Unclaimed Property News - Delaware Offers a Carrot

by Ken Urish 11. July 2012 15:15
By virtue of its being the legal home for a large majority** of corporate America, Delaware is the big dog in the world of abandoned or unclaimed property. Policies and procedures regarding the reporting of unclaimed property are under scrutiny by state treasuries across the country because it is increasingly seen as a key resource to plug budget holes. Very understandable, since recoveries by states are literally found money. Because Delaware leads the country in unclaimed property receipts by a wide margin, it is significant that Governor Jack Markel is about to sign into law a new and alternative Voluntary Disclosure Agreement Program (“VDA”). The program is designed to be an incentive for holders to bring their reporting into compliance with Delaware’s laws, in return for a reduced look-back period. The earlier participants enroll the shorter the look-back period will be. Enrollees by 6-30-13 will be limited to a 1996 look-back period; those that wait until 6-30-14 may be eligible for a 1993 period. Delaware’s current VDA requires reporting back to 1991. Will this program increase compliance? State treasurers nationwide will be watching with great interest, as will those of us that practice in the area of unclaimed property recovery. For more details on Delaware’s new VDA, please see this state and local tax alert.     ** More than 900,000 business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 63% of the Fortune 500 (source: State of Delaware).
Categories: Tax

US Supreme Court Upholds Tax Provisions of the Patient Protection and Affordable Care Act

by Steven Sodini 9. July 2012 09:35
In a landmark 5 to 4 decision on June 28, 2012, the US Supreme Court upheld President Obama’s signature healthcare laws, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA).  Included in these controversial healthcare reform packages are a number of individual and business tax provisions, which have also been upheld by this decision. On the individual side, the PPACA increased the threshold to claim itemized deductions for unreimbursed medical expenses from 7.5% of adjusted gross income (AGI) to 10% of AGI for tax years beginning after December 31, 2012.  However, the Act provided an exception from the increased threshold for individuals who are age 65 and older before the close of the tax year.  The Act also increased the additional tax on distributions made after December 31, 2010 from health savings accounts (HSA’s) not used for qualified medical expenses from 10% to 20%. In addition, for tax years beginning after December 31, 2012, an additional .9% medicare tax is imposed on earned income (ie, wages and self-employment income) of individuals with earnings more than $200,000 (married couples filing jointly with earnings more than $250,000 and married couples filing separately with earnings more than $125,000).  Furthermore, the PPACA also imposes a 3.8% medicare contribution tax on unearned income for tax years beginning after December 31, 2012, which is imposed on the lesser of an individual’s net investment income for the tax year or their modified AGI in excess of $200,000 ($250,000 for married joint filers and $125,000 for married separate filers) (note that this additional tax is completely separate from any rate increase in the dividend tax rate that could result from the expiration of the Bush-era tax cuts on December 31, 2012).  Net investment income is defined by the PPACA as the excess of the sum of gross income less any otherwise allocable deductions from interest, dividends, annuities, royalties, and rents (unless any of these are derived in the ordinary course of a trade or business), income from any passive trade or business, and capital gains.  However, there are also important some important exceptions to the net investment income definition, including municipal bond interest, withdrawals from certain types of retirement plans, certain types of life-insurance proceeds, and income from an active trade or business.  Modified AGI (MAGI) is similar to AGI for most individuals, but can include addbacks for several above-the-line deductions, as well as withdrawals from certain types of retirement plans.  Thus, be aware that withdrawals from certain types of retirement plans can be simultaneously excluded from the definition of net investment income and added back as part of the MAGI calculation.   In addition, in the case of a gain on a home sale, which is normally excluded from taxation for most taxpayers, the gain itself could still result in a increase in the taxpayer’s MAGI, which could also end up triggering the additional 3.8% tax.  Finally, the PPACA included some miscellaneous tax provisions applicable to individuals.  The adoption credit became refundable for 2010 and 2011 (and the limit was increased to $13,360 for 2011).  The Act also subjected amounts paid for indoor tanning services after June 30, 2010 to a 10% excise tax.  In addition, Internal Revenue Code (IRC) Section 105(b) was amended to extend the exclusion from gross income for medical care reimbursements under an employer-provided accident or health plan to any employee’s child who has not reached age 27 by the end of the tax year.  The definition of child for this purpose also includes adopted children, step children, and foster children. On the business side, the PPACA created temporary IRC Section 45R, for the small employer health insurance tax credit for the tax years from 2010 through 2013, which is capped at 35% of health insurance premiums paid by small business employers (25% for small tax-exempt employers).  This credit increases to 50% for small business employers (35% for small tax-exempt employers) by 2013, but for 2014 and 2015, an employer must participate in an insurance exchange (outlined separately in the PPACA) in order to claim the credit, and the credit is scheduled to expire after 2015.  Note that other modifications and restrictions on the credit may also apply in a given tax year as well which are not discussed here. In addition, for tax years beginning after December 31, 2012, the PPACA limits contributions to health flexible spending accounts (FSA’s) to $2,500, which will be adjusted annually for inflation going forward.  The definition of medical expenses under health FSA’s was also modified after December 31, 2010 to included only prescription medications and insulin.  On June 7, 2012, the US House of Representatives approved the Health Care Cost Reduction Act of 2012, which among other things would re-expand the definition to include over-the-counter medications and would also modify the current “use it or lose it” rules for FSA’s to allow reimbursements of up to $500 of unused balances (which would then be included as income in the year of receipt).  However, it is unclear at this time whether the US Senate will take action on this legislation. Finally, the PPACA included some miscellaneous tax provisions applicable to businesses.  The PPACA allows for the establishment of a simple cafeteria plan for small businesses that meet certain criteria.  It also provides a 28% subsidy of covered prescription drug costs to employers that sponsor group health plans with drug benefits to retirees.  In addition, the HCERA also codified the “economic substance doctrine”, so that a transaction after March 30, 2010, is treated as having economic substance only if the transaction changes in a meaningful way, the taxpayer’s economic position and the taxpayer has a substantial business purpose for the transaction.  This includes a 20% penalty on most transactions that do not meet this test and a 40% penalty on all undisclosed transactions.  Furthermore, employer-sponsored healthcare coverage that exceeds a threshold amount ($10,200) is scheduled to be subject to a 40% excise tax, beginning in 2018.  Finally, for tax years beginning on or after January 1, 2011, the PPACA requires employers to report the aggregate cost of applicable employer-sponsored healthcare coverage on an employee’s Form W-2.  This reporting was optional for 2011, but although it is no longer optional for 2012, there are exceptions for small business filers.
Categories: Tax

Hiring in PA? Great! (but avoid this common compliance issue)

by Kevin McGarry 29. June 2012 09:23
  In 1997, the Commonwealth of Pennsylvania enacted Act 58, requiring all employers to report information on the employees they hired.  This legislation was created to assist The Commonwealth to locate parents who were not making their child support payments.  This system also assisted The Commonwealth to detect unemployment and workers compensation fraud overpayments.  Most employers have not continued to follow this mandate, as the quarterly unemployment tax reporting appeared to be addressing this issue.  However, The Commonwealth is actively notifying employers that this new hire reporting requirement is still required by law. Our advice to employers: when a new employee is hired, comply with this law.  A new hire form can be obtained through the Commonwealth Workforce Development System website. This is a standard form that employers need to complete and submit on behalf of a new employee, and include a copy in personnel files as you do with the W-4, I-9 and Local Certificate of Residency. You can manually prepare these forms and fax to 866-748-4473 or mail to: Commonwealth of PA, New Hire Reporting Program, P.O. Box 69400, Harrisburg, PA  17106-9400. You can also submit them via web-upload upon registering with PA CareerLink.  If you have any questions or you would like to discuss this, please give Urish Popeck a call.  
Categories: Advisory

FASB Plans To Save Some Time and $$

by Kevin McGarry 15. February 2012 16:00
  FASB is listening to its constituents. In response to feedback from respondents, FASB has put forth a proposal intended to reduce costs and simplify the guidance for testing indefinite-lived intangible assets, other than goodwill for impairment. Currently under Topic 350, Intangibles-Goodwill and Other, indefinite-lived intangible assets are required to be tested for impairment annually, or more frequently. In addition to these frequent tests, guidance for evaluating impairment indicators for long-lived tangible assets included in Topic 360, Property, Plant, and Equipment must not be ignored. However, responding to feedback, FASB decided to simplify the guidance testing. There were many concerns about the recurring cost and complexity of calculating the fair value of indefinite-lived intangible assets when the risk of impairment is unlikely. Therefore, it was suggested that the Board consider a qualitative approach or other alternative approaches for assessing indefinite-lived intangible assets for impairment. Under the proposal, Topic 350, Testing Indefinite-Lived Intangible Assets for Impairment, an organization can assess qualitative factors to determine whether performing the quantitative impairment test is necessary. This would save the organization from having to calculate the fair value of an asset unless the qualitative assessment shows that it is “more likely than not” that the asset’s fair value is less than it carrying amount. The amendments would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012, and early adoption would be permitted. For more information, see FASB’s website.
Categories: Tax