form W-4 eliminates the line provided for claiming exemption, which had appeared on the earlier version of the 2020 draft as Line 4d.  An employee claiming exemption must write “Exempt” under Line 4(c) and complete only Step 1 (Personal Information) and Step 5 (the employee’s signature) before submitting the form to the employer.
Continue Reading IRS Releases Revised Draft 2020 Form W-4