The Case for Negative Discretion in a “Written Binding Contract” for Purposes of Section 162(m)

Post by
February 5, 2018

Code section 162 of the Internal Revenue Code allows companies a deduction of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.  This includes a deduction for reasonable compensation for personal services actually rendered.  However, Code section 162(m) limits the deduction of any publicly held corporation to $1 million with respect to compensation paid to a “covered employee,” subject to certain exceptions.  Section 13601 of Public Law 115-67, better known as the Tax Cuts and Jobs Act (the “Act”), amended Code section 162(m) in three critical ways:

  1. Prior to amendment, Code section 162(m) contained exceptions to the $1 million deduction limitation for qualified performance-based compensation and commissions.  
Read More

IRS Issues Guidance on Withholding Changes Made by Tax Reform

In the wake of changes made by the tax reform law (commonly referred to as the Tax Cuts and Jobs Act) to an employer’s withholding obligations, the IRS is working to update its forms and procedures to reflect those changes.  Yesterday, the IRS issued Notice 2018-14 to communicate its progress and provide transition relief in areas that it has not finished updating to reflect the changes in law, including Forms W-4 and application of the withholding rules personal exemptions.

Expiration of Exempt Forms W-4

Employees furnish Form W-4 to employers to claim withholding allowances, or to claim an exemption from income tax withholding. … Read More

New Form 1042 Instructions Shift Reporting Obligations for QDDs

Post by
January 18, 2018

The IRS recently released new Form 1042 instructions (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons), including changes to reporting for a withholding agent that is a qualified intermediary (QI) acting as a qualified derivative dealer (QDD).  As discussed in an earlier blog post, the QDD regime was developed to mitigate cascading withholding that would occur as a result of the withholding requirements imposed on dividend equivalents, pursuant to Code section 871(m).

The Form 1042 instructions appear to respond to comments received after draft 2017 Form 1120-F instructions were released last October that required the reporting of QDD liabilities on the Form 1120-F (U.S.… Read More

IRS Releases Withholding Guidance

Post by
January 11, 2018

Earlier today, the IRS released new percentage method withholding tables for 2018 implementing the changes to major withholding provisions following the enactment of tax reform legislation.  In the revised Notice 1036, the IRS provided new withholding tables utilizing the value of personal exemptions that would have existed in the absence of tax reform and the existing withholding allowances claimed on employer’s Forms W-4.  The guidance also adjusts the amounts that must be added to a nonresident aliens’ wages to determine the proper amount of withholding.

In addition, the guidance sets the rates for optional flat-rate withholding on supplemental wages below $1,000,000 at 22%, mandatory flat-rate withholding on supplemental wages on $1,000,000 and above at 37%, and backup withholding at 24%. … Read More

IRS Delays New Withholding Requirement for Dispositions of Publicly Traded Partnership Interests

Post by
December 29, 2017

In response to public comments, the IRS today issued Notice 2018-08 that delays indefinitely withholding under new Code section 1446(f) with respect to dispositions of certain publicly traded partnerships.  Section 13501 of the enacted tax reform bill added a new Code section 1446(f) to impose a 10% withholding requirement on the amount of gain treated as effectively connected income under new Code section 864(c)(8).  (See earlier coverage here.)  Code section 864(c)(8) treats a portion of the gain or loss on the sale or exchange of a partnership interest by a foreign person as effectively connected income if that partnership is engaged in a U.S.… Read More

IRS Withholding Guidance Expected in January

Post by
December 26, 2017

In a news release, the IRS today announced that it anticipates issuing initial withholding guidance to implement the changes under the tax reform bill in January 2018.  Employers and payroll service providers are encouraged to implement the changes in February.  In the release, the IRS indicated that the withholding guidance will work with the existing Forms W-4 that employees have already provided to their employers.  Until guidance is issued, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems.… Read More

IRS Extends Due Date for Forms 1095-B and 1095-C Relating to Minimum Essential Coverage

Post by
December 22, 2017

In an early Christmas present for providers of minimum essential coverage and applicable large employers, the IRS released Notice 2018-06 today, extending the deadline for furnishing statements to individuals regarding insurance coverage provided to them for the 2017 tax year.  The deadline, which was January 31, 2018, is pushed back thirty days to March 2, 2018.  The notice also extends the good faith transition relief announced in Notices 2015-68 and 2015-87 (and extended by Notice 2016-70) to 2017 information returns.

Code sections 6055 and 6056 require providers of minimum essential coverage to file and furnish annual information returns and statements regarding the coverage they provide to both individuals and the IRS. … Read More

President Signs Tax Reform Bill into Law

Post by
December 22, 2017

The President signed the Tax Cuts and Jobs Act (the “Act”) into law this morning, nearly two months after its November 2 introduction in the House.  The Act represents the most significant revision to the tax code since 1986.  For further detail on the substance of the Bill, please see the series we released over the weekend (Part IPart II; and Part III).

Practitioners now await implementation of certain provisions of the Act by Treasury and IRS, which are both required to issue guidance in various areas.  Expect to see a steady release of regulations, notices, and other guidance to further refine the law in areas affected by the Act. … Read More

House Approves Tax Reform Bill

Post by
December 19, 2017

Today, the House voted 227-203 to approve the final version of the Tax Cuts and Jobs Act (the “Bill”), which was released December 15 by the House-Senate Conference Committee.  For further detail on the substance of the Bill, please see the series we released over the weekend (Part I; Part II; and Part III).  The vote generally followed party lines, with all Democrats, as well as twelve Republicans, voting against it.  The Senate begins debate this afternoon and is expected to approve the Bill, and most believe it will be signed into law by the President before the end of the week. … Read More

Analysis of the Final Tax Reform Bill – Part III: New Source Rules and Tax Reporting and Withholding Requirements

On December 15, the House-Senate Conference Committee released the joint explanatory statement and final legislative text (the “Final Bill”) resolving differences between the House- and Senate-passed versions of the Tax Cuts and Jobs Act (the “House Bill” and “Senate Bill,” respectively).  The provisions of the Final Bill related to health reform, equity and executive compensation, deductions and exclusions for employee meals and other fringe benefits, private retirement plan benefit, paid leave, and various reporting, withholding, and income sourcing rules, largely track the bill passed by the Senate.  Many of the changes included in the House Bill but not the Senate Bill were dropped from the Final Bill.… Read More

Next Page »